GDS Holdings (GDS) is a Chinese company in the data center business, and its carrier-neutral, cloud-...
Qihoo 360: Small Stock, Big Story
07/23/2013 9:00 am EST
Incorporated in 2005, Qihoo 360 is young and small (annual sales of $370 million). More investors are now discovering the firm's big earnings potential as it monetizes its growing share of mobile search in China, suggests Paul Goodwin, of Cabot China & Emerging Markets Report.
Its history provides a great illustration of how success can show up at your back door while you're out by the front door waiting for a package.
Qihoo 360's (QIHU) front door, it's signature product, was its anti-virus software for mobile devices.
China's adoption of both the Internet and mobile technology has been rapid and massive, and Qihoo's 360 Safe Guard and 360 Anti-Virus were designed to keep mobile devices safe from viruses, malware and other threats.
Qihoo has been enjoying a strong position in the Chinese PC market, with penetration of between 80% and 90% of the security market.
But the success that has come in the back door for Qihoo 360 is based on the company's very popular open mobile browsers, 360 Safe Browser and 360 Speed Browser.
At the end of Q1, these browsers had 332 million monthly active users (up from 172 million in January, 2011) and a penetration rate of 70% in China.
Qihoo monetized its browsers' popularity with the familiar model of display ads and over 280,000 paying users of its game platform, up from 139,000 two years ago.
In August 2012, Qihoo inaugurated its own mobile search service on its browsers, and shocked the world by suddenly owning about 10% of the mobile search traffic in China.
The suspicion at the time was that Qihoo was stealing market share from Baidu, but subsequent analysis showed that the jump in usage came primarily from former Google users.
Wherever the new users came from, the new search business allowed Qihoo to begin offering sales of search term-based ads to businesses, very much on the Google model. The company generated no revenue from this channel in 2012, but expects 2013 results to be very positive.
Qihoo made its first sales in 2008, and in the four years since then, has experienced annual revenue growth of 91% in 2009, 79% in 2010, 191% in 2011, and 96% in 2012. Annual revenue in 2012 was $329 million, and analysts expect 2013 revenue to come in around $588 million.
The stock took a hit when Baidu finally made a move into mobile by purchasing the firm that operates the second largest mobile app store in China. However, the damage was reasonable given the stock's upmove, and today, shares snapped back on heavy volume.
Overall, some ups and downs are likely, but Qihoo 360 is a big story and the trend here is clearly up. For now, we are recommending that investors buy half of their intended position in the stock.
More from MoneyShow.com
Related Articles on GLOBAL
Germany's economy is undoubtedly doing very well. Unemployment is at 4.5%, the lowest since the Berl...