Qihoo 360 Q1 Earnings Preview: Should Investors Buy, Sell, Or Hold Into Earnings?

| About: QIHOO 360 (QIHU)


After beating the top and bottom lines over the past three quarters, will Qihoo 360 be able do it once again?

Many Chinese companies have reported strong earnings. Is this a telling sign for Qihoo 360?

Qihoo 360's past should give investors plenty of confidence heading into earnings on Tuesday.

Qihoo 360 (NYSE:QIHU), a leading Internet company in China, will report its first-quarter 2014 financial results on Tuesday, May 27, 2014, after the close of U.S. markets.

Following the results, a conference call will take place at 7:30 a.m. ET on May 28, 2014 (7:30 PM Beijing time on May 28, 2014). A live webcast of the conference call will be available on the investor relations section of Qihoo 360's website. The dial-in details for the conference call can be found here.

Last quarter, Qihoo released its fourth-quarter earnings and full-year results. Revenue came well ahead of expectations at $221.6M, beating estimates of $209.7M. On the bottom line, Qihoo achieved EPS of $0.70, easily beating the consensus of $0.43.

The report showed continued top-line expansion, driven by performance in online advertising, Internet value-added services as well as PC and mobile games. So how does Qihoo look heading into earnings next week?

Based on the latest trends, metrics, and reports, I believe Qihoo is well positioned to deliver another strong earnings beat. This should provide a nice catalyst for investors as shares make their way back into the triple digits. Let's take a look at the numbers that Wall Street expects.

Wall Street Expects:

  • Revenue: $228.2M
  • EPS: $0.34
  • 2014 Q2 Guidance: $270.1M

So how has the company performed with its past earnings reports? The table below shows Qihoo's top-line numbers over the past five quarters.

Qihoo Revenue History January 2013 Q4 May 2013 Q1 July 2013 Q2 October 2013 Q3 January 2014 Q4
Revenue Estimates: $93.6M $106.3M $144.1M $181.7M $209.7M
Actual Revenue: $103M $109.9M $151.7M $187.9M $221.6M
Difference: +$6.4M +$3.6M +$7.6M +$6.2M +$11.9M
Average: +$7.14M

As you can see, Qihoo has beaten the top line by an average of $7.14M over the last five quarters. Based on strong earnings results from other Chinese companies [Baidu (NASDAQ:BIDU), Vipshop (NYSE:VIPS), YY (NASDAQ:YY), etc.] who have reported thus far in the earnings season, I believe Qihoo is poised to surprise again to the upside.

While Qihoo certainly has impressed on the top line, how does the bottom line compare? Looking over the bottom-line figures ("EPS") we can see that Qihoo has also done a great job over the last couple of quarters, thanks in large part to record top-line growth.

Qihoo EPS History Q4 Q1 Q2 Q3 Q4
EPS Estimates: $0.17 $0.14 $0.26 $0.37 $0.43
EPS Results: $0.22 $0.14 $0.40 $0.47 $0.70
Difference: +0.05 0.00 +0.14 +0.10 +0.27
Average: +$0.11

After coming in line with estimates during Q1 of last year, Qihoo has stepped up its game and has handily beaten estimates for the past three quarters. In just the last three quarters, Qihoo has beaten EPS by an average of 47.8%. Looking over the last five quarters, Qihoo has beaten estimates by more than 30%.


As we can see from the graphic above, Qihoo has not only beaten expectations on both the top and bottom lines, but future EPS trends are going up as well. This signals that Qihoo's growth isn't slowing down anytime soon as the company continues to grow revenues at record levels.


The bottom line is that Qihoo has proven to shareholders that it can deliver and will likely deliver again. Investors just need to realize beforehand, if those results are already baked into the share price or not. Last quarter was a great example of this as Qihoo delivered strong results, yet shares didn't really pop on the results as shares tumbled more than 30% over the next couple of months.

Fast forward three months and shares of Qihoo are trading in double-digit territory, quite a difference from the triple digits just three months ago.

So the million dollar question remains, should investors Buy, Sell or Hold shares through Q1 earnings? While anything can happen on earnings day, I think given the 30% fall that Qihoo experienced the last two months, provides investors a great reward to risk ratio at this point.

If shares were trading up in the $115-$125 range, then I would have some cause for concern on earnings day. However, seeing as how Qihoo is currently trading at the average market multiple based on 2015 estimates, I feel investors will most likely receive a nice pop on earnings day.

Of Wall Street recommendations, the average opinion on Qihoo is a BUY, with an average price target set at $133.00. Based on today's closing price, Qihoo has more than 50% upside.

As always, I'm providing you with my track record and other particular stocks that I recommend. The link provided will show you all of my picks, how they have fared, and where I think they will be going in the near future. I think you will find my track record to be very impressive and useful.

Disclaimer: Investors are always reminded that before making any investment, you should do your own proper due diligence on any stock mentioned in this article. On that note, have a great day and as always, I look forward to hearing your thoughts or questions that you might have.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in QIHU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.