Qihoo 360 Technology Q3 2013: Still Overpriced Even After The Price Dip


Qihoo 360 Technology Co Ltd (NYSE:QIHU) announced Q3 2013 earnings results on November 24, 2013. The company reported a solid quarter reporting significant positive movement in all its business indicators. However, the good performance failed to impress the market as the stock price tumbled by close to 10% in the regular trading session on Nov 25, 2013 following the earnings conference call before market hours. Is the stock a worthy investment post Q3 2013 or has it had its run, having gained 164% in the year-to-date (YTD)? Why did the stock fall inspite of a very good quarterly performance in Q3 2013? We take a look at the Q3 2013 results in an attempt to answer these questions and see if Qihoo 360 would be a good investment following the latest pullback in its stock price.

Qihoo Q3 2013 performance

The company registered a whopping 123.7% growth in overall revenues on a year-on-year(Y/Y) basis. The company mainly earns revenue from its Search, online gaming and legacy business. The company has reached a 20% search market share in China, moving behind Baidu to the number-2 position, which is positive news for the company’s future growth prospects. The growth was driven by a 107% Y/Y growth in online advertising revenues, which accounted for close to 65% of total revenues. The other segment of Internet value added services registered a growth of 163% on a Y/Y basis, with segment revenue of $67 million contributing to 35% of the total revenues. However, the highly competitive Chinese Market, both in search and mobile gaming, is expected to put a pressure on its growth and margins going forward. The table below is a summary of the Y/Y change in the business indicators of the company.

Q3 2013 Q3 2012 Y/Y change
Revenue $187.9M $84M 123.69%
Operating Margins(%) 27.04% 14.52% 12.51%
Net Income Margin(%) 23.71% 15.39% 8.32%
Earnings per share(EPS) $0.23 $0.07 228.57%

The Non-GAAP operating and net income margin for the quarter was at 35.5% and 32.7% respectively. Selling, general and administrative expenses have decreased considerably from 35% of revenues in Q113 to 14% in Q313 which has fuelled the increase in profit margin compared to levels in 2012, as can be seen in the chart below.

Qihoo 360 Revenue, Operating Margin and Net Income margin

Actual performance v/s analyst estimates

The Q3 2013 performance of Qihoo 360 technology delivered significant revenue growth as well as margin expansions. However, to put things in perspective we shall now take a look at the analyst expectations for the quarter and actual numbers reported by the company.

Analyst estimates Actuals Surprise
Revenue $181.74M $187.90M 3.4%
Non GAAP EPS $0.37 $0.47 27.0%

According to the analyst consensus estimates on streetinsider.com the company came out on top of the revenue as well as earnings consensus estimates. The company reported a revenue surprise of 3.4% while the margin expansion led to a more than proportionate 27% earnings surprise.

Qihoo Relative Valuation

The current valuation multiples of the company are very high with a LTM price-to-earnings (P/E) of 160 and a LTM price-to-sales (P/S) multiple of more than 25. While the growth and margin expansions of the company have been phenomenal, it will take a few more quarters of extraordinary growth to justify the current price levels. Therefore it will be interesting to see how the company performs over the next few quarters.

QIHU relative valuation Based on LTM numbers
Price Earnings ratio 160.0
Price to Book Value ratio 6.3
Price to Sales ratio 25.0


The company reported a solid quarter in terms of revenue growth as well as margin expansions. The combination of the two led to a huge jump of 228.6% in the earnings per share (EPS). While the fundamentals of the company remain strong the stock price saw a steep fall of 10% following the earnings conference call before market hours on November 25th. We feel this is a confirmation that investors are realizing that the stock is overpriced. The current valuation multiples are extremely high and while we will keep our eyes on the company’s performance over the next few quarters, we still find the stock too expensive at the current price levels.

To see Qihoo’s latest stock price movement, click here (NYSE:QIHU)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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