What Is Driving Up QIHU Shares?

Sejuti Banerjea
January 9, 2014

Shares of Qihoo 360 Technology (NYSE:QIHU) jumped 9.3% yesterday, driven by both positive news and rumors.  

The positive news was about its recruiting John Liu, a top executive at Google (NASD:GOOG) China. Liu will be joining Qihoo as Chief Business Officer to focus on search monetization among other things. Google executive Schmidt made a couple of visits to China last year, saying that the country remained a key geography.

But Google’s focus is on the mobile segment, where its Android OS appears to be doing quite well. Qihoo has limited presence on the mobile platform so far.

It’s hard to say whether Liu’s departure is a blow to Google, but it’s definitely a positive for Qihoo, which did not have a search engine before 2012. Liu brings several years of experience from Google and may therefore be able to increase the company’s business prospects in a market that is growing more competitive by the day.

Qihoo’s search engine has been extremely successful, emerging as the strongest competitor to market leader Baidu (NASD:BIDU). It has steadily eaten away Baidu’s market share in a little over a year to take roughly 18% of the market. Today, Baidu has been pushed back down to 63%, according to numbers published by Alibaba-owned CNZZ.

But that’s not all there is to it. The third and fourth players, Sohu (NASD:SOHU) (Sogu search engine) and Tencent (Soso search engine) have recently combined forces, increasing competition for the top two players. Their combined market share comes to around 13%. Therefore, Qihoo’s attempt to strengthen its competitive position and increase cash flows through the acquisition of key personnel seems prudent.

The other news driving up shares is related to Alibaba’s supposed investment in Qihoo. The two companies certainly aren’t strangers: they collaborated last year to create a product search engine for online shopping. But Qihoo has now denied the possibility of such an investment taking place, so there may be some moderation in share prices today.   

Qihoo shares carry a Zacks Rank #1 (Strong Buy), better than Google’s Zacks Rank #2 (Buy), and the other Chinese companies Baidu and Sohu, both of which are ranked #3 (Hold).

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