Qihoo Q3 earnings soar 100% year-on-year

Company's strong performance attributed to growth in online ads, game business

Qihoo 360 Technology, China's largest Internet security services provider by users, reported on Monday stronger than expected earnings in the third quarter that doubled from last year thanks to the robust growth in its online advertising and game business.

The New York Stock Exchange (NYSE)-listed company achieved revenues of $376.4 million in the third quarter of this year, soaring 100.3 percent from the same period of 2013, according to Qihoo 360's unaudited financial results for the third quarter.

This beat the company's projection of $360-365 million. The better-than-expected performance is fueled by its online advertising and Internet value-added services or platform-centered games, the company said in its latest quarterly report.

Net income also grew 30 percent year-on-year to $57.7 million in the third quarter, with diluted earnings per American depositary share (ADS) being $0.44, a 9 cents increase from a year earlier.

"Not only did we maintain our leadership position in key PC-related product categories during the quarter, but we continued to make a significant transition to the important mobile Internet market," Zhou Hongyi, chairman and CEO of Qihoo 360, said in the press release Monday.

The company boasted a record-high 673 million smartphone users in September, compared with 408 million one year ago, and which also exceeded its PC-based monthly active users of 495 million in September.

Online advertising grew 67 percent year-over-year, supported by strong contributions from both search and mobile traffic, while platform-centered games continued to show strong momentum with revenue growth of 158 percent year-on-year, driven by strengths in both PC and mobile games, said Qi Xiangdong, president of Qihoo 360, in the same press release.

Qihoo 360 put in more effort than its larger rival Baidu into directing user traffic to mobile games of third-party developers through its 360 Mobile Assistant, and increasing user visits to the webpage games through its Internet search engine service also boosted its revenues from game developers, Chen Xu, an analyst at Analysys International, told the Global Times on Tuesday.

Qihoo had quickly gained its status as China's second-largest Internet search engine service provider by traffic one year after its launch, greatly boosted by offering its 360 Safety Guard anti-virus software and 360 Browsers to PC and mobile users for free.

Though Qihoo 360 was left far behind Baidu in terms of Internet search traffic with less than 20 percent market share compared with Baidu's 70 percent, the gap is much narrower in the mobile game market with Qihoo's market share of 37.87 percent compared with the 42.34 percent market share of Baidu, according to Analysys International.

The mobile games business is expected to further drive Qihoo 360's performance as it is in an early phase of development and a high growth segment, Wang Ying, an analyst at iResearch Consulting Group, told the Global Times.

In spite of high growth, the company is currently unable to threaten the status of its larger rivals such as Baidu in Internet search and Tencent in terms of game revenues, she said on Tuesday.

Despite surging revenues and profits, Qihoo 360's operating expenditures also doubled in the third quarter to $225.5 million from a year earlier driven by increasing marketing and promotional expenses, leading to a lower net margin of 15.3 percent.

For the fourth quarter, the company expects revenues to be between $410-$415 million, representing 85 to 87 percent increase year-on-year.

Apart from commercial competition, Qihoo 360 had drawn headlines for legal tussles with its competitors. It sued Tencent in October 2011 for monopoly practices but failed.

In another case, the Beijing No. 1 Intermediate People's Court ordered Qihoo 360 to pay 700,000 yuan ($11,000) in August in compensation to Baidu for violation of a fair competition protocol against the latter.