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Qihoo 360 to IPO on NYSE

Qihoo 360, 3/14/11

Chinese online security software developer Qihoo 360 has filed its IPO prospectus to list on the New York Stock Exchange with the US Securities and Exchange Commission, with UBS, Citigroup, and Stifel Nicolaus Weisel as lead underwriters.

Qihoo 360 reports revenue was USD 16.9 mln, USD 32.3 mln and USD 57.7 mln, respectively, in 2008, 2009 and 2010, representing a CAGR of 84.8%.

Revenues increased by USD 25.4 mln, or 78.5%, from USD 32.3 mln in 2009 to USD 57.7 mln in 2010, primarily as a result of a substantial increase in revenues from Internet services, which was in turn primarily attributable to (i) an increase in revenues from online advertising, and (ii) an increase in revenues from Internet value-added services. This increase was partially offset by a decrease in revenues from sales of third-party anti-virus software.

Revenues from online advertising increased by USD 24.9 mln, or 178.8%, from USD 13.9 mln in 2009 to USD 38.8 mln in 2010. This increase was primarily due to a substantial increase in revenues from third-party websites who placed links on 360 Personal Start-up Page, the default home page of 360 Safe Browser launched at the end of 2009, and increased revenues from Google. The increase in revenues from third-party websites was due primarily to Qihoo 360's expanded user base, which increased the user traffic and transactions originated from Qihoo 360's websites and secure platform products. Increased revenues from Google in 2010 were due primarily to (i) increased number of searches directed from websites, (ii) expanded cooperation with Google, who entered into another linking agreement with Qihoo 360 in the fourth quarter of 2009 for a search box on the newly launched 360 Personal Start-up Page.

In 2008, 2009 and 2010, Qihoo 360 had 60, 139 and 210 customers for online advertising services. The five largest online advertising customers accounted for approximately 16.9%, 27.8% and 35.1% of total revenues for each of the three years ended December 31, 2010, respectively. Google Ireland Limited, or Google, was Qihoo 360's largest customer in 2009 and 2010. Revenues from Google in 2008, 2009 and 2010 amounted to 5.8%, 11.2% and 21.1% of total revenues, respectively. Qihoo 360 has entered into two one-year linking agreements with Google, under which it agrees to direct search queries from the users of 360 Safe Browser and 360 Personal Start-up Page to Google for processing and Google agrees to pay fees based on the referral traffic directed by Qihoo 360 up to a pre-determined limit.

Revenues from Internet value-added services increased by USD 12.7 mln from USD 2.1 mln in 2009 to USD 14.8 mln in 2010. This increase was primarily due to (i) a substantial increase in revenues from web games, (ii) additional revenues contributed by Internet security services, primarily remote technical support, that Qihoo 360 started offering in 2010, and (iii) an increase in revenues from other Internet value-added services.

Revenues from sales of third-party anti-virus software decreased by USD 12.4 mln, or 76.2%, from USD 16.3 mln in 2009 to USD 3.9 mln in 2010, primarily because Qihoo 360 started offering 360 Anti-Virus to users free of charge in the fourth quarter of 2009.

The company first became profitable in 2009 and net income increased by 102.7% from USD 4.2 mln in 2009 to USD 8.5 mln in 2010.

Qihoo 360's monthly active Internet users increased from 122 mln in December 2008 to 231 mln in December 2009 and 339 mln in January 2011.

According to figures cited in the prospectus from Chinese market research firm iResearch, Qihoo 360 had 328 mln monthly active Internet security product users as of January 2011, representing a user penetration rate of 83.9% in China. 360 Safe Guard and 360 Anti-Virus had 301 mln and 248 mln monthly active users in January 2011, respectively; 360 Mobile Safe had a market share of 58.2% as measured by the number of active users; 360 Safe Browser had 172 mln monthly active users and a user penetration rate of 44.1%; 360 Personal Start-up Page, the default homepage of 360 Safe Browser, had 98 mln monthly active users. Other major Qihoo 360 products include 360 Application Store and 360 Safebox, a solution that protects users against thefts of personal account information.

Qihoo 360 completed the acquisition of TheWorld Browser on September 30, 2009.

Qihoo 360's server-side mobile and online security cloud computing technology platform utilizes the Qihoo Virtual Machine Learning, or QVM, an artificial intelligence-based malware detection technology, and the company's 360 Host-based Intrusion Prevention System, or HIPS, a proactive defense technology. In January 2011, the platform had a daily average of over 15 bln cloud security user queries; a daily average of over 5 mln new file samples collected with a total size of about 1.8 TB; automatic scanning and analysis on the server cloud of a daily average of over 40 mln suspicious file samples with a total size of over 12 TB; and a whitelist database covering over 14 mln safe program files and a blacklist database covering over 700 malware samples.

Qihoo 360 offered over 20 games, which had a combined player base of 12.7 mln as of December 31, 2010.

To view Qihoo 360's full IPO prospectus, please click "here.

Keywords: app store Internet IPO malware NYSE browser penetration revenue security users online advertising Google 360 Safe Guard active users anti-virus Cloud Security Qihoo 360 360 Anti-Virus online gaming profit IVAS browser game fiscal report TheWorld

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