Qihoo 360 Technology Co. Ltd. Earnings: How Long Can the Growth Last?

On Tuesday, Qihoo 360 (NYSE: QIHU  ) will release its quarterly report, and investors continue to expect amazing growth from the up-and-coming Chinese Internet company. Even though Qihoo 360 hasn't been a major player in the industry as long as Baidu (NASDAQ: BIDU  ) , Sohu.com (NASDAQ: SOHU  ) , and other big companies in the space, Qihoo 360 has given growth-hungry shareholders the gains in revenue and profits that they wanted from China's Internet sector.

Qihoo 360 began as a specialist in security software, but it has gone well beyond its initial areas of strength to become a formidable company in the broader Internet arena. With a dramatic rise in search-engine market share, Qihoo 360 has passed up Sohu and taken a measurable bite out of Baidu's dominant position, raising questions about whether Qihoo 360 could eventually catch up and challenge Baidu's supremacy. Let's take an early look at what's been happening with Qihoo 360 over the past quarter and what we're likely to see in its report.


Source: Qihoo 360.

Stats on Qihoo 360

Analyst EPS Estimate

$0.34

Change From Year-Ago EPS

143%

Revenue Estimate

$228.2 million

Change From Year-Ago Revenue

108%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

How fast can Qihoo 360 earnings grow?
Analysts have stayed optimistic about Qihoo 360 earnings, raising their first-quarter estimates by more than 10% and lifting full-year 2014 and 2015 projections by double-digit percentages as well. The stock has fallen, though, losing 18% of its value since late February.

Qihoo 360's fourth-quarter earnings report continued the string of strong growth that investors have come to expect from the company. Overall sales soared 115%, with similar growth rates in its key online-advertising revenue figures. Figures from January showed that Qihoo's search engine continues to climb in popularity, with roughly a quarter of search traffic in January going to Qihoo compared to 58% for Baidu. That's far better than Sohu's search engine managed, and where Qihoo has been particularly successful is in the mobile area. Qihoo actually connected with more mobile users than Baidu did during the quarter, although monetizing Qihoo 360's mobile-safe app is far more challenging than Baidu's mobile-search app.

Still, Qihoo 360 hasn't tapped all the opportunities in the Chinese Internet arena. Baidu's purchase of Nuomi has put it more deeply into the e-commerce realm, and Baidu has also moved aggressively to try to capture the opportunities in Internet-based banking and finance. Yet Qihoo 360 believes that it has more potential in its core search-advertising and mobile-game segments to produce profits, and at least for now, Qihoo isn't letting itself get distracted even by highly promising parts of the industry.

Investors need to understand, though, that Qihoo 360 shares are likely to be more volatile than many other companies, including the better-established Baidu and Sohu.com. On one hand, U.S. investors have been skeptical of Chinese stocks for a long time, especially after the rash of fraud allegations that smaller Chinese companies faced in recent years. More importantly, shares of high-growth stocks like Qihoo 360 are subject to dramatic changes in investor sentiment, and when investors get nervous -- as they did earlier this month -- shares can fall in a hurry.

In the Qihoo 360 earnings report, watch to see whether the Chinese Internet stock can keep taking market share away from Baidu and Sohu and stay on track for another impressive growth showing. As long as Qihoo 360 doesn't hit the growth wall, its stock could have further to climb in the long run.

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