RedTech Advisors looks at Qihoo in a detailed report from August 2011.

1. THE CHINA TECH LETTER
Qihoo 360
China’s Antivirus King Is Just Starting To Cash In
Research by …

2. Report Highlights 2
Access To Nearly Every PC In China Chapters
• 378mn Users: Every PC user in China needs what Qihoo has – security software. They want it for free,
too, and Qihoo obliges. That’s made Qihoo second only to Tencent’s QQ messenger in terms of popularity
with Chinese PC users, and given the scrappy underdog the nerve to directly challenge Tencent.
• More Than Security: Qihoo’s extensive offering of software, portals and emerging cloud services is
repositioning the company as a command center for the Web in China. It’s the starting point for users to
1. Quick View
set up their PCs, a hub for cataloging and synchronizing content and apps among devices, and a launching
pad for safely surfing the Web.
2. Drill Down
Monetization Is Solidly Underway
• Ads To Start: Qihoo collects ~75% of its revenue from ads placed on the default start-up page of its
3. Competition
browser – a big change from three years ago when it made its money by selling security software. But by
making its core software free, and bundling it with a browser, Qihoo now has access to a much larger user
base that advertisers value. The 360 Browser is the second most popular in China behind Internet Explorer,
4. Management
and the default start-up page, hao360.cn, had 45mn unique daily visitors in June, or about 10% of China’s
Internet users.
• Games: Though PC-based ads will serve it well in the near term, Qihoo is also promoting its open platform
for web-based gaming as an alternative channel for monetizing its user base. Games generate revenue
through in-game ads and the sale of virtual items, of which Qihoo takes a 65% cut.
• Mobile Next: Qihoo already captures 58% of the active users of mobile security software in China. The
firm is using its tried-and-true strategy of giving away the security software in order to get itself onto as
many smartphones as possible, after which we believe it will begin monetization by placing text link ads on
its bundled browser and by offering premium, fee-based security services.
Plenty Of Room For Growth
• Opportunity: Qihoo is already profitable and is still growing fast – revenue up 161% in 2011e. The firm
currently trades at 37x our 2012 earnings forecast of $0.64 (non-GAAP), making it much more attractive
than some of the other recent Chinese IPOs. The firm is creating a highly leveraged software and services
platform based on trust and convenience – enviable assets when dealing with consumers -- and many view
its product as a necessity, much like Tencent’s QQ or Baidu’s search tools. This gives it enormous potential
to push new products to an increasingly savvy and demanding Net surfer in China.
• Risk: Qihoo founder Zhou Hong-yi is a hard knocks entrepreneur unafraid to pick a fight. This has made
Qihoo lots of enemies, the most powerful being Tencent. Already, the firm is working to erode Qihoo’s
influence by investing in its closest rival, Kingsoft, and by blatantly copying one of its more innovative
products, a GUI overlay for Windows that makes the desktop operate like an iPhone. If Tencent is able to
successfully eat into these two markets, it will slow the growth of Qihoo and increase its costs if it has to August 31, 2011
fight for the attention of consumers through additional marketing campaigns.

3. 3
Quick View
Back to Top

4. 4
Qihoo Is A Strong, Scrappy Contender
Thesis: We are positive about the
Quick View
long-term revenue growth
opportunity at Qihoo. As China’s Founded 2005
leading software security firm, Qihoo Ticker QIHU. IPO 3/2011. Offered @ $14.50; opened @ $27.
is used by nearly 380mn Internet 2011: ~$151mn, up 161% YoY
users. The 360 Safe Guard product Revenue
isn’t the most robust, but it’s good 2012: $255mn, up 68% YoY
enough and the price (free) is right. Target
Audience PC and smartphone users.
Consumers trust it, making them
loyal and giving Qihoo a beachhead User base 378mn active users, ~92% of Chinese Net users
on the PC matched only by Tencent’s Market
~85% PC; ~35% browser; ~60% smartphone
Share
popular QQ IM.
We believe Qihoo is only at the early stages of monetizing its massive user base. By distributing related PC tools,
like browsers and app aggregators, Qihoo will increase sales through ads and revenue sharing opportunities.
Moreover, Qihoo is an early leader in the market for mobile security products just as China is starting to make its
transition to smartphones.
The next step is leveraging its advantage in PC and mobile to create cloud services and synch products that elevate
the role of the 360 suite to an organizing point for all the digital content and clutter in a user’s life. We believe this
will bind users even closer to Qihoo, thus increasing its influence among advertisers while also making it a more
attractive partner for third party application developers.
Risk To Our Thesis: Qihoo doesn’t just have competitors, it has hard-earned enemies. From Alibaba and Tencent,
to Kingsoft and Netqin. Qihoo management, led by the controversial Zhou Hongyi, isn’t afraid to instigate a fight
and then win it by questionable means. Even though it’s shown an ability to bloody the nose of industry
heavyweights like Tencent and come out relatively unscathed, the company’s combative style will always be a risk
for negative news flow that could spook investors.
Other risks include a slowdown in advertising revenue, especially from the e-commerce sector, which represents
40% of ad sales and 30.5% of total revenue. Qihoo will also continue to face considerable competition in antivirus,
browsers, gaming and app distribution.

