Tag Archives: Forbes

Controversial Internet software maker Qihoo 360 (NYSE: QIHU), accused by some of inflating its user data, has just announced some nice new figures that show a big jump in first-quarter sales tempered by a forecast for slowing growth in the current quarter. But what caught my attention in the report was the more unusual announcement that the company is appointing a new “co-CFO”, a title which I have never heard before and a move that, for me at least, increases my suspicions that perhaps there may be some truth to claims of exaggerated accounting. Let’s take a quick look at the actual results, as investors seem to be focused on that element of the report, with Qihoo saying its revenue tripled in the first quarter to $69.3 million, as it swung back to a profit after reporting a net loss a year earlier. (earnings announcement) But it also predicted a sharp slowdown in its top-line outlook, with revenue growth expected to slow to just 100 percent, not a bad figure on the surface but still about half the 200 percent rate it just recorded. Investors seem to be focused on the big revenue growth and return to profits, bidding up Qihoo shares nearly 5 percent during regular-hours trade on Tuesday in New York before the results announcement came out. Shares also rose another 4.5 percent in after-hours trade after the report came out. But below all the pretty numbers, the company near the bottom of its report also announced it is promoting its vice president of finance, Jue Yao, to the new position of co-CFO, sharing the role with the current CFO Alex Xu, citing its rapid business expansion for the move. I should at least credit Qihoo for being relatively transparent about this move, as the only reason I even noticed it was because they included it in the headline of their earnings report. At the same time, this kind of move involving a high-ranking financial official at a company is always a bit of a red flag that perhaps something is happening behind the scenes that the company would prefer investors didn’t know about. In Qihoo’s case, the company has already been living beneath a cloud for the last half year, following the release of a report by a short seller named Citron last fall claiming that many of the company’s figures were vastly overstated. (previous post) Qihoo’s shares largely survived that attack, even after Citron issued another report repeating its allegations. But then early last month Forbes magazine published its own article also questioning several of Qihoo’s numbers, again strongly implying that the company’s accounting might be exaggerated and that its accountant, Deloitte, would probably pay extra scrutiny to Qihoo’s records in upcoming audits. (previous post) Unlike the Citron report, the Forbes article seemed to carry a bit more credibility since the magazine wasn’t trading in Qihoo shares. But Qihoo strongly denied any wrongdoing, and its share are right now at around the same level where they were before the first Citron attack. This new co-CFO announcement looks to me like something is indeed happening behind the scenes, though I don’t want to speculate what. But I do feel fairly confident that the Qihoo accounting story isn’t over just yet, with 1 or 2 major new developments likely in the next 3-4 months.

Bottom line: Despite an upbeat earnings report, Qihoo 360’s naming of a new co-CFO could indicate an ongoing saga of allegations of exaggerated accounting isn’t over yet.

Related postings 相关文章:

◙ Qihoo: The Next Accounting Victim? 奇虎360：下一个会计丑闻受害者？

◙ Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

◙ Deloitte, SEC Butt Heads As China Looks On 我觉得“德勤与美国证券交易委员会在中国公司问题上的冲突

Just when the confidence crisis that has hit US-listed Chinese stocks for nearly a year looked like it was waning, a new accounting scandal could now be brewing, this time involving security software maker Qihoo 360 (NYSE: QIHU). Readers of this space will recall that Qihoo came under attack last year by a small brokerage named Citron, which questioned the company’s user figures and said Qihoo’s stock was probably worth around $5 per share rather than the $20 range where it was trading at that time. (previous post) Now Forbes magazine has come out