T.h.capital maintain Qihoo 360 buy rating

In the early hours of May 28 in Beijing, the Independent Securities Research service provider T.h.capital published a study today, keeping the 306 Nyse:qihu's stock rating at "buy" unchanged at a target price of $139.

The following is a summary of the contents of the report:

Both first-quarter results and second-quarter performance forecasts are expected to be better than expected, mainly due to the faster commercialization of search and mobile gaming operations; maintain the "buy rating

Qihoo 360 will report the first quarter of the 2014 financial year after the U.S. stock market closes May 27 (Beijing time May 28), and will hold earnings calls at the eastern time of 28th 7:30 (19:30 on the same day). We believe that Qihoo 360 's first-quarter results and second-quarter earnings forecasts are likely to be better than the average Wall Street analyst's expectations, and that the move could come from the commercialization of the company's mobile gaming business and its search business.

In addition, we believe that Qihoo 360 's recent investment in the top-level demand-side platform (DSP) Poly-Wan will help the company to increase the commercialization of its traffic in the near future. We reiterate the "buy" rating for Qihoo 360 shares and the target price of $139.

-The commercialization of the search business may accelerate due to an increase in the number of SME customers and improved algorithms:

Qihoo 360 's share of the search traffic market continues to grow. At the beginning of the second quarter of 2014, Qihoo 360 continued to grow in the search-flow market, rising from 24.8% in the first quarter to 26% per cent. In the first quarter, Qihoo 360 has 35 agencies in 18 provinces and 4 municipalities in the country. We believe that the growth of the customer base will have the effect of speeding up the commercialization process.

In addition, we think Qihoo 360 has improved its search algorithm to improve the efficiency of search engines, another way to improve the level of business. In the second quarter, the commercial speed of Qihoo 360 was likely to accelerate, due to the season of stronger marketing activity than in the first quarter.

-Data show strong performance of mobile gaming business:

Our own data show that Qihoo 360 's mobile gaming business performance at the start of the first quarter and the second quarter may have been better than expected. According to our data, Qihoo 360 mobile app stores in the first quarter of the total game download volume of 2.8 billion times, compared to the fourth quarter of last year's 2 billion year-on-year growth of 42%, we expect the first quarter mobile game distribution revenue will increase by 29%. Among them, the first quarter of popular games (the cumulative number of downloads more than 1 million times) the total download volume of 2 billion times, compared to the fourth quarter of last year, 1.3 billion times quarter-on-quarter growth of 56.2%.

At the beginning of the second quarter, this momentum of development continued: Total downloads for all games amounted to 3.2 billion, up from 14.3% in the first quarter, and 2.3 billion in popular game downloads, up 17.4% per cent in the first quarter.

-Investment in Wan may help Qihoo 360 to exploit its search traffic and improve the efficiency of its advertising business:

Qihoo 360 announced that the company had acquired the Wan, the leading PC and mobile internet precision advertising platform in the Chinese market. Although we do not expect the deal to contribute much to the revenue of Futures 360, we believe that the Wan will boost the revenue growth of Qihoo 360 in two ways: 1 to increase the commercialization of the existing traffic in its navigation pages and mobile app stores, and increasing the level of commercialization of traffic from its applications and other products; 2 develop a different source of revenue, such as contextual ads.

-expected first-quarter results to be better than expected:

Based on the strong growth momentum of Qihoo 360 in both the mobile gaming business and the commercialization of the search business, we believe that the company's first-quarter results are likely to be better than the average expectations of Wall Street analysts and our expectations. We expect the net revenue of Qihoo 360 in the first quarter to be $227.1 million, earnings per share (not us GAAP) of 0.32 dollars, while Wall Street analysts, on average, expect their first-quarter revenue to be 227 million dollars, with earnings per share (not according to US GAAP) at $0.34.

– Expected second-quarter performance forecasts to be at least as expected or beyond expectations:

We believe that the Qihoo 360 mobile gaming business and search engine business will remain commercially viable in the second quarter, which is likely to make the second-quarter revenue outlook at least or exceed the average Wall Street analyst's expected $270.18 million trillion, or 18.4% quarter-on-quarter growth.

Valuation：

We maintain the "buy" rating of Qihoo 360, with a target price of 139 dollars. This target price is calculated on the basis of the valuation method of peg (city surplus growth ratio). We expect the average growth rate of Qihoo 360 in 2014 and 2015 to be about 42% per cent, and therefore to use a 40.7 times-fold price-earnings ratio, multiplied by our expected 2014 fiscal year, which does not follow US general accounting standards, the odd Tiger 360 for each share (3.42 US dollars), to reach its target, This means that the peg is 0.8 times times the value.

-Target price risk:

1 flow from the PC to move too fast, this led to Qihoo 360 's inability to capture the economics of its PC search market share; 2 The commercialization of the search engine failed to accelerate; 3 from the fierce competition of large companies such as Tencent (0700.HK) and Baidu, 4) The risk of a severe slowdown in macroeconomic growth.

-Earnings FORECAST:

Qihoo 360 will report the first quarter of the 2014 financial year after the U.S. stock market closed in the eastern time of May 27 (Beijing time May 28).