5. 5
Qihoo’s User Base Rivals Other Net Giants
710mn
Measured by users.
378mn
370mn 278mn
Tencent* Qihoo* Taobao** Sina**
* By Active User Accounts. ** By Registered User Accounts
Source: iResearch 2011.02

6. 6
Ads Major Driver Of Strong Revenue Growth
Google’s
percentage of
Qihoo’s revenues
has decreased
from 21% in
2010 to 11% in
Q2 2011,
although the
absolute amount
of revenue from
Google has been
increasing.
Source: Company, RedTech Advisors estimates

7. 7
Qihoo SWOT Analysis
Strengths Weaknesses
 Huge, loyal user base of security software.  Search engine referral commissions come
 Reputation for safety & reliability plays well mainly from Google. Baidu and Qihoo are
into new markets. locked in a court battle over past fees.
 Qihoo’s web browser is the only successful  e-Commerce accounts for 40% of ads
competitor to Internet Explorer in China. revenue. Any drop in client spending there
would have a significant impact.
 Ad client base at 210 and growing. Top 5
customers account for 35% of revenue in  Qihoo & CEO Zhou Hongyi have made
2010. many enemies, which may limit partnerships.
 Profitable. $308mn on balance sheet,  User base still unproven as a cash cow.
which positions it for acquisitions. Consumers use Qihoo products in part to
avoid ads.
Opportunities Threats
 Ad revenue just starting to take off. User  Baidu and Tencent want to be bigger
base relatively untapped for direct players in the PC safety market, the
monetization via games, e-commerce, etc. cornerstone of Qihoo’s success. Tencent
already copying Qihoo’s desktop app.
 Gaming starting to gain momentum.
 In mobile, rival Netqin (invested by
 Mobile product can offer fee-based
Qualcomm and Mediatek) will try to displace
premium services (but not till 2013/14).
Qihoo, threatening a huge future revenue
 Strong potential to further bind users by source.
integrating and simplifying the management
 The company is built upon its reputation
of software and content across the PC,
for safety and integrity – not flashy products
mobile and app store.
or services. One crisis could be disastrous.

8. 8
Recent Performance
• Strong in August: Qihoo outperformed the major US
indexes in August, ending the month with a 3.25% gain MRQ Quick Read 2Q10 2Q11 YoY Change
against declines of 6.41% in the NASDAQ, 5.67% for the Total net revenues (US$mn) 12.7 35.1 177%
S&P 500 and 4.36% for the Dow Jones. Online advertising 8.5 26.8 216%
• Valuation: At $23.80, Qihoo trades at ~70x our 2011 Internet value-added services 3.1 8.1 159%
earnings estimate of $0.34 and 37x our 2012 estimate of Gross profit 11.2 31.4 180%
$0.64 (non-GAAP). This is no value stock for sure, but
Gross profit margin 88.3% 89.5% 1.2ppt
we are bullish on its growth prospects and would be
buyers on any weakness, especially below $20. Income (loss) from operations 2.4 12.7 434%
Operating margin 19% 36% 17.5ppt
• Volatility: During last two months, mostly trading in the
$20-$25 range, with a short-lived dip below $20 in Net Income (loss) 2.2 11.1 410%
August before its earnings announcement, which handily Net margin 17% 32% 14.5ppt
beat its earlier (conservative) estimates. We expect to Non-GAAP Net Income 1.0 13.2 1199%
see more interest in the company as sell-side coverage
Net Income per ADS (diluted) 0.05 0.09 80%
increases and management hits the road in the Fall to
better communicate its position and strategy in China. Non-GAAP Net Income per ADS (diluted) 0.02 0.11 358%
8
Source: Google

9. 9
1-Month Performance: Qihoo up 3.8% in August.
5-week Performance: Qihoo outperforms security peers.
Trend Micro: -5.4%
NASDAQ: -9%
Symantec: -9.9%
Qihoo: -3.8%
Kingsoft: -23.1%
Source: Google

10. 10
5-Week Performance: Qihoo outperforms most of China Internet Peers.
NASDAQ: -6.7%
Tencent: -11.9% Baidu: -1.6%
Qihoo: -3.1%
Kingsoft: -21.9%
RennRenn: -33%
Youku: -24.1%
3-Month Performance: Qihoo performs well against China Internet Peers.
Kingsoft: -2.9%
Baidu: +7.4%
NASDAQ: -9%
Tencent: -17.4%
Qihoo: -8.8%
RennRenn: -42.9% Youku: -40.7%
Source: Google

