Qihoo 360 Technology Is Set to Get Better After a Solid First Quarter

Focus on PC and mobile has allowed Qihoo to sink its teeth into the Chinese Internet market.

Jul 7, 2014 at 1:00PM

Chinese Internet company Qihoo 360 Technology (NYSE:QIHU) has beaten rival Baidu (NASDAQ:BIDU) and the broader market in terms of stock price appreciation so far this year. Qihoo is up into the early teens, and if its first-quarter results are any indication, the company looks set for explosive growth.

Terrific results
Qihoo 360 reported solid results for the first quarter, with both revenue and earnings beating Street expectations. The strong performance was driven by robust growth in PC and mobile games, along with a considerable increase in advertising revenue. In fact, Qihoo's first-quarter earnings growth outperformed some of its rivals such as JD.com, Sina, and Weibo, which didn't perform well and reported losses.  

Qihoo's revenue for the quarter increased approximately 141% year over year to $265 million, beating the consensus estimate of $228.2 million . Also, its earnings of $0.54  per share were significantly more than analysts' expectations of $0.34 per share. Qihoo's guidance was also strong. For the second quarter, the company anticipates revenue in the range of $300 million-$305 million, more than the consensus expectation of $270.18 million .

Growth-centered strategies
Qihoo is undertaking a number of moves to unseat rival Baidu from the perch of the Chinese Internet industry. No doubt, its efforts are resulting in solid growth, which is expected to continue in the future.

First-quarter results were indeed good, and reflect how the company is progressing. Qihoo continues to strengthen its position in mobile security and apps. According to statistics, the user base for 360 Mobile Safe has doubled in the past year. Moreover, the company has launched a brand new mobile browser, along with a new mobile search app, which should further strengthen its position.

In spite of tough competition, Qihoo's 360 Mobile Assistant is attracting users at a rapid pace. According to management, "Mobile monetization is an important part of all our overall business strategy and expects this trend to continue to build into the coming quarters." Additionally, the company is making huge strides in the search market; in just two years, Qihoo has taken 25% of the search-traffic in China. Moreover, Qihoo is seeing solid growth in its gaming segment, which continues to attract developers and users.

Advertising growth
Advertising is one of the company's key growth drivers. In fact, its advertising revenue was up 121% year over year. This performance was driven by strong search monetization and the expansion of performance-based advertising on its personal start-up page. To boost its advertising business, Qihoo announced the acquisition of MediaV, a leading precision advertising and digital marketing platform in China.

MediaV provides cloud-based analytics services that allow clients to deliver advertising to targeted audiences. Analysts from Morgan Stanley expect MediaV to build an advertising exchange platform, which will improve its advertising efficiency. Consequently, Qihoo expects MediaV to increase revenue by 5%-10% in 2014. 

Going forward, Qihoo will continue to strengthen its brand in security and mobile by making strategic investments in key areas. This will enhance its monetization network in product development and technology innovation, which will further expand its coverage of PC and mobile Internet, along with cloud-based services. Management believes its new products and services will be of great help in a tough and competitive market, especially against Baidu.

Baidu's moves
Baidu is strengthening its search business by focusing on targeted ads. The company believes that this will help it drive better returns for customers and deliver a better experience to users. Mobile is turning out to be a strong growth area for Baidu. It is seeing an increase in the percentage of customers with mobile-optimized landing pages. Additionally, the percentage of revenue Baidu receives from mobile landing pages is improving as a result of a better landing page quality. 

Driven by its product development, Baidu has managed to increase its daily active mobile search users from 130 million a couple of quarters ago to 160 million in the previous quarter. So, it is important for Qihoo to continue innovating to provide stiff competition for Baidu.

The bottom line
After a solid performance in the previous quarter, Qihoo looks set to improve. The company is focusing on both mobile and PC to profit from the fast-growing Chinese Internet market. It has established a strong position, despite the presence of bigger rivals such as Baidu, and its strategies indicate that it should continue getting better

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Mukesh Baghel has no position in any stocks mentioned. The Motley Fool recommends Apple and Baidu. The Motley Fool owns shares of Apple and Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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