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Qihoo 360 Technology Co Ltd (NYSE:QIHU)

Q1 2014 Results Earnings Conference Call

May 28, 2014, 7:30 am ET

Executives

Helen Wu - Director of Investor Relations

Hongyi Zhou - Chairman of the Board, Chief Executive Officer, Co-Founder

Alex Xu - Co-Chief Financial Officer

Analysts

Bin Liu - Citigroup

Tian Hou - T.H. Capital

Jiong Shao - Macquarie

Eddie Leung - Merrill Lynch

Fei Fang - Goldman Sachs

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2014 Qihoo 360 Technology Company Limited earnings conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you, this conference is being recorded today, 28th of May, 2014.

I would now like to hand the conference over to your first speaker for today, Ms. Helen Wu. Please go ahead, ma'am.

Helen Wu

Thank you, operator. Welcome everyone to our first quarter 2014 earnings conference call. I am Helen Wu, Director of Investor Relations at Qihoo 360. Joining me on the call today are Mr. Hongyi Zhou, Chairman and CEO of the company, Mr. Alex Xu and Ms. Jue Yao, Co-CFOs of the company.

For today's call, management will first discuss operational and financial highlights for the first 2014, and then we will open up the call for your questions. Before we continue, I would like to refer you to our Safe Harbor statements in our earnings press release, which applies to this call, as we may make forward-looking statements.

This call also includes discussion of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures.

Finally, please note that unless otherwise stated, all financial figures mentioned during today's conference call are in U.S. dollars.

Now I would like to turn the call over to Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360.

Hongyi Zhou

Thanks, Helen. Good morning and good evening, everyone. Thank you for joining today. I am very pleased to announce that we delivered another strong quarter of financial and operational results.

During the fourth quarter, we achieved robust value growth in all of our businesses. We are particularly pleased with the better than expected ramp in mobile monetization. In the first quarter, we continued to strengthen our position in mobile security and the mobile app store. We are maintaining our leadership position in PC security and the browser.

As of the end of March, total smartphone user that the use 360 Mobile Safe, our main mobile security product, reached 538 million, up from 475 million just a few months ago and nearly doubled over the last the 12 months.

Since its launch in 2012, our search engine has gradually gained notable traffic share. At the end of March, they already took 25% search traffic in China. Our gain in search traffic was mainly driven by continued improvement in search quality and user experience as well as further leverage of the distribution core of our platform. We are confident that we can achieve 30% search traffic share goal by the end of 2014.

In addition to PC search, we are also focused on our few mobile search related products, including an all-in-one content search platform based on our industry-leading (inaudible), a completely brand new mobile browser and a brand-new mobile search app. We believe this product should help us strengthen our market position in this area.

We made significant progress in achieving our goal of becoming a major player in China's (inaudible) search market. Our own monetization system showed further improvement during this season similarly for ramp for advertising. We will continue to upgrade the monetization system to help us narrow the gap between us and the industry leader. At the same time, we continued to build out our search advertising sales network, including direct sales force and agency networks. Overall, we are very pleased with the results in search traffic and monetization.

Our game platform continues to attract game developers and the user activities under one scheme. We are pleased with the overall market and achieved robust growth in the strong game season. Our Android app store, 360 Mobile Assistant attracted the users at a rapid pace and continued to be clear leader in this market despite of the rapidly changing competitive landscape. In the first quarter, we made significant progress in monetizing our mobile app store through both advertising and mobile game, with particularly rapid ramp in mobile games revenue from app store was significant by our expectation.

Mobile monetization is an important part of all our overall business strategy and expect this trend to continue to build into the coming quarters, where market is changing rapidly and our peers are moving faster. They certainly will not sit idle.

Looking ahead, we will continue to make a significant investments to strengthen our brand in security and mobile to enhance our monetization network in product development and technology innovation and expand our coverage of PC and mobile Internet as well as cloud-based service. Our focus on user experience and product innovation has been the cornerstone of our success to-date. We will expand on our strategy to further accelerate our efforts in building a Tier 1 PC and mobile Internet platform in China.