11. 11
Outlook: Positive
Stock Data
Ticker QIHU US ADS O/S (mn) 1 23.4 Market Cap (mn) $ 2,93 7
Market price $ 23.80 52-Week Range (US$) 16 .0 1 - 36.2 1
A vg Daily Vol (3 Mo, mn shares) 0.9 Performance W TD 1 week 4 week YTD
F ree float (%) 59 % Absol ute 6% 1% 14% -30%
Hong yi Zhou,
Major shareholders Relative 2% -3% 18% -23%
Xiangdong Qi
Financial Data
FY Dec (US$mn, except per share data) 2008A 2009A 2010A 2011E 2012E 2013E
Revenue 17 32 58 151 255 393
Y/Y NA 91 % 79 % 161 % 69 % 54 %
Gross Profit 9 24 51 134 220 333
GM % 51 % 74 % 88 % 89 % 86 % 85 %
Operating Profit (3) 4 9 22 71 109
OM % -18 % 14 % 16 % 15 % 28 % 28 %
Pre tax net (3) 5 9 24 72 110
PTM % -17 % 14 % 16 % 16 % 28 % 28 %
NPAT (3) 4 9 15 61 93
NPAT % -16 % 13 % 15 % 10 % 24 % 24 %
Y/Y NA -253 % 104 % 76 % 307 % 53 %
D iluted EPS (0.0 7) 0.03 0.05 0.08 0.33 0.50
GAAP EPADS (0.11) 0.05 0.08 0.12 0.50 0.76
Non GAAP diluted EPS (0.0 5) 0.06 0.13 0.23 0.43 0.65
Non GAAP EPADS (0.08) 0.09 0.20 0.34 0.64 0.98
P/E (x) on GAAP EPADS NM 488 .1 317 .3 192 .4 48 .0 31 .5
P/E (x) on non-GAAP EPADS NM 256.1 119.5 70.0 37.3 24.3
ROE (%) NM 154 % 12 % 5% 17 % 21 %
Net debt (net cash)/equity (%) NM NM 2223 % 92 % 89 % 88 %
Source: RedTech Advisors estimates

12. 12
COMPARABLES EPADS - EPS P/E P/S PEG
Name Ticker Share price Market cap Currency Gross margin 2011E 2012E 2011E 2012E 2012E 2012E
Qihoo 3 60 QIHU 23.8 2.94B USD 89.5% 0.34 0.64 70.0 37.3 12 0.1
Baidu BIDU 145.78 50.87B USD 74.2% 2.9 4.37 50.3 33.4 15 0.4
Symantec SYMC 17.15 12.86B USD 84.3% 1.64 1.82 10.5 9.4 1.8 0.9
Kingsoft 388 8 HK 0.53 0.6B USD 86.8% 0.04 0.05 13.2 11.1 3.5 0.6
Tencent 070 0 HK 24.11 44.2B USD 65.4% 0.75 0.96 32.3 25.1 9.5 0.7
Profit & Loss Balance Sheet
FY ends Dec 31 (Figures in US$) 2009A 2010A 2011E 2012E 2013E Current assets 2010A 2011E 2012E 2013E
Revenue 32.3 57.7 150.7 254.9 393.0 Cash and cash equivalents 60.5 270.1 317.8 394.7
Online advertising 13.9 38.8 113.2 189.8 294.6 Accounts receivable 8.2 21.3 36.1 55.6
Internet value-added services 2.1 14.8 36.6 64.1 97.4 Other current assets 3.9 3.9 3.9 3.9
Others 16.3 4.1 1.0 1.0 1.0
Cost of revenues 8.4 6.8 17.1 34.9 59.6 Non-current assets
Gross profit 23.9 50.9 133.6 220.0 333.4 Property and equipment. Net 3.3 4.5 5.7 5.9
Operating expenditure Long term investment 2.0 2.0 2.0 2.0
Research and development (10.7) (24.5) (56.4) (86.8) (133.9) Other non-current assets 9.9 9.9 9.9 9.9
Sales and marketing (6.3) (12.6) (39.4) (36.8) (51.1) Total assets 87.8 311.8 375.4 472.1
General and administrative (2.5) (5.1) (16.1) (25.7) (39.6)
Operating profit 4.5 9.0 21.9 70.7 109.0 Current liabilities
Income tax expenses (0.4) (0.5) (8.9) (10.8) (16.5) Accounts payable 1.4 3.6 6.1 9.5
Net profit attr. to shareholders 2.1 5.5 15.3 61.1 93.3 Others 12.5 12.5 12.5 12.5
Non-current liabilities 1.0 1.0 1.0 1.0
Cash Flow
Operating cashflow 9.0 20.1 10.5 60.2 96.2 Convertible preferred shares 70.2 - - -
Net income 4.2 8.5 15.3 61.1 93.3
Depreciation & amortization 4.1 1.3 6.2 11.3 19.1 Additional paid in capital 12.6 289.2 289.2 289.2
Change in working capital (1.5) 6.3 (10.9) (12.2) (16.2) Retained earnings (13.6) 1.6 62.8 156.1
Others 2.2 4.0 - - - Noncontrolling interest 0.5 0.5 0.5 0.5
Total equity,preferred shares 2.7 294.7 355.8 449.1
Investing cashflow (4.2) (9.1) (7.4) (12.5) (19.3)
Purchases of property and equip. (0.8) (2.8) (7.4) (12.5) (19.3)
Others (3.4) (6.2) - - - Key assumptions
2010A 2011E 2012E 2013E
Financing cashflow - 20.3 206.5 - - Growth
Proceeds from IPO - - 206.5 - - Revenue 79% 161% 69% 54%
Others - 20.3 - - - Online advertising 179% 192% 68% 55%
Internet value-added services 621% 148% 75% 52%
Cash at the beginning of year 23.3 28.1 60.5 270.1 317.8 Gross margin 88% 89% 86% 85%
Cash at the end of year 28.1 60.5 270.1 317.8 394.7 OPEX as % of revenue 73% 74% 59% 57%

