Qihoo 360 Technology Co Ltd. Earnings: What to Expect Thursday

Qihoo 360 (QIHU +0.00%) will release its quarterly report on Thursday, and investors have had nothing but optimism about the prospects for the up-and-coming Chinese Internet sensation. With the company having taken steps that forced industry giant Baidu (BIDU +0.04%) to take notice, Qihoo has fought hard to muscle its way into the search-engine market, even as Sohu.com (SOHU +0.01%), Tencent, and other players seek their own fortunes there.

Qihoo's traditional area of expertise is Internet security, with its computer antivirus product having huge market share in China. Yet Qihoo's growth recently has come from using its reputation for security products as a stepping stone to its browser and search engine, and a rapid increase in market share has eaten into Baidu's business as well as those of Sohu and other smaller search competitors. The question Qihoo has to answer, though, is whether it can keep growing now that it's a major player in the broader Internet business in China. 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.

Qihoo 360's Internet Security product. Image source: Wikimedia Commons

Stats on Qihoo 360

Can Qihoo earnings keep soaring this quarter?
In recent months, analysts have become more optimistic about Qihoo earnings, keeping their fourth-quarter estimates unchanged but boosting their full-year 2014 projections by 2%. The stock has kept soaring, posting a rise of almost 40% since late November.

Qihoo's third-quarter results showed just how impressive the rising Internet company has been in producing growth. Sales jumped 124%, with both online advertising and its gaming platform seeing revenue more than double during the quarter. Adjusted earnings per share soared 135%, beating estimates by a dime per share. Even though Baidu has done a good job of keeping its own growth rates up, they still don't come close to comparing to the pace that Qihoo has set.

But Qihoo still faces the huge challenge of monetizing its growing traffic. Hiring former Google China head John Liu last year could play a big role in earning more income from search results, as Qihoo is far behind Baidu in terms of the types of advertising it offers. Ad revenue represents a huge untapped resource for future revenue growth, as search ads made up just $28 million of Qihoo's overall revenue in the third quarter according to Morgan Stanley analysts.

The mobile-device realm will also be a key battleground for Qihoo, as both Baidu and other players like Sohu and Tencent are all trying to come up with viable strategies to take advantage of the growth in mobile. Both Baidu and Qihoo have looked for ways to get more revenue from their app stores, including efforts to make their search results more accessible to users without interrupting whatever they're doing on their mobile devices at the time.

In the Qihoo earnings report, watch to see whether the company follows the same path as Baidu did when it released its earnings last week. With Baidu having sacrificed profit growth in order to bolster revenue and compete more effectively, Qihoo might have to make similar margin-negative moves in order to hold its position in the industry.

Click here to add Qihoo 360 to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.