Qihoo 360 Technology (QIHU) crushed Q3 earnings estimates as it gains more ground vs. Chinese search giant Baidu. But shares tumbled 9.5% Monday as some analysts said revenue growth should be beating analyst forecasts by a wider margin.
Beijing-based Qihoo 360 said Sunday third-quarter earnings per share spiked 135% to 47 cents. Analysts saw 37 cents.
Revenue leapt 125% to $187.9 million vs. views of $181.7 million, according to analysts polled by Thomson Reuters.
Qihoo expects $206 million to $208 million in Q4 revenue. Analysts had seen $203.5 million.
But Q3 sales and Q4 guidance came in "only slightly" higher than consensus, wrote Stifel Equity Research analysts, who cut Qihoo to hold from buy.
Qihoo has a history of comfortably topping revenue estimates. It beat by 3.4% in Q3; 5.2% in Q2; 3.4% in Q1; and 9.9% in Q4 2012.
But its current-quarter guidance would only edge the consensus forecast by about 1.7%.
"We believe the company's reported revenue growth momentum will slow for the next two quarters," Stifel analysts wrote in a research note. "We expect revenue momentum to return in mid-2014.
Qihoo shares dived 9.5% to 78.40. Baidu (BIDU) fell 1% to 156.66.
The company in August 2012 launched a search engine to take on Baidu, kicking off an arms race in which both have ramped up marketing and development spending to grab and keep mobile users.
Operating expenses jumped 74% to $111.2 million in Q3.
Qihoo is now starting to monetize its search traffic with ads, CFO Zuoli Xu told analysts on a conference call. Online ad sales grew 107% year over year.
"Our monetization system is still in its early stage," said Xu, "and there is a clear gap between our system and that of the industry leader in terms of commercial coverage and efficiency.
But search revenue could "take off in 2014, as it has reached a critical level of traffic market share," T.H. Capital analyst Tian X. Hou wrote in a Monday research note.
"We believe the market share is likely to be at 25%" of Internet searches, wrote Hou, who rates the stock a buy.
The company says it's handling "comfortably above 20%" of all Internet searches in China.
In the first nine months of the year, Qihoo about doubled its mobile users to 408 million, CEO Hongyi Zhou told analysts on a conference call.
In September, about 465 million PC Internet users logged on to Qihoo products, or about 94% of China's active PC Internet users. But that marked a decline from 95% a year earlier.
Its Web browser has about 342 million monthly users, or 70% of all Chinese Internet users.