13. 13
Drill Down
Financials, Product, Competition, Strategy
Back to Top

14. 14
Qihoo 360 Product: Browser with 65 games and
20mn users in Aug. 2011. Sales Key Revenue
Generators
Product Suite
generated via monthly subscription,
hourly rates &/or paid items.
Strategy: Gaming accounted for 18.8% of
Qihoo's Q2 revenue. Currently, most popular
games are 2D RPG's and strategy games, but
Qihoo is pushing into casual games.
Product: Simplifies
Product: Interface that runs
installing/removing programs
on top of the windows
on PC. Released Dec. 2006.
desktop. Dresses up Windows
to look and work like an iPad
Strategy: No direct revenue, but serves
and offers access to 100k
as convenient conduit for new software.
apps from iPhone and Android app catalogs. Constantly updates Qihoo's software to
10mn active users as of Aug. 2011. improve stickiness, while offering wide
Strategy: Moves Qihoo 360 brand closer to variety of software from third parties
entertainment and leverages access to (though it favors Qihoo software). Has
consumers via direct links to Qihoo's other been mimicked by Tencent and Baidu.
revenue generating channels. Possible
future opportunities for syncing with
Qihoo's mobile software Safe-Guard, which Core product: Qihoo's strategy of
targets China’s growing smartphone base. giving away Safe Guard won it a
foothold on the PCs of more than
90% of China's Internet users. Since
its release in 2006, Qihoo has
followed up with numerous other
products aimed at monetizing
its massive user base.
Product: Smartphone version of
Qihoo's safety suite. Released in
Nov. 2009. #1 market share with Product: Basic browser and home page. Only
58% of active users of mobile browser to take significant market share from
security software in Jan. 2011. Internet Explorer, with 200mn users and a 35%
market share based on actual usage.
Strategy: Mobile software also free, as part of Strategy: Start-up page accounted for 77% of
a land grab for China's growing smartphone revenue in Q2. Browser preset to use 360's start-
market. Not expected to monetize until 2013. up page, which had 45mn unique visitors per day
Syncs with Qihoo desktop software, allowing in June. Ad demand outpacing supply. Ad prices
users to control phone software. determined by bidding system; prices increasing.

15. 15
Key Products Among Most Popular In China
Trusted Partner: With 92%
coverage of China’s Internet
market (i.e. a user base of
Room for
378mn active users), Qihoo 360 user
has saturated the Chinese PC growth
within
safety market and is a considered
Qihoo’s
a household name in China. existing
However, the ‘Qihoo 360’ name is base.
synonymous with ‘free antivirus’
and thus Qihoo’s challenge is
enticing its user base to try its
other products & services.
Next Step: The company has Growth in Qihoo Key Products
shown promising results gaining
traction with its browser, which is
the key source of its revenue via
ads on the browser’s default
start-up page. Qihoo needs to
replicate this success with its
gaming services and open
platform desktop, which are in
the early phases of introduction.
15
Source: RedTech Advisors, iResearch, * Avg. daily unique visitors
in June 2011

16. 16
Strategy Shifting Toward Diverse Monetization
Agency Model: Qihoo’s 360 Safe Guard and Software Qihoo’s Revenue Sources
Manager paved the way for Qihoo’s subsequent
releases. Until mid 2008, Qihoo made most of its
money by acting as an agent for antivirus companies
like Kaspersky.
Shift to Ads: In 2008, Qihoo launched its own
antivirus for free along with its 360 Safety Browser.
This marked a key shift toward monetizing its base
through advertising, mostly via paid links on the
browser’s landing page.
Platform Strategy: The company has nearly phased out revenue from third-party antivirus sales and now
receives ~95% of revenues from ads and gaming. It continues to build out the product suite to improve
monetization. Mobile security will be the next big opportunity, with a business model based on free and fee-based
premium services.
Key shift to ads model Next big opportunity

17. 17
Launch Pad – Qihoo’s Channels to Revenues
Overview of Qihoo’s Revenue Generating Potential

18. 18
Qihoo Margins Will Remain Robust
• We expect gross margins to hover
around 85-89% for the immediate
future, and edge down slightly to 85%
beyond 2013 as a result of lower margin
revenues diluting higher margin ad
revenues.
• SG&A as a % of revenue should decline
YoY as revenue grows. The company had
higher than normal marketing costs in
2010 due to a marketing campaign
highlighted by a commercial on CCTV.
(See below). Money well spent as it saw
a spike in users during the same period.
We have modeled conservative opex as
we expect some heavier spending in
2012 to fend off Tencent.
• R&D expenses should drop slightly but
continue to stay in the 35-40% range.
Of the 860 employees at Qihoo, 722
were in R&D and only 88 in sales and
marketing.
Qihoo 360’s 2010 commercial on CCTV
“360 Anti-Virus will always be Free!”
(1Q11A spike in Sales & Marketing due share based compensation.)
Source: Company, RedTech Advisors estimates