We believe the new products and services we launched under the monetization effort we made in search and mobile Internet will enable us to stay in this fast-changing market and support our growth for coming over the long-term.

With that, I would like to hand the call over to our co-CFO, Alex Xu, you will go over the operational and financial details.

Alex Xu

Thank you, Hongyi Zhou. In the first quarter, we once again exceeded our internal target and market expectations and delivered strong financial and operational results.

Total monthly active users of Qihoo 360's PC-based products and services reached a record 479 million compared to 475 million a year ago. User penetration of our PC-based products was 93.3% compared to 95.8% a year ago.

Total smartphone users of our key mobile security product, 360 Mobile Safe, reached a record 438 million compared to 275 million a year ago. We continue to maintain a strong leadership position in the fast growing Chinese smartphone security market.

Monthly active users of our PC browser was 339 million compared to 332 million a year ago. User penetration of 360 PC Browsers was approximately 66% compared to about 70% a year ago.

Average daily unique visitors to our 360 Personal Start-up Page and its sub pages were 122 million in Q1 2014, compared to 94 million a year ago. Average daily clicks on 360 Personal Start-up Page and its sub pages were 772 million in Q1 2014, compared to 489 million a year ago.

As of the end of March, we had approximately 1,000 games commercially running on our game platform. The total number of games grew to approximately 1 million compared to 700,000 in the prior quarter.

Now let's review our financial performance for the first quarter. Revenue was $265.1 million, up 141% from Q1 2013 and up 20% from the prior quarter. The strong year-over-year growth was driven by solid performance from both online advertising and Internet value-added service, with IVAS continued to outperform. Both search and mobile monetizations ramped better than expected during the quarter. No single customer contributed 10% or more to total revenue during the quarter.

Online advertising revenue was $140 million, up 121% from Q1 2013, and essentially flat from the prior quarter. The strong year-over-year growth was mainly driven by strong search monetization and further expansion of performance-based advertising on Personal Start-up Page.

We are pleased with the progress we have made in search monetization and the trend looks very encouraging. We continue to expand our agency network and advertising customer base during the quarter. We expect our search business to continue to ramp strongly going forward. While our monetization system is still not running at the desirable efficiency level, we have made significant improvements since its launch. We intend to continue to upgrade our system to gradually narrow the monetization gap in the coming quarters.

Internet value-added service revenue, which are mainly derived from our game platform, was $124.8 million, up 172% from Q1 2013 and 58% from the prior quarter. The robust year-over-year and sequential growth was driven by strong growth in paying game accounts, the expansion our game portfolio and healthy ramp in mobile games. Within IVAS, game revenue were about $107.1 million, up 191% from Q1 2013 and up 70% from the prior quarter.

Cost of revenue was $50.4 million compared to $13.9 million in Q1 2013 and $30.2 million in the prior quarter.

Gross margin was 81% compared to 87.3% in Q1 2013 and 86.4% in the prior quarter. The year-over-year and sequential decline in gross margin was mainly due to revenue mix change and cost reallocation related to continued search monetization. GAAP operating expenses were $175.1 million compared to $89.2 million in Q1 2013 and $184.9 million in the prior quarter.

Share-based compensation was $19.9 million compared to $12 million in the Q1 2013 and $75.3 million in the prior quarter. For Q1 2014, share-based compensation in sales marketing, product development and G&A were $3.1 million, $12.3 million and $4.5 million respectively.

Non-GAAP operating expense, which excludes share-based compensation, were $155.2 million compared to $77.2 million in Q1 2013 and $109 million in the prior quarter. The year-over-year increase were mainly driven by increased marketing expense, bandwidth cost, depreciation and personnel related costs as we expand our sales and marketing efforts to support our search monetization and mobile Internet penetration while further strengthening our technology and product development capability.

