Qihoo 360 (QIHU) reported third-quarter 2013 earnings per ADS of 35 cents, beating the Zacks Consensus Estimate of 26 cents. The company witnessed year-over-year growth in revenues.
Revenues were $187.7 million, representing an increase of 124% from $84.0 million in the year ago quarter and an increase of 24% from $151.7 million in the prior quarter. The strong year-over-year growth in revenues was mainly due to continued momentum in both online advertising and Internet value-added services.
Online advertising revenues were $120.7 million, representing an increase of 107.0% from the year ago quarter and an increase of 33.0% from the prior quarter. The strong year-over-year increase was primarily driven by increased monetization of user activities on 360 Search and Personalized Start-up Pages. The strong sequential growth was also due, in part, to a strong ramp-up in search monetization.
Internet value-added service revenues were $67.0 million, up 163.0% on a year-over-year basis and 10.0% from the prior quarter. The strong year-over-year increase was mainly driven by solid growth in the company’s paying game user base and expanded games portfolio.
Total operating expenses were $111.2 million, compared to $63.9 million in the third quarter of 2012 and $97.2 million in the prior quarter. The year-over-year and sequential increases in operating expenses were mainly driven by increased sales and marketing expenses, personnel-related costs, and bandwidth and equipment depreciation expenses.
Operating income was $50.8 million, compared to $12.2 million in the year ago quarter and $36.6 million in the prior quarter.
Operating margin was 27.0%, up on a year-over-year basis from 14.5% in the year ago quarter and 24.1% in the prior quarter.The year-over-year increase in operating margin was mainly due to strong revenue growth.
Non-GAAP net income attributable to Qihoo 360 was $45.6 million or 35 cents per ADS, compared to $12.9 million or 11 cents in the year ago quarter and $33.0 million or 26 cents in the prior quarter.
Qihoo exited the quarter with cash and cash equivalents of $1,003.6 million.Net cash generated from operations was $75.0 million, compared to $20.7 million in year ago quarter and $86.4 million in the prior quarter. Cash capital expenditures were $32.2 million.
For the fourth quarter of 2013, Qihoo expects revenues to be between $206 million and $208 million, representing a year-over-year increase of 100% to 102%.
For the full year 2013, the company expects revenues to be between $655 million and $657 million, representing a year-over-year increase of approximately 100%.
We believe that Qihoo posted a robust third quarter result with revenues registering strong growth, both on a year over year basis as well as on a sequential basis.
Moreover, the company continues to solidify its position as the indisputable leader in the Chinese internet market with its PC security products covering nearly 95% of Chinese PC internet users and the mobile security solutions covering approximately 70% of Chinese smartphone users.
Qihu expects to make investments in product development and technology innovation as well as to expand its coverage of PC and mobile internet, going forward. Its consistent focus on Internet and product innovation has been the cornerstone of its success to date.
However, with competition becoming more intense in the near future, Qihu’s prospect might get doomed provided it fails to expand and innovate its product-line keeping in mind the changing tastes and preferences of the market.
Currently, Qihu has a Zacks Rank #2 (Buy). Other stocks that can be considered to be attractive investment options this season are Digital River Inc (DRIV) with a Zacks Rank # 1 (Strong Buy), Channeladvisor Corp (ECOM) and Demandware Inc (DWRE), both with a Zacks Rank # 2c (Buy)