19. 19
The Core: Qihoo 360 Safe Guard Q: How good is Qihoo
• Qihoo 360’s security software isn’t just anti-virus. It’s more of a computer efficiency
command center – akin to Tune-Up Utilities combined with anti-virus. For instance, Safe
antivirus?
Guard runs maintenance tasks more typically found in Microsoft’s control panel, such as
defragmenting, while also taking care of more mainstream security tasks, such as scanning A: Good enough.
for malware. Its freebie status may get people interested, but it’s the ease of use and
AV-Comparatives awarded
effectiveness that keeps users loyal.
Qihoo’s antivirus the same
rating as Bit-Defender and
• After Safeguard , Qihoo released an extension called the 360 Software Manager – basically
McAfee. Some tests give
a glorified browser with extensive listings of Qihoo and third-party software (akin to CNET’s
Kingsoft and Kasperky products
Download.com). The convenience comes from being able to download, install, update slightly higher ratings, but the
and/or uninstall all programs from within the manager. Of course, Qihoo ranks its software difference is not enough to
higher than others, a major catalyst for getting more Qihoo software onto user computers. disrupt Qihoo’s leading position.
System Scan Kill Trojans PC Clean-up Software manager Most of the IT professionals we
Bug Fix System Repair
talked to use 360 on their
personal PCs.
Qihoo Awards List
China Internet Weekly
Editor’s Choice Award
Approved by
China Ministry of
The 360 Safe Guard interface. With a Public Security
score of 97, this PC looks relatively
clean. The program suggests three Virus Bullentin’s
optimizations: Scan for worms (trojans), VB 100 award
check for software updates, clean out
documents in the garbage. AV-Comparatives
Advanced Level
OPSWAT Bronze
Certification
West Coast Labs
‘Checkmark’

20. 20
Browser Key Sales Conduit
Safe Browser Chrome Browser iPad HD Browser Android Mobile
Lynchpin: Qihoo’s browser is integral to driving traffic to its Browser (Pending)
portal, where clients pay to place text links to their sites. The Strengths
browser also includes a search bar from which Qihoo earns
referral fees, mainly from Google. Qihoo had partnered with • Only browser to grab significant market share from
Baidu, but they had a falling out and Qihoo is suing for IE. Currently holds ~ 35% of the China market.
$7.6mn in contested referral fees. • Safe Guard prompts user to install browser.
• Uses Trident (IE) and Webkit (Chrome) engines.
Secure Position: China’s web browser market is still
dominated by Microsoft, but new players like Qihoo are slowly Many Chinese sites only load properly on Trident.
eroding its position – down 10ppts in the last year to 50%. • Syncs browser preferences with Qihoo account.
Qihoo is second to Internet Explorer, with about 35% share, • Auto updates to solve bugs and gradually introduce
and based on user reviews and our tests of the competition new functions
(i.e. Baidu’s Beta Browser), Qihoo has a superior product that • Early mover advantage. Released in 2008.
should help it continue to gain market share.
Weaknesses
Browser Market Share Determined by Usage
• 360’s Safe Browsers reputation is based on safety. A
publicized flaw in browser security breach could
negate years of growth.
Opportunities
• New Chrome & iPad versions add incremental gains.
• Navigation bar contains links to Qihoo’s Gaming
Center
Threats
• Constantly fending off competition. Sohu bundles
browser with China’s most popular pinyin input tool.
Baidu also entering the market.
Source: CNNIC & Redtech Estimates

21. 21
Cash Cow: 360 Start-up Page
Simple but effective: Preset as the browser’s start-up page.
There are links to Qihoo’s competitors and no blatant advertising
aside from a few colored links. The landing page links to Qihoo’s
key sub-pages: an e-Commerce aggregator site, a group buy
aggregator site, and their online gaming site.
Monetization: Start-up page adds comprised 64% of Qihoo’s
Q211 sales, up from 46% in Q210.* Growth driven from
increasing bid prices due to increasing page views. Qihoo heavily
relies on e-commerce ads to drive revenue, so any softening there
would be a substantial risk. That is unlikely to happen in the next
few years as the popularity of online shopping increases and sites
vie for traffic. Search referral revenue will increase on an absolute
basis, but decline as a percentage of revenue.
Google is default for
Qihoo’s portal search referrals in
had 98mn users browser, though it can
in January. be easily changed.
Unique daily
visitors hit
Above, Qihoo Group Buy aggregator. 45mn in June,
(Click here to view) up from 38mn in Paid links: Unlike
- Searchable by specific criteria. March. Average traditional banners,
- Advertisers pay for positioning. clicks per visitor these are simple
hit 3.06 in June text links that track
Below, Qihoo’s e-Commerce aggregator. up from 2.81 in back to popular
(Click here to view) March. websites, including
Baidu, Sina,
Netease, Youku,
and RenRen. Sales
generated via
Links to group buy, bidding for ad
e-commerce and position, not based
gaming sites. on pay for
performance.
*Qihoo’s Online Advertising in the SEC filings includes Search Referral commissions, which we excluded.

22. 22
How The Keyword Ad Model Works
Qihoo does not charge ‘per click’ with advertisers, but charges monthly fees for links, priced on the most up-to-
date traffic data. To ensure the end-user functionality of the landing page, Qihoo maintains the same ratio of ad-
space across verticals, and then operates a closed bidding system within each vertical. For instance, the ad space
in Local Food Deals of the Group Buy section is regionalized with an ad in the top four rows costing 50,000
yuan/month in Beijing, and 20,000 yuan/month in Tianjin.
Signifies a click
Start-up Page
leaving the
Start-up page 10% of 33% of 17% of
40% of Ad Revenue* Ad Revenue Ad Revenue Ad Revenue**
Front Search
Group Buy E-Commerce Gaming Personal Page
Center Interests Links
Link to
Link to Retailer
Retailer Search
Category Link to
Site Results
Sub-Pages: i.e 360 In-Browser Links to Search Sub-
Search Sub Search Sites Aggregator Page
Aggregator rebates, luxury items, Games
Aggregator Pages sales events, top Taobao
stores.
End End In-Game Other Link External
Retailer Retailer Browser Pages to Site
Search Listings
Search Aggregator Page
Aggregator
**(Including searches through Qihoo’s browser)
Link to End Link to End Retailer
Retailer
*(Group Buy accounts for roughly 5% of the 40% )