Non-GAAP operating income, which excludes share-based compensation, was $59.5 million compared to $18.8 million in Q1 2013 and $84.2 million in the prior quarter. Non-GAAP operating margin was 22.5% compared to 17.1% in Q1 2013 and 38% in the prior quarter. The year-over-year non-GAAP operating margin increase was primarily due to leverage from the robust revenue growth.

GAAP net income was $49.1 million compared to $5.6 million in Q1 2013 and $16.7 million in the prior quarter. Non-GAAP net income was $73.3 million compared to $17.5 million in Q1 2013 and $96.3 million in the prior quarter.

During the quarter, we recognized a $12.3 million pretax foreign exchange loss due to the depreciation of R&D against U.S. dollar. We also took a $27.7 million pretax gain on disposal of long-term investments related to our total exiting of the Uuu9 joint venture.

Non-GAAP net margin was $27.7 million compared to $15.9 million in Q1 2013 and $43.5 million in the prior quarter.

GAAP fully diluted EPADS for Q1 2014 was $0.37. Non-GAAP fully diluted EPADS for Q1 2013 was $0.54. For EPADS calculation purpose, the GAAP and non-GAAP weighted average ADS used in computing the diluted EPS was $131.5 million.

As of March 31, 2014, our cash and cash equivalent balance was approximately $901.6 million. Net cash generated by operations in Q1 2014 was $100.5 million and cash capital expenditure was $69.5 million.

Adjusted EBITDA, which excludes share-based compensation, was $92 million in Q1 2014.

Now I would like to provide a brief business outlook. For the first quarter of 2014, we expect revenue to be between $300 million and $305 million, representing a year-over-year increase of 98% to 101% and sequential increase of 13% to 15%. Again, as a reminder, these estimates reflect our current and the preliminary view, which is subject to change to possible material changes.

Thank you. And that concludes our prepared remarks. We are happy to take your questions. In the interest of time, we ask each participant to please limit your inquiries to one question only. For any follow-up question, please go back to the queue.

With that, we will now like to open the call for your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from the line of Bin Liu from Citigroup. Please ask your question.

Bin Liu - Citigroup

Congratulations on a strong quarter. Just a question on mobile business progress. First, on the mobile parties, what is the overall mobile game market growth now? And how do you (inaudible) you continue to drive the install base of mobile games? Will you outpace the overall market at the same time this year or do you think you can roughly stabilize with the market growth rate by the end of this year?

Also another question regarding the mobile search business. That strategy to drive your mobile search business, is that related to the browser or other app related efforts inside of search. I think the mobile search product, I would like to (inaudible) overall search strategy in mobile?

[FOREIGN LANGUAGE]

Hongyi Zhou

[FOREIGN LANGUAGE]

Alex Xu

Okay. So regarding the mobile game, I think, obviously, there is a lot of industry experts are studying the industry energy and they give different numbers, but the January consensus is that the mobile game industry for this year should grow somewhere between double to triple than last year's number. That's the industry gross. And for us, you know, given the numbers we have reported and we believe we can at least grow in line with industry.

If anything, we probably should exceed industry growth rate, mainly for a couple reasons. One, because we are the leader in mobile game distribution. So that as a scale give us advantage to attract more developers and end-users on our platform. Secondly, it is about the running efficiency as well experience of running a mobile game platform. On that end, given that the last few year's accumulation, we are clearly better, judging by the feedback from our customers and our partners, we are clearly better than that most of our peers in this regard. So these elements probably will help us to grow faster than the industry average.

And Mr. Zhou would take the search question.

Hongyi Zhou

[FOREIGN LANGUAGE]

Okay. Regarding mobile search, I think, first of all, we view that mobile search and PC search are the integrated parts of our overall search efforts. So internally, we already have this two things work very closely to each other together and under the same leadership there. In terms of mobile search related products, we have launched a few and we will probably launch more in the process.

