On Nov 29, Zacks Investment Research upgraded Qihoo (QIHU) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Qihoo posted better-than-expected third-quarter fiscal 2013 results, wherein earnings of 35 cents per share surpassed the Zacks Consensus Estimate of 26 cents.
Management cited that Qihoo’s continued focus on the Internet and consistent product innovation have been its primary growth drivers to date. They expect these efforts to result in a Tier 1 PC and mobile Internet platform in China in the near future.
The company posted third-quarter revenues of $187.7 million, representing an increase of 124% from $84.0 million in the year-ago quarter and 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.
It’s true that building a position in a market dominated by a strong player like Baidu (BIDU) will not be easy. Baidu has grown into the go-to search service in China and the company doesn’t look as if it is going to yield significant market share.
However, Qihoo has made good progress in search monetization, which is very encouraging because upcoming players generally don’t have an offering that is compelling enough to attract a large number of advertisers. Therefore, Qihoo’s success with monetization indicates that its property is valuable to advertisers, which in turn is a positive indicator of its future growth.
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