23. 23
Start-up Page Popular Cash Model In China
The landing page is a pretty standard and successful model in China. The two most cited reasons for users leaving
landing pages are 1) Lack of Impartiality 2) Homogenization of content. Qihoo’s lack of presence in the search
industry gives users the impression of impartiality relative to sites owned by search engines.
hao123.com 265.com 2345.com hao.360.cn
Purchased by Baidu in 2004 Purchased by Google in 2007 Independent Landing Page Qihoo 360’s Landing Page
Founded in 2005
Chinese Netizens Reviews:
Positive: Clean & neat, fast, Positive: Includes standard Positive: Straight forward Positive: Standard layout,
one of the earliest landing basic features of email, search, layout, presenting weather… good category specific searches
pages weather
Negative: Relatively small Negative: Using a .cn domain
Negative: Font is smaller than number of URLs. has drawbacks.
Negative: Relatively Few
Features. competitors, page is a little Commentary: The domain
cramped name is easy to remember and Commentary: Many users view
Commentary: Baidu’s support 360’s landing page as an
by far the easiest to type.
and it’s inherited users give Commentary: Strong backing independent alternative to
hao123.com top spot. of Google and good flow. Google & Baidu’s offerings

24. 24
Gaming Portals
Secondary Driver
Web Page: Offering ranges from mini-games
to MMORPG, FPS to real time strategy, and
even some links to Cosplay and Anime sites.
Naturally, Qihoo promotes revenue-generating
games but it also realizes the market is full of
non-revenue generating games, which are
mostly pirated foreign games.
Qihoo lists all these games, but does not host
or pirate them – sending users instead to
websites like ali213.net or gamersky.com,
where gamers can find a torrent file to
download. Qihoo does a good job of keeping
its hands clean by not directly breaking any IP
laws, while still staying relevant to gamers by
acknowledging the massive pirated games
market in China. Qihoo does not create in-
house games.
Gaming Browser: Nothing revolutionary. Basically,
just a link on the desk top that opens up a browser to
select games. It eats up less memory than an internet
browser and has a few other features, such as a “boss
button,” but on the whole it’s ordinary and simply
another way to access games.

25. 25
Gaming Risk/Reward Gaming Dominates IVAS
Positive: Healthy increase in registered
users in games center over last six
months, from 14.7mn to 20mn. Qihoo
makes money by splitting revenue with
game companies at a rate of roughly 52% (YoY)
65:35 (Qihoo:Developer). Fees are
generated from subscriptions and/or the
purchase of virtual items. 75% (YoY)
Negative: Qihoo isn’t a gaming company
with a strong understanding of that 147% (YoY)
market, so difficult to predict how quickly
this segment will accelerate, especially 621%(YoY)
given that competition is increasing for
web-based and casual games from
specialists like Shanda and Tencent.
Gaming: Set to take off or destined for mediocrity? Qihoo Gaming Stats Q211
Partnering with game developers to share revenues is the closest that Qihoo Cut of Gaming Revenue
Qihoo has come to actual content creation. But based on Qihoo’s (after 65:35 split) $6.6mn
reported 20mn registered gamers, Qihoo’s revenue per gamer is low. Total Gaming Revenue $10mn
20mn Registered Users $0.5 per gamer
The success (or lack of) of Qihoo’s gaming endeavors could act as a Rmb per gamer 3.42 yuan
canary in the coal mine for Qihoo’s future ventures. However, that Average monthly spending 1.14 yuan
may be a shortsighted judgment. It seems that Qihoo’s management
had a false start with their initial strategy of pursuing a Blizzard Entertainment model for online gaming, and are now
recalibrating their sites on a Zynga approach via casual games. Regardless of your take on gaming as an indicator to
Qihoo’s future, gaming is currently Qihoo’s only viable revenue supplement to advertising and thus deserves
attention.

26. 26
Qihoo 360 Desktop
Innovative: Turns desktop into a format
similar to an iPhone interface. Activating the
360 desktop in full screen mode replaces all
the Windows shortcuts with apps and creates
several screens, akin to the iPhone interface.
Users slide screens to search for shortcuts.
Strengths
• Has 10M users as of Aug. 2011.
• Direct Access to 100,000+ free apps, many
coming from iPhone & Android catalogs. Sets the
stage for Qihoo to become an apps store.
• First firm to creatively use the ‘desktop’
Windows Desktop
approach.
Sub-browser of ‘Tools’ to access
Weaknesses commonly used programs
Toggle between Windows
• Monetizing may prove challenging as Chinese & 360 desktops
users accustomed to free app stores.
• Reviews have been positive, but users complain
platform lacks customizing options.
Default sample widget
Opportunities
• Plans to start monetizing in 2012.
• Synch to 360 Mobile for cross platform app store.
• Positions Qihoo closer to the entertainment Slide laterally to multiple
desktops, similar to iPad/iPhone
delivery side of the internet.
Windows task bar remains
Threats
• Competition potentially coming from Tencent
360 Desktop
copycat product that recently hit the market.

