Just a day after reporting a record quarter, Qihoo 360 (QIHU), has reportedly made an offering to issue $550 million principal amount of convertible senior notes with an option for the initial purchasers to purchase an additional $50 million worth of the notes. The notes will be due in Sept, 2018, when the notes can be converted into Qihoo’s American depository shares (ADS), with every two ADS representing three class A ordinary shares of Qihoo 360. The company will have an option to redeem the notes any time after Sept 20, 2016. As per the company statement the proceeds will be used for general administrative purposes. While Qihoo stock tanked 4.11% yesterday in after-market hours, we at Amigobulls believe that the company is not in a bad shape regarding its cash balance.
The company reported a cash balance of $378 million as on June 30, 2013 on a quarterly revenue base of $151 million. The cash flow from operations for the quarter was healthy at $114 million, coming in at 75% of revenues. Therefore considering the growth rate of the Chinese internet population in general, and the smartphone users growth in particular, we see the notes issue as a means to sustain future growth expectations of the management and will generate additional value for equity stockholders in the long term. Additionally the cash at the bank will provide the management a higher degree of flexibility which, we believe, is essential in the highly competitive industry the company operates in.
Qihoo stock price chart
Source: Qihoo stock chart by Amigobulls
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