One is that about a few weeks ago, maybe about a month ago, basically we launched our complete redesign of mobile browser. That, to us, is one of the mobile search kind of entry point that is important. So we launched that about a month ago and we will use that. Use our advantage in security as well as the app store to help us to push out in getting more shares in mobile browser.

And then, the mobile search app, which a lot of people view them as essential to mobile search, we will have an official version launched pretty soon and again in all of that, that's just one of the mobile search entry point. Certainly not the only one and probably not even the most important one but nonetheless we want have one there. And then, in fact even before we launched our browser and the search app, there is one of our key products already function as a mobile search entry point, which is our mobile app store because many times when people try to mobile related content, our app store already can provide that search service, whether you search for video, music, or the other kind of content related stuff.

So that's the other entry point in our view. If anything, it is probably even more important entry point, given the app centric nature of the mobile Internet. So essentially, our mobile search strategy is a multiple channel strategy. We have the app store, the browser, the standalone search app. All three channels will put forward in parallel and at the same time continue to improve the user experience and I think at this point, we already provide a pretty good experience compared to some our peers and we will continue to improve that and eventually giving experience to win the user to our products versus our peers.

Thank you.

Operator

We have the next question from the line of Jiong Shao from Macquarie. Please ask your question.

Hongyi Zhou

Hello.

Operator

I think the person has dropped out, sir.

Hongyi Zhou

Okay.

Operator

We have the next question from Tian Hou from T.H. Capital. Please ask your question.

Tian Hou - T.H. Capital

Good evening, Zhou and Alex. The question is related to your recent acquisition of MediaV. Since MediaV is a private company, there isn't sophisticated information in the market, I wonder what's the purpose of acquiring MediaV? In which way MediaV can help Qihoo's existing business? And also, as you are adjusting the acquisition and you are going to start integration and I wonder when the help or positive impact could kick in.

[FOREIGN LANGUAGE]

Hongyi Zhou

[FOREIGN LANGUAGE]

Alex Xu

To answer your question, I think MediaV, as you know, is a precision advertising delivery platform and is pretty well known in China and they are the leader in this particular market in China. As you know, we have a significant traffic volume on a daily basis and significant available advertising inventory in our platform products, but we are lagging in monetization quite a bit. Not just in search, probably in other areas as well. But MediaV in many ways help us fix this issue.

It essentially help us to link the desirable advertisers with the desirable kind of users at a more precise way and increase overall advertising business efficiency or monetization efficiency within our ad platform there. And also, MediaV itself also can function as the ad exchange platform that is something that looks very attractive to us. So these, both help the internal monetization as well eventually open kind of platform, both of them are the main point and the main reason we look at it and we would get it.

And in terms of just like any other acquisition or integration, initially there was always a process where you need to figure out the integration issues. We need to get rid of redundancy in everything. So that process should probably take us a quarter and half, something like that. So basically, we expect the same to be running smoothly or integrate smoothly with our own advertising inventory by the later part of the third quarter. So that's where they start to show some contribution and on a full-year basis, I would say 2015, you will certainly see MediaV as a positive contributor for both the topline and the bottomline and probably margins as well.

So that's how we look at the ramp-up of the MediaV.

Tian Hou - T.H. Capital

Thank you. That's very helpful.

Operator

We have the next question from the line of Jiong Shao from Macquarie. Please ask your question.

Jiong Shao - Macquarie

Thank you for taking my question. Can you hear me this time?

Alex Xu

Yes. We can.

Jiong Shao - Macquarie

Hello. Okay. I don't know what happened earlier. Congrats on your strong growth. From what I can see, your revenue growth is accelerating, and I was wondering could we talk about some of the drivers behind it? And in Q1, was there anything probably organic and the way you provided guidance when you reported the Q4, did you include the not so organic revenue in your guidance, just so we know how much better than expected real core business you anticipated or better than you anticipated in Q1, that would be very helpful. Thank you.