27. 27
360 Mobile Safe: ‘The Next Frontier’
Opportunity: Of the roughly 860mn cell phones in China, about a sixth, Available On:
143mn, are smartphones. This number is only going to grow, particularly as
handset makers start to focus on the lower end of the market.
Strategy: Qihoo is replicating its free antivirus model to grab users in the growing
smartphone market. According to a report from Qihoo in July 2011, about 8% of smart
Supporting Software
phones were found to be infected with some type of virus of malware. While these
viruses may not be fatal to a cell phone, the lingering threat of some malware eating up 360 Ipad Hi-Def
a users monthly data plan should be enough encouragement for a user to download Browser: Launched in
Qihoo’s software. Aug. 2011
Function: Monitors monthly data usage, blocks SMS spam, and deletes virus & Qihoo 360 Kouxin:
malware. Qihoo’s software also synchronizes with Qihoo’s desktop software manager so Cross platform instant
users can control application download and removal when synching their phones with messaging application.
their PC. (Similar to “What’s App”)
Monetization: We don’t see Qihoo monetizing Mobile Safe until late 2013. This may be 360 Android Browser:
expedited depending on the popularity of 360 desktop and app store, or pressure from Coming soon
competitor Netqin, which also gives its software away but charges for updates and
premium services.
2009-2014 GAGR = 75%
Qihoo claims 52% of
active users.
Available on …
Source: Frost & Sullivan Source: iResearch, Jan 2011

28. 28
Products Geared Toward Leverage
Software
& App Internet
Managers Browsing
360 Safe 360 Software
Guard Manager 360 Web 360 Anti-
Shield Virus
Device Safety
360 360 File
360 Mobile 360 E-Commerce Compression
Safe Box Safe Guard Bodyguard
360 iPad
HD Browser
Gaming 360 360 Start- 360
Desktop up Gaming
Page Browser
360 Safe
Browser
360 Open ID: 360’s webpage & browser sign-in is
used to register on 3rd party websites, such as Group
buy sites that advertise on Qihoo’s website.

29. 29
Competition
Tencent, Kingsoft, Netqin
Back to Top

30. 30
Tencent-Kingsoft Combo Biggest Threat
• Tencent & Kingsoft: Kingsoft’s anitvirus software was released in 2002 and is still well regarded. However, consumers were
not willing to pay for something Qihoo gives them for free. So in Nov. 2010, Kingsoft capitulated and started giving its
antivirus away, too. Yet, by then the once dominant Kingsoft had shrunk to a 14.6% market share. In July 2011, Tencent
bought a 15% stake in Kingsoft, hoping to strengthen its offering to the more than 300mn-plus PC users that already have
Tencent’s software installed on their PCs. A key figure to watch in the coming year, is the adoption rate of the package set of
QQ software manager and Kingsoft’s Anti-virus. This combo is the most likely competitor to erode Qihoo’s core user base,
and could represent a significant threat to Qihoo’s future growth.
• Rising: Rising still holds 11% of the domestic market, and as of March 2011, it’s free. It’s internet security program and
anti-spyware received the same Bronze rating as Qihoo from Opswat. Rising has also released a browser, though it hasn’t
gained significant market share.
30

31. 31
Tencent Already Replicating Desktop App
• Tencent’s Q+: At the end of 2010, Tencent announced development plans for ‘an open QQ interface’. It launched in
May, 2011, two months after 360’s desktop, and is pretty much a copycat in typical Tencent fashion.
• The key difference between Qihoo’s 360 Desktop and Tencent’s Q+ is the social aspect tied into Q+. It allows users to
seamlessly tie in social aspects into their games, while Qihoo’s apps do not. In other words, Q+ can use Tencent’s social
leverage (i.e. Qzone, Pengyou, Weibo and QQ IM) to link members together for group games or other entertainment,
similar to Facebook. Qihoo will need to form partnerships with other SNS sites to substantially improve its SNS feature.
Q+ 360 Desktop
Use of RAM ~17MB ~17MB
User Interface Mediocre (lacks pre-loaded features) Above Average. Smoother interface than Q+. Much
better job of recommending apps
Number of Apps Few (so far majority are Q+. Q+ has yet to cultivate Tons, ~100,000, majority recycled from app-
the ‘open’ environment it promised developers) platform catalogues
Quality of Apps Satisfactory Mediocre (Majority are mini-games)
SNS capability High, sync with QQ account Low
Room for expansion Merge with QQ’s services Yet to be seen how Qihoo will integrate with other
360 products
Similar side bar Tencent’s Q+ Desktop Widgits
Qihoo’s 360 Desktop
Toggle between
Windows Desktop
Widgits
Similar side bar
Toggle between Windows Desktop
31

