Qihoo 360: China’s Internet Darling du Jour
Over the past 12 months, shares of Qihoo 360 are up more than 200%, compared with gains of about 46% at Sina Corp. (NASDAQ: SINA) and about 20% at Baidu Inc. (NASDAQ: BIDU), two other booming Chinese Internet players.
These companies do not exactly compete head-to-head in the vast Chinese market. Baidu is primarily a search provider, and Sina’s Weibo is the country’s answer to Twitter. Sina is also the country’s leading Web portal. Qihoo 360, in addition to taking a serious run at Baidu’s search business, offers a browser and Web security tools. All three depend on advertising for the largest of their revenues.
Qihoo 360, Sina and Baidu easily topped analysts estimates for second-quarter earnings and revenue, and Qihoo 360 this morning issued an outlook that estimates revenue at $181 million to $183 million in the third quarter, while the consensus estimate is around $163 million.
As in the United States, the major Chinese Web companies are focusing on gaining a leading position in the mobile market. It is here that Qihoo 360 may hold an edge. The company already derives about 40% of its revenues from services, including online gaming, and in its quarterly report noted “strong momentum” in its mobile games.
Add to that a rumored attempt to acquire Sohu.com Inc. (NASDAQ: SOHU), a Baidu competitor, that currently gets about a quarter of China’s search market. The deal fell through, but in today’s earnings report the company said that it plans to continue to invest in “product and technology development … particularly in mobile Internet and search technology where we see tremendous opportunity for future expansion.”
Shares of Qihoo 360 are up 12.3% in premarket trading at $82.00, well above the 52-week range of $20.01 to $76.00. Analysts have not been paying attention apparently. The consensus target price according to Thomson Reuters is just $53.20, a price the stock put in the rear-view mirror more than a month ago.