Qihoo Q2 2014: Going For A Slam Dunk

| About: QIHOO 360 (QIHU)


QIHU beat top and bottom line with Q3 guidance higher than consensus.

Strength in online advertising once again driven by mobile and search.

Expects more M&As ahead to strengthen the ecosystem.

Qihoo (NYSE:QIHU) reported Q2 '14 results in which non-GAAP EPS of $0.50 and revenue of $318m (+110% y/y) both beat consensus of $0.46 non-GAAP EPS and $309m in revenue. The company guided $360m-365m in revenue for Q3, representing a 92%-94% y/y growth, again beating consensus expectation of $357m.

A conference call will be held at 7:30am Monday morning EST, detail of the call is below.

US Toll Free Dial In:

+1 866-519-4004

International Dial In:

+65 6723 9381

Hong Kong Dial In:




A replay of the call will be available at 10:30am and dial-in for the replay is below:

International Dial In:

+61 2 8199 0299

US Dial In:

+1 646-254-3697



An easy beat

Qihoo made its Q2 '14 beat seemed so easy with consolidated revenue of $318m (+110% y/y) handily beating consensus of $309m thanks to strength in both online advertising (+89% y/y) and IVAS (+140% y/y), indicating that mobile, search and IVAS are gaining steam. Non-GAAP EPS of $0.50 was also ahead of consensus of $0.46 and the midpoint of Q3 guidance was 1% above consensus estimate.

Mobile, search and IVAS ramping up

The strength of the online advertising revenue ($171m) was mostly driven by search and mobile monetization. On the search side, total MAU of PC-based product increased 7.6% y/y to 496m with PC browser user base +5% y/y to 345m users and this may have helped Qihoo to gain incremental search traffic. In addition, average daily unique visit to the startup page increased 12% while daily clicks increased 27% y/y, indicating higher engagement trend that again may have contributed to the strength in search.

Mobile was also encouraging in that total smartphone user of Qihoo's 360 mobile security product reached 641m (+89% y/y), indicating growing adoption of Qihoo's mobile security product among the Chinese users. I continue to see Qihoo as the leading mobile security platform in China given its scale, diversified product offering and longer operating profile, and reiterate my bearish view on Cheetah Mobile (NYSE:CMCM) given its smaller scale and unproven track record in mobile monetization.

IVAS revenue of $146m (+140% y/y) continues its robust growth profile on the back of PC and mobile games which are gaining popularity among Qihoo's users, an indication of effective execution by Qihoo on cross-promotion of products within its ecosystem.

Expects more M&A ahead

Management has indicated that it intends to strengthen and expand Qihoo's ecosystem via strategic partnerships and investments in what I see as further signs of potential M&As ahead. With $400m in net cash at the end of the quarter, any acquisition could be small in nature if the company does not consider increasing leverage. Given the competitive dynamic of the industry, investors could expect another round of debt issue as Qihoo looks to beef up its ecosystem.

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