32. 32
Management
Key Execs & VIE Structure
Back to Top

33. 33
In Your Face Management
‘My Job In China Is To Kick Google’s Ass*’: Qihoo founder Zhou Hongyi is one of
the most colorful characters among China’s Internet aristocracy. He’s traded blows
with Google (and lost) and Alibaba’s Jack Ma (and won) and Tencent’s Pony Ma (a
draw). He first gained attention as the founder of 3721.com, a search firm bought by
Yahoo for $120mn (cash) in late 2003. He and his inner circle then ran Yahoo China
until being forced out by Jack Ma in 2005 when Alibaba took control of Yahoo China.
Miraculously, Qihoo was up and running nearly overnight – accusations still linger
that Zhou personally paid engineering teams he oversaw at Yahoo to moonlight on
Qihoo. In a jab at Yahoo and Ma, Qihoo’s security software labeled the 3721/Yahoo
software as malware and encouraged users to delete it. The ensuing public finger
pointing between Yahoo and Qihoo created a media blitz of coverage. Qihoo came out The rhyming of Qihoo &
of it relatively unscathed in the public’s eye, but Yahoo, and more importantly, Jack Yahoo is no coincidence.
Ma has not forgotten. This type of combativeness is a trademark of Zhou.
Qihoo Chairman & CEO Zhou Hongyi Media Coverage of
Qihoo-Yahoo conflict
• Born: 1970, Hubei Province
Naturally the Chinese tech-
• Education: Masters in Computer media loved the story line
Engineering from Xian Jiaotong University. and had a field day with it. In
• Founder of 3721.com the cartoon above Zhou
• President of Yahoo China Mar.’04-Aug. ‘06 Hongyi gestures at Jack Ma.
The adjacent magazine title
• Partner at IDG Venture Capital
reads “Zhuo Hongyi: I am not
• Deep ties with in China’s VC network a hypocrite”.
Qihoo’s Inner Circle From 3721 & Yahoo China
Qi Xiangdong Shi Xiaohong Shu Cao
President of Qihoo 360 VP of Technology Chief Engineer
Formerly: Formerly: Formerly:
• VP of Yahoo China • CTO of Yahoo China, • Chief Engineer of Yahoo China
• GM of 3721.com • CTO & Co-founder of 3721.com • Co-founder of 3721.com
• Vice Bureau Chief for Technology,
Xinhua (government news agency)
*Source: Danwei.org

34. 34
Qihoo Is No Stranger To Conflict
At War with Tencent
Oct, 2010: Affectionately refferred to as the “The 3Q War”,
Qihoo 360 and Tencent had a public battle that stemmed
from allegations of privacy issues, and turned into a deadlock forcing users to
choose one of the companies.
In brief, a Qihoo suggested that Tencent’s QQ program may be scanning personal
user files, and Tencent countered that Qihoos browser was misdirecting its clients
to questionable sites.
In the coming month the mud-slinging escalated to lawsuits, and then users were
forced to choose between Qihoo’s safety software or Tencent’s instant messenger
QQ. At this point, the Ministry of Information and Technology ordered both sides
to resolve the software conflicts and cease all negative statements.
Weibo Clash
May, 2010: Kingsoft’s CEO ‘tweeted’ on his Weibo account that Qihoo was behaving in an unscrupulous
manner. Qihoo’s CEO Zhou Hongyi retorted via his weibo account “so sue me.” Kingsoft did. Zhou Hongyi
lost a reputation infringement case and had to pay roughly US$12,000 in damages to Kingsoft and had to
post apologies on his Weibo account for a week. Kingsoft’s unfair competitive practice suit is still pending,
as is Qihoo’s counter suit. These lawsuits are mostly for theater. Lawsuits of this nature rarely have a
strong ruling in China and will unlikely have any material affect on Qihoo’s operation.
Suing Baidu
May, 2010: Qihoo filed a breach of contract claim against Baidu for
Suing Rising
unpaid search results, asking for US$7.6mn in damages, losses and Feb, 2010: Qihoo is
interest. Baidu filed a counter claim for US$1.6mn. $7.6mn would’ve suing Rising for
been equal to 24% of Qihoo’s 2009 revenue, significantly more than misleading users into
Google during that period. thinking that 360 Safe
Guard poses security
Qihoo currently does not have an agreement in place with Baidu for risks. This case is
search referrals, but Qihoo still keeps Baidu listed on search bar on the pending and we do not
start-up page for user’s convenience. If Qihoo can come to an amicable believe that Qihoo will
agreement with Baidu, it could quickly give Qihoo’s top line a boost in obtain any significant
the realm of 10% (conservatively based Google’s contribution to settlement.
Qihoo’s revenue). Unlike Qihoo’s other quarrels, this one has stayed
out of the media limelight, and is worth following closely.

35. 35
Corp Structure & Management Ownership
Management Stake: 39.5%
Zhou Hongyi, CEO: 18.6%
Qi Xiangdong, President: 10.8%
Cao Shu, Chief Engineer: 7.1% Qihoo 360 Technology Co., Ltd.
Shi Xiaohong, VP Technology: 3.8% (Cayman Islands)
100% 100% 100%
360 International Qifei International Qiji International
Development Co. Limited Development Co. Limited Development Limited
(Hong Kong) (Hong Kong) (Hong Kong)
Outside PRC
100%
Inside PRC
Qizhi Software
(Beijing) Co., Ltd.
Beijing Qihu Technology Beijing Qihu Network Technology Five Other VIE’s
Company Limited (PRC) Computer Limited (PRC) (PRC)
Contractual arrangements consisting of equity disposition agreements, loan agreements, equity pledge agreements, business operation agreements,
technology development agreements and power of attorney.

36. THE CHINA TECH LETTER
Thanks!
michael.clendenin@redtechadvisors.com
inquiry@redtechadvisors.com
+86 21 6248 3975
Research by …
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