Though Qihoo 360 Technology (QIHU) delivered Q3 earnings and revenue ahead of estimates, QIHU stock saw a cooling off period as analysts predicted slow growth for the beginning of 2014.
Stifel Nicolaus downgraded the stock to hold from buy, following the company’s earnings report — with Stifel noting that the first half of 2014 will test Qihoo 360 and weaken its performance.
While it may test the company in the months to come, the skies look clear based on the earnings report. (This may help move the needle in trading today.)
Revenue growth for Qihoo boomed 124% on increased monetization in all segments: Adjusted earnings per share were $0.47, ahead of analyst estimates for $0.37 (this was also about 135% higher than Q3 for the previous year).
Revenue saw a second quarter in a row revenue jumps, hitting $187.9 million and again beating estimates. In Q1, after 58% revenue growth, QIHOO saw a 108% increase in Q2. Online ad revenue was up 107% to $120.7 million on increased monetization and additional development from search and mobile monetization.
“In addition to achieving record revenue and profitability, we strengthened our leadership position in key product categories and made significant inroads into new markets,” said Mr. Hongyi Zhou, Chairman and Chief Executive Officer of Qihoo 360. “With our PC security products covering nearly 95% of Chinese PC Internet users, and our mobile security solutions covering approximately 70% of Chinese smartphone users, Qihoo 360 remains the indisputable leader in Internet security in China.
There were also cost increases as sales/marketing expenses more than doubled to $28.1 million, and R&D spending boomed 65% to $68.5 million.
But what does the future hold?
As InvestorPlace noted last week, rivalry could cause some pains for QIHU stock.
Qihoo 360 is one of the big Chinese Internet search engine firms, with about 15% to 20% of the country’s search market. That’s small when compared to its much larger rival, Baidu (BIDU), which has about 70%. But QIHU is still out in front of up and coming rival Tencent Holdings (TCEHY) with only about 10%.
Tencent now is part of the part of the much bigger player in the Chinese Internet ecosphere, gaming and mobile services giant Sohu.com (SOHU).
For long-term investors, however, most analysts see continued growth for QIHU stock — but perhaps some choppy waters at first to get to the smooth sailing ahead.