Qihu 360 IPO Prices Above Range, Doubles in Opening Trade

Mar.30.11 | About: QIHOO 360 (QIHU)

Qihoo 360 Technology (NYSE:QIHU), a China-based Internet company providing internet and mobile security products, priced its IPO on March 29th, 2011, above the expected range at $14.5 per ADS, and has doubled in the opening trade.

Business Overview (from prospectus)

We are the No. 3 Internet company in China as measured by user base, according to a report we commissioned from iResearch. In January 2011, we had 339 million monthly active Internet users, representing a user penetration rate of 85.8% in China, according to iResearch. Recognizing security as a fundamental need of Internet and mobile users, we offer comprehensive high-quality Internet and mobile security products free of charge, providing users with secure access points to Internet activities. As a result, we have amassed a large and loyal user base, which we monetize primarily through offering online advertising and Internet value-added services.

Offering: 12.1 million ADS at $14.5 per ADS. Net proceeds of approximately $103.6 million will be used for research and development, and approximately $25.9 million for investment in and acquisition of technologies.

Lead Underwriters: UBS Investment Bank (NYSE:UBS)

Financial Highlights:

Revenues increased by 78.5% from $32.3 million in 2009 to $57.7 million in 2010...Cost of revenues decreased by 19.5% from $8.4 million in 2009 to $6.8 million in 2010...Selling and marketing expenses increased by 101.5%, from $6.3 million in 2009 to $12.6 million in 2010...Research and development expenses increased by 129.8% from $10.7 million in 2009 to $24.5 million in 2010...Net income increased by 100% from $4.2 million in 2009 to $8.5 million in 2010...

Competitors

We compete for users in the Internet security market with established anti-virus companies such as Kingsoft and Rising. According to iResearch, in January 2011, the Internet security software developed by Kingsoft and Rising had monthly active user penetration rates in China of 14.6% and 11.0%, respectively. We believe that our technological know-how, large user base and established reputation in the Internet security market provide us with significant competitive advantages. We also compete with PRC-based Internet companies that offer similar value-added and online advertising services as we do. Our primary competitor in this market is Tencent, the largest Internet value-added services provider in China. In January 2011, Tencent's QQ instant messaging software had a monthly active user penetration rate in China of 89.3%, while our 360 Safe Guard had a monthly active user penetration rate in China of 76.9%, according to iResearch.

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