QIHOO 360 Technology's CEO Discusses Q2 2012 Results - Earnings Call Transcript

QIHOO 360 Technology Co. Ltd. (QIHU)

Q2 2012 Earnings Call

August 21, 2012 8:30 p.m. EDT

Executives

Helen Wu - Director of IR

Hongyi Zhou – Chairman and CEO

Alex Xu – Co-CFO

Analysts

Timothy Chan – Morgan Stanley

Jiong Shao – Macquarie

Bin Liu – Citigroup

Tian Hou – T.H. Capital

Wendy Huang – CIMB

Andy Zhao – Bank of America

Cynthia Meng – Jefferies

George Askew – Stifel Nicolaus

[Nancy Yang] – [86 Research]

Kevin Kopelman – Cowen & Co.

Alicia Yap – Barclays Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Qihoo 360 Second Quarter 2012 Earnings Conference Call.

[Operator Instructions]. I must advise you that this conference is being recorded today, Wednesday, the 22nd of August, 2012.

I would now like to hand the conference over to your first speaker today, Ms. Helen Wu, Director of Investor Relations. Thank you. Please go ahead, ma'am.

Helen Wu

Thank you, operator. Welcome, everyone, to our second quarter 2012 earnings conference call. I'm Helen Wu, Director of Investor Relations at Qihoo 360.

Joining me on the call today are Mr. Hongyi Zhou, Chairman and CEO; Mr. Alex Xu, co-CFO of the company. For today's call, management will first discuss operational and financial highlights for the second quarter of 2012, and then we'll open up the call for your questions.

Before we continue, I would like to refer you to our Safe Harbor Statements in our earnings press release, which applies to this call as we may make forward-looking statements. This call also includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during the call are in US dollars.

Now I would like to turn the call over Hongyi Zhou, Chairman and CEO of Qihoo 360.

Hongyi Zhou

Thanks, Helen. Good morning and good evening, everyone. Thank you all for joining us today.

I'm pleased to report another quarter of strong financial and operational achievement, including growing our PC active user base to a record 425 million and our smartphone user base to about 120 million. We not only maintained our leadership in PC internet but also established Qihoo as one of the leading mobile internet players in China. We have once again outpaced the industry, delivering another solid quarter of triple-digit year-over-year growth, which was accomplished despite macroeconomic concerns.

We continue to grow our business in the face of industry headwinds through solid execution of our growth strategy and commitment to technology innovation and best-in-class user experience. As a leading internet company in China, we continue to enhance our -- we enhance our --

Alex Xu

Competitive.

Hongyi Zhou

-- competitive position in the second quarter, as I mentioned earlier, as the users of our PC-based products and service reached 425 million in June, according to data from iResearch, and our user base represent 94% of the China active PC internet users.

In the past few months, we leveraged our strong market position in web browser to gradually introduce some personalized features to our personal data page. We have seen a very positive reaction from our users and advertising customers. These features along with other [inaudible] page will gradually add significant levels of CPC and CPS-based advertising to our service, which will meaningfully enhance the efficiency of our traffic monetization over time.

A few days ago, we launched our general search product. While it is still in its early stage, we are seeing very encouraging results in terms of user traffic and reaction. In our view, it is a game-changing product that will give Qihoo a meaningful share of the market billion-dollar search advertising market in China. We're certainly looking forward to becoming a major player in this market in the long run.

Our mobile internet user base continues to expand and Qihoo's mobile security solution gained traction and market share amongst smartphone users in China. According to data from iResearch and [CCIB], total smartphone user of Qihoo 360 mobile security solution already reached 120 million, representing almost 70% of the market share in smartphone mobile security, giving us a very clear leadership position. Building upon the popularity of our mobile security solution, we also offer competitive mobile internet products portfolio that will further expand our influence in mobile internet. 360 Mobile Assistant and app store for Android has become one of the most popular Android market players in China since its launch less than one year ago. 360 Mobile Browser also well-received by Android and iOS mobile device users in China.

During the second quarter, we introduced 360 [co-brand] smartphone with [startup] domestic handset manufacturer. These smartphones are preloaded with Qihoo 360 full package of mobile internet products and offered to users at a best in market price to performance with retail. They are widely popular among users. With this offering, we not only form strong relationships with key industry players and create a distribution channel for our mobile internet products, but also closely link the Qihoo 360 brand with mobile internet.

Through all of these strategic efforts, we have gradually established ourselves as a leading player in China mobile internet. We will continue to make a solid investment in product development and technology and expand our coverage in both PC and mobile internet. In addition, we are building our cross-platform reach by providing cloud-based service, which enable users to seamlessly aggregate their digital [lives] in PC and mobile internet.

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