Why Qihoo 360 Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Qihoo 360 (Nasdaq: QIHU  ) soared by as much as 27% before closing out the day with a 17% gain after auditor Deloitte Touche Tohmatsu signed off on its books.

So what: Earlier this month, shares crashed when a Forbes article questioned the company's financials and even suggested the possibility of fraud in Qihoo's financials. Investors are all too jittery with Chinese companies nowadays, but the company had quickly responded at the time and defended itself.

Now what: The company has filed its audited annual report with the SEC, with the auditor consenting that Qihoo's financial statements fairly present the company's financial position in all material respects, helping to alleviate fears of cooked books. In light of the stamp of approval, there was probably a good amount of shorts getting squeezed out that were betting on the worst.

Interested in more info on Qihoo 360? Add it to your Watchlist.

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Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On April 19, 2012, at 6:47 PM, seasaw6499 wrote:

    Have you considered that the real reason might be "washed and matched trades" like the SEC has accused AutoChina of?

    The reason I say this is that the Qihu and the auditors admitted that the financial statements could not be relied on and were susceptible to fraud due to weaknesses and deficiencies in the internal controls for financial reporting. This would normally sink the shares.

    See page 93 of the 20F, which says:

    Item 15. CONTROLS AND PROCEDURES

    Disclosure Controls and Procedures

    Under the supervision and with the participation of our management, including Our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2011. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of December 31, 2011 were not effective solely as a result of the material weaknesses in internal control over financial reporting as described below and in “Item 3.D—Risk Factors.”

    Management’s Annual Report on Internal Control over Financial Reporting

    This annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

    Attestation Report of the Registered Public Accounting Firm

    This annual report does not include a report of an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

    Changes in Internal Controls Over Financial Reporting

    In connection with the preparation and audit of our consolidated financial statements included in this annual report, we and our independent registered public accounting firm identified one material weakness and other control deficiencies in our internal control over financial reporting, each as defined in the U.S. Public Company Accounting Oversight Board Standard AU Section 325, Communications About Control Deficiencies in an Audit of Financial Statements, or AU325, in our internal control over financial reporting as of December 31, 2011. As defined in AU325, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis, and a “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

    The material weakness identified primarily related to lack of sufficient accounting personnel with appropriate knowledge of U.S. GAAP. Following the identification of the material weakness and other control deficiencies, we have already taken or are in the process of remedying the weakness and deficiencies, including (1) hiring additional accounting personnel with understanding of U.S. GAAP and experience with SEC reporting requirements who worked at other public companies listed in the U.S., (2) providing external and internal training on U.S. GAAP to our accounting personnel, and (3) hiring additional internal audit personnel with experience working at public companies listed in the U.S. However, the process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant

    93

    --------------------------------------------------------------------------------

    Table of Contents

    resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Risk Factors — Risks Related to Our Business — If we fail to establish an effective system of internal control, we may be unable to accurately and timely report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.”

    We will continue to implement the necessary procedures and policies, including those outlined above, to improve our internal controls over financial reporting and remedy any control deficiencies identified as we prepare for our initial Section 404 reporting requirement under the Sarbanes-Oxley Act which will take place in the fiscal year ending December 31, 2012.

  • Report this Comment On April 19, 2012, at 7:15 PM, Mega wrote:

    LOL. Have to love a company that rockets 20% after admitting internal control weakness and deficiencies.

    By all indications, DTT couldn't find fraud if it hit them in the face with a 2x4. Even if management wasn't committing fraud (it certainly looks like they are) QIHU is still absurdly overpriced.

  • Report this Comment On April 19, 2012, at 9:46 PM, TruffelPig wrote:

    DTT was Auditor of CCME.

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