Qihoo retaliates against accusations of fraud

Qihoo 360 Technology Co would "take all necessary legal measures" to defend its reputation, the company told the Global Times Wednesday.

Wu Jing, an investor relations executive for Qihoo 360, told the Global Times Wednesday that the company refuted allegations raised in a Forbes article. But Wu did not provide any details concerning "legal measures".

Forbes published an article on Monday claiming that Qihoo 360 may face a "substantially more demanding audit process" by Deloitte Touche Tohmatsu, one of the world's largest accounting and consulting firms.

Richard Pearson, writer of the article, raised questions about the company's revenue model, and insinuated that the US-listed company could face accusations of fraud.

Shares of the company immediately slumped by as much as 16 percent on Monday's morning trading before recovering partially, ending down by 4.68 percent.

In response, the company published a statement, saying that the "company intends to take all necessary legal measures to defend itself against intentionally misleading and false allegations or any attempts to manipulate its stock prices, and to protect the interests of its shareholders."

Wednesday, the company's chairman and CEO Zhou Hongyi said on his Sina Weibo that short-sale is a right, "but if short-sellers start to spread rumors after losing money, (what they have done) has broken the bottom line."

This is not the first time Qihoo 360 has faced accusations from overseas.

US-based Citron Research said in December that Qihoo 360 "has either not been forthright about their revenue model to Wall Street, or there is a financial fraud unfolding."

Citron, one of the most vocal short-sellers of Chinese stocks, in November published a critical report, doubting Qihoo's credibility over its revenue growth rate by saying that "giving away free software is not a business. Let's call that a hobby", after previously it described Qihoo as "the most overvalued and misunderstood Chinese Internet stock."

Qihoo later rebuffed doubts over its business model and expressed confidence in its ability to garner profits.

According to Qihoo 360's 2011 financial report released in February, the company's net income reached $15.6 million last year, an increase of 83.4 percent over 2010.

"The company's main revenues come from online advertising and Web games. But because the market development space is not that big any more due to fierce competition, Qihoo 360 must seek more revenue streams in the future," You Tianyu, an information technology analyst at Beijing-based market research company iResearch Consulting, told the Global Times Wednesday.

You said he thinks the mobile network and data storage businesses may become Qihoo 360's revenue pillars.

Li Weidong, research director at Beijing-based market consultancy China Venture, told the Global Times in an earlier interview that relying on the company's big user base, he thinks the development space of the company remains "big", including its group-buying business.