Qihoo 360 Technology (QIHU) is making an impressive mark in the Chinese Internet market. The company has been reporting rapid growth in its top and bottom lines. Given the size and the growth rate of the Chinese Internet industry, it is highly likely that Qihoo will continue outperforming going forward. Let's take a look at Qihoo's recent results and see why it could outperform in the long run.
Terrific growth
Qihoo, in the fourth quarter of fiscal 2013, reported total revenue of $265 million, up 19.6% sequentially and 141.3% year-over-year. Revenue beat the company's expected range of $117.8 to $228 million. The company posted EPS of $0.40, beating the consensus estimate of $0.34.
The gross margin was 81% in the quarter, compared to 87.3% last year, while the operating expense was $155.2 million, almost double of last year. However, Qihoo is investing aggressively in the business, which is the reason behind this huge jump in the expenses. But, these investments will place it in a good position for the long run. Moreover, the company's outlook is strong. For the first quarter of fiscal 2014, the expected revenue is between $300 million and $305 million, a year-over-year increase of 98% to 101%. Looking ahead, Qihoo should be able to continue its terrific growth due to the moves that it is making.
Impressive strategies to drive growth
Qihoo's year-over-year growth is credited to its online advertising and Internet value-added services, with IVAS continuing to deliver outstanding performance. Both search and mobile monetization showed robust growth during the quarter. It delivered an increase in the mobile gaming sector, driven by a jump in paying game accounts.
The strong search monetization and the expansion of performance-based advertising on Personal Start-up Page have played a key role in the performance of the company. The year-over-year increase in revenue was driven by increased marketing expense, bandwidth cost, depreciation, and personnel related costs as the company expands its sales and marketing efforts to support search monetization and mobile Internet penetration. Simultaneously, it is strengthening its technology and product development capabilities.
Qihoo has bolstered its position as the leader in the Chinese Internet market, with its PC security products covering 95% of Chinese PC Internet users. Its active users have reached 475 million, and smartphone security solutions are covering 70% of Chinese smartphone users.
Intent on capturing more market
By the end of the previous quarter, Qihoo had approximately 1,000 games running commercially on its game platform, while the total number of games grew to approximately 1 million as compared to 700,000 in the prior quarter. Qihoo's game platform continues to attract game developers and gamers. The company's Android app store, 360 Mobile Assistant, attracted a huge number of users rapidly, and continues to lead the market.
Qihoo looks forward to making investments in product development and technology innovation, which have been playing key roles in its success. This will expand its coverage of PC and mobile Internet globally.
Qihoo is also looking to boost its market share in the algorithmic search market in China by making use of the search habits of the users. As of now, Qihoo holds a market share of 25% in search queries, which accounts for only 3% of its revenue. However, analysts expect Qihoo's market share to rise to 35% in 2016, and due to better monetization, revenue from this segment will reach at least 15% of total revenue.
Analyst
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