Good News for Qihoo 360 Is Good News for Baidu


It's OK for Baidu investors to cheer Qihoo 360's blowout quarterly results last night.

Contrary to what many analysts may have you believe, Baidu and Qihoo 360 aren't in a battle to the death over search in China. In fact, there's plenty in Qihoo 360's encouraging quarterly report that should inspire Baidu investors to take advantage of the stock's rare dip into the double digits to approach it as a buying opportunity.

Let's get into Qihoo 360's performance first.

Revenue soared 77% to $84 million in the third quarter, but it wasn't the company's summertime foray into search that fueled the dot-com speedster's growth. It was a strong showing in online gaming and a respectable boost in display advertising from its mobile browser and online security software that served Qihoo 360 well. Adjusted earnings climbed to $0.20 a share, well above the $0.16 a share that analysts were targeting.

The appeal of Qihoo 360's browser continues to grow. There are now 303 million active users of its browser, boosting its market penetration to 65%. There's a whopping total of 442 million monthly active users across all of its products and services, reaching 95% of China's online population.

Engagement metrics are also off the chart.

An average of 89 million unique visitors hit the company's personal start-up page daily, up 62% over the past year. Average daily clicks of 451 million represent a 144% spike in activity. Seeing clicks grow faster than user growth is a great indicator of Qihoo 360's stickiness.

In the end, isn't this all ultimately good news for Baidu? Qihoo 360's ability to successfully expand into new areas bodes well for Baidu as it pushes into mobile and other initiatives. If a company can use its brand strength in one category to make a dent in others Baidu will have an easier time as it enters new growth markets.

Qihoo 360's guidance for the fourth quarter is probably the most encouraging nugget in last night's report. The $93 million to $94 million that Qihoo 360 is projecting is comfortably ahead of the $90.2 million that analysts are forecasting. It also happens to represent healthy sequential improvement. Baidu's outlook late last month called for a sequential dip in revenue. Last week it was SINA and Renren -- two Chinese Internet speedsters that, like Qihoo 360, rely heavily on display advertising -- also warning of sequential declines in revenue for the current quarter.

Qihoo 360's fresher update doesn't mean that prospects are improving in China. Obviously Qihoo 360 is on a headier growth trajectory than SINA, Baidu, and Renren. However, getting some good news at the tail end of earnings season is better than having Qihoo 360 warn with more of the same.

If we accept Qihoo 360's report as a confirmation that online advertising is alive and well in China, investors in all Chinese Internet companies can appreciate the strong report.

Betting on China
Want to learn more? Read The Motley Fool's premium report on Baidu, which dives deep into China's dot-com darling. The premium research comes with a year's worth of updates. Click here to check it out now.

The article Good News for Qihoo 360 Is Good News for Baidu originally appeared on

Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu. Motley Fool newsletter services recommend Baidu and SINA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.