More Users, More Online Shoppers in China: How to Play Qihoo 360 Ahead of Earnings

By Andrew Keene  MAR 05, 2013 1:11 PM

End-user growth suggests a long play in this software company.

 


Qihoo 360 Technology (NYSE:QIHU) is a Chinese software company that manufactures popular anti-virus software and a Web browser exclusively for the Chinese market. QIHU is scheduled to report 4Q 2012 and full year 2012 financial results after the market close today, with analysts predicting EPS of $0.17 on revenue of $93.68 million.
 
Qihoo now boasts a unique business model, having moved away from selling its security software to instead attaching users to its Web portal.  Therefore, the company's primary source of revenue is now ad revenue, making usage metrics an important number to watch as well.
 
In its Q3 report, Qihoo reported 442 million active users, a 72 million increase from one year prior, including 149 million mobile users. Qihoo also reported 89 million unique visitors to its revenue-generating portal page, up from 55 million in the year prior.
 
Expect to hear more favorable news on this afternoon's conference call as Qihoo benefits from Chinese urbanization programs and the accompanying increased access to technology.  The company's growth is also tied to online shopping, which reached a record 1 trillion yuan in 2012 and is expected to increase further over the next few years.
 
11/20/12   $23.70   $24.20  $+0.50 (2.1%)
08/22/12   $21.10   $24.58  $+3.48 (16.5%)
05/23/12   $21.40   $20.62  $-0.78 (-3.6%)
02/23/12   $17.50   $18.32  $+0.82 (4.7%)
11/17/11   $18.92   $17.58  $-1.34 (-7.1%)

Historical Earnings Move: Mean 6.8%, Median 4.7%
 
NearTerm Straddle Indication:
 
Term  Strike       NBBO          Size      %Spot(Mid)
03/16  $34     $3.55 - $3.80   184 x 50     10.6%
03/16  $35     $3.60 - $3.85     2 x 26     10.8%
 
I want to get long on a pullback, so I am looking at a credit spread:
 
My Trade:  Short the QIHU March 34-33 Bull Put Spread for $.40 Credit
Risk: $60 per 1 lot
Reward: $40 per 1 lot
Breakeven: $33.60
 
Greeks of this Trade:
 
Delta:  Long
Vega: Short
Gamma: Short
Theta: Long
No positions in stocks mentioned.