Qihoo 360 Technology Co Ltd Slumps On Jefferies Downgrade

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MediaV is expected to improve Qihoo’s tepid performance in the advertising business

Qihoo 360 shares declined 8.57% to $54.83 on Wednesday after Jefferies downgraded the stock from Buy to Hold rating. The research firm has also lowered its price target to $67, which still reflects a 22% upside from the current levels. Jefferies said in a research note that the downward revision was prompted by a weakness in Qihoo’s online gaming business.

Qihoo still transitioning to mobile gaming platform

The Chinese Internet security company is facing tough competition in online gaming as Tencent continues to solidify its dominance. Tencent has successfully shifted to mobile gaming, but Qihoo is still transitioning. Anyway, Qihoo’s revenue from the Internet value-added service (largely gaming-related) skyrocketed 157.7% in the third quarter to $172.8 million.

Though Qihoo hasn’t yet set an earnings date, analysts expect the company to report its Q4 results in the first week of March. Qihoo is expected to report 76 cents a share in Q4 EPS, up from 70 cents in the corresponding quarter a year ago. Revenue for the quarter is expected to jump 87.70% YoY to $415.96 million. For full-year 2014, analysts polled by FactSet expect Qihoo to report $1.38 billion in revenue and $2.45 per share in earnings.

Can MediaV help Qihoo boost ad revenue?

Investors will also be looking forward to details on the company’s execution of MediaV. Qihoo has completed the integration of MediaV, an advertising and digital marketing company. Last year, the Beijing-based company picked a majority stake in the venture-backed firm for more than $100 million. MediaV is expected to improve Qihoo’s tepid performance in the advertising business.

On February 4, the Chinese Internet security company paid a staggering $17 million to buy the 360.com domain from British telecom carrier Vodafone. The company is planning to unify its fragmented product portfolio. Currently, Haosou.com serves as its unified web address as users to 360.com and Qihoo.com are redirected to Haosou.com. But 360.com is expected to become its new unified web address.

Qihoo shares inched up 0.20% to $54.94 in pre-market trading Thursday.

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