[FOREIGN LANGUAGE]

Alex Xu

Jiong, thanks for your question. I think the Q1 revenue, there are very small portion of that is the so-called inorganic. From time to time, we made those small incremental investments or M&A along the process. Most of those views are very small in size, but when you have a few number of those views combined together, sometimes they combine, it can contribute a revenue to us. So in the first quarter, there are about $17 million, $18 million revenue from those kind of acquired companies. And most of these revenues are in the Internet value-added service area. I think our main growth, as well as our main strategy to drive growth will still be the organic growth and awareness driver. When we these kind of an investment or acquisition, we are not really for the purpose to our revenue, rather for the purpose to acquire technology, products and the teams. And if it happens to have some revenue associated with those technology teams and product, we just have to take it and consolidate it but really that's not only focus there. So for this small portion of the revenue, I think you basically should expect the same kind of flat throughout the year, where the reason we acquire a small business is to use those technology and those teams and products to drive our own growth in the similar areas. So that's basically how we look at acquisition and how much of that coming into the first quarter in terms of revenue. Thank you.

Operator

We have the next question from the line of Eddie Leung from Merrill Lynch. Please ask your question.

Eddie Leung - Merrill Lynch

Hi. Good evening. Thank you for taking my questions. Just two quick one. The first one is, we have been seeing the big Internet companies like Baidu, Alibaba and Tencent continue to do acquisitions. So I was just wondering, from a leading independent company, how you can think about the future Internet landscape? Is there still room for independent Internet companies to grow? So that's my first question.

And then secondly, just a housekeeping question. I wonder if Alex can talk about the daily download of your app store? Thanks.

[FOREIGN LANGUAGE]

Hongyi Zhou

[FOREIGN LANGUAGE]

Okay. So to your question, basically, yes. The big three, the BAT are in a pretty aggressive mood in marketing and branding. Given the resource that we have, the limited resource we have, there is no way we can follow their strategy. Those deals are sort of $0.5 billion to start. So we are not going to be participating in these kind of (inaudible). Our acquisition strategy we already discussed earlier. We are focused on technology and products and the small deals.

But on the other hand, we recently, Mr. Zhou sent out an internal memo to the staff of the company to basically emphasize that we need to do things that those big guys either don't see it or see it but don't pay too much attention to that. And also, all these things, we need to focus on where we are good at, where our strength is.

So one of the areas we are looking at in terms of opportunity is the enterprise security. And as you know, we have been a clear leader in personal security. We start to develop and launch enterprise security products over the course of the last few months, close to a year. And we have already built a pretty good user base or customer base

Given the current macro environment, in terms of international kind of threat in security and the across the board cyber attack as well the awareness from the national level as well as from an enterprise-level about the need for security protection, we believe this is really a kind of very important opportunity and potentially could be very sizable market, as long as we have the right solution and the right products into it. So that's the one area we are certainly looking into very carefully and very focused.

And second area is across the hardware. Of course, from our point of view, we did our secure router, we did our Wi-Fi, portable Wi-Fi and we launched all these kinds of devices, but really at its core, we want to provide our security service from online to off-line. In other words, in the past, we protect you with our PC and with our mobile products. But now we want to expand that, go into your real life, protect you.

So we will spend some resources and the team is look at this area like a smart home and smart devices and we think that there is a pretty big potential down the road there because today when you talk about mobile device, it's basically talking about smartphone. But in the future, we believe the mobile device will be diversified into all different kind of devices associated with a person. And we certainly want to lay the groundwork for that as well. Thank you.

Eddie Leung - Merrill Lynch

And Alex, just any update on the daily download number of your app store?

Alex Xu

Sorry. We don't have an official release of a number, but I remember at the beginning of this year, there was a kind of a domestic PR article mentioned that our total download on a daily basis already exceeded 100 million. That's the very beginning of this year. Now almost six months have passed, the number should be clearly much higher than that number. Thank you.

Eddie Leung - Merrill Lynch

Got that. Thanks.

Operator

We have the next question from the line of Alex Yao from JPMorgan. Please ask your question.

Alex Yao - JPMorgan

HI. It's Yuan [ph], calling for Alex. Thanks for taking my question. My question is on your strategy on the overseas market, as we see that some of your peers have launch some mobile products in the overseas market. So just wondering if you could comment on your our long-term strategy to penetrate the overseas market? Thanks.

[FOREIGN LANGUAGE]

Hongyi Zhou

[FOREIGN LANGUAGE]

Thanks for your question. In terms of global expansion, I think we start to do some global expansion efforts in the last probably 12 months and we already have a couple of products, global version products launched. One is our overall security mobile security solution. The other one is a cell phone cleanup utility there. So the product is there.

We believe, when you do the global expansion, channel is very important because you know those channel guys mostly understand the local market, probably better. That's why we formed a strategic relationship with GOMO and using their exposure in the global market, particularly launcher, to help us promote our products in those respective markets there. So that's how we do it.

And secondly, when we look at the whole global expansion thing, basically look at our overall business. I would say the overwhelming main driver of our business for the next foreseeable future growth will be still domestic, because in China you have 1.5 billion population. And if you can get these kind of users, even a small portion of these users, really active user of products, that's a tremendous opportunity already in front of us. As opposed to globally, even though you may get a big number of the users, but they may spread into different kind of products, spread into different kind of countries, it really does not give you the scale you need to run a efficient monetization.

And secondly, we also think, the business model we build domestically is really not going to be transferable to international in terms of mobile monetization. Because in China, we use our security brand through our app store to distribute the traffic and the users. While outside China, you simply don't have that sort of opportunity to launch a third-party app store against an incumbent kind of a player, like Google Play. So without that third-party app store, you can only use your utility to do the product launch. That number one is a very inefficient way to do it. Number two, particularly when this utility is a security utility or a cleanup utility, it will be very brand damaging if you use these kind of utility to promoting sort of service or pop-up windows to promote a service.

So that's something we really don't want to go. That said, I would say revenue wise, our focus will be domestic. We will though internationally focus a couple of selected countries to build a base first. For example, we have a joint venture in Brazil, which give us a leadership there in security. We also are looking at India as another country, sort of a large population country to work up. So that's the international expansion of our products.

[FOREIGN LANGUAGE]

I think also, as you know, we have our joint venture in Brazil for at least a couple of years. Our view on the international expansion is more likely long-term effort. We would not jeopardize our long-term user experience and deeper relationship with users with the short-term kind of a gain in terms of accelerated monetization and all these kind of activities. We think that may help you to make a few dollars money now but then it will probably very damaging to your long-term relationship with our users. That's certainly something we really don't want to get into. So that's another point I want to make there.

Thank you. Operator?

Operator

We have the next questions from the line of Fei Fang from Goldman Sachs. Please ask your question.

Fei Fang - Goldman Sachs

Hi. Thanks for taking my question. Let me add my congrats to your quarter. First of all, could you provide an update on the search monetization system? When do you plan to upgrade the keyword auction system? And among the key metrics that we look at, such as cost per click, click-through and commercial coverage, where are we going to see immediate upside? And also relating to that, regarding the acquisition of MediaV, after your integration, what ad format will the technology be applied to? Would you have a Uuu9 [ph] or AdSense type of affiliated products in the near-term? Thank you.

[FOREIGN LANGUAGE]

Alex Xu

Basically, for the monetization system, as we mentioned in the past, we will have a major step up type of upgrade by the end of this quarter. So with that upgrade, it will help us improve the coverage of the monetization system in terms of commercial keyword, improve the sort of the matching between the commercial and organic search results and also improve the bidding experience of our customers. With all these improvements, naturally, it will bring a higher conversion rate, higher click through rates and also higher pricing on the CPC basis at the end of that. So that's still the plan and its still pretty much on target.

We actually, internally, are looking at our search business ramp. I look at the number today, we are forecasting internally versus the number we were forecasting three months ago, we actually see a better number or higher number than three months ago. In other words, we are pretty happy with the progress or the testing result of those system in certain regions that we did.

In terms of MediaV, we look at it, it's a kind of a multiple diversified format and like I said, the first and foremost priority is to help us getting our inventory better monetized. And whether this format is AdSense or any other format, I think we don't rule out any possibility. It's just that you need to do step-by-step. So first, you need to get to help us improve the monetization efficiency.

Secondly, maybe somewhere down the road, we really make it an open kind of ad exchanged to kind of help all our partners to improve that efficiency as well. Given the fact that the MediaV is very good in terms of doing this kind of analyzing and matching, where we are good in terms of big data accumulation, so that's a pretty big part of this combination. Thank you.

Operator

Thank you, sir. We have the next question from the line of Eric Wen from China Renaissance. Please ask your question.

Eric Wen - China Renaissance

Hello, Hongyi Zhou, Alex and Helen. Thanks very much for taking my question and congratulations on the great quarter. I have a follow-up question on the enterprise security market and (inaudible). Can you give us some color on who are the major competitors? And what are the major opportunities and what achievements Qihoo has made in the recent quarters?

[FOREIGN LANGUAGE]

Hongyi Zhou

[FOREIGN LANGUAGE]

So thanks for your question. Basically, I think, from enterprise market, I think from a competitive perspective, there is really not a clear kind of dominant player in this market. Overall the trend is that, over the course of next few years, probably the domestic players will take more and more market share, given the concerns regarding the national security on this regard.

But because many of those enterprise security products are starting through the channels and the channels are very diversified, so it essentially make sort of the whole provider space become very diversified and the largest enterprise security companies in China, annual run rate is probably only about RMB500 million to RMB1 billion and it's relatively small size compared to other countries and still in very early stage. That's why we see this opportunity.

And secondly, in terms of our strengths in this area, I think a few areas. One is cloud based computing and big data and as well as our sandbox technology, in which in all these the oldest areas we are the leader in this market. And also, we recently, for example offered the (inaudible) solution and the effectiveness of preventing the attack from the apps to mobile device, we look at that measurement, it is actually very close to the industry leader like the FireEye in the U.S.

Also the product and service we are offering or tend to offer today and our solution is actually different or very little overlapping with existing players' offering. We launched innovative products to deal with the new threat to this market. In that way, we can attribute a very good partnership with all the existing players as opposed to create a lot of the competitors in this market.

And lastly, 360 is a very well-known security brand. Many of those enterprise employees and even the management has been using 360 wither in their home or in other locations. So the brand recognition can also help us significantly to penetrate the enterprise market.

[FOREIGN LANGUAGE]

One example is that, you may have heard that few weeks ago there was a third-party organized hacking contest basically to attack the XP operating system based computer assuming that after Microsoft stopped providing the service to the XP. In that contest, basically our competitor protective system was breached in just in less than two minutes, where our system withstand all the attacks throughout the day.

There is another recently internationally organized contest, a similar kind of a logic where only 360 and probably Symantec are the two reached the full score where the others, particularly the domestic guys are ranking pretty low in that contest. So in the last of many years, since we start to do cloud-based security, we have built significant experience and expertise in cloud-based security and big data analysis. Those technology and expertise can be applied to not only the personal security, but also that the enterprise security, not only to PC and mobile.

So that really give us the advantage to really build us a number one security brand in China, and even globally. Thank you.

Operator

Thank you, sir. As there are no further questions, I would now like to hand the conference back to Mr. Alex Xu, co-CFO of the company. Over to you, sir.

Alex Xu

Thank you. Thanks everyone to join us and you know, we look forward to speak to you soon in the future. Thank you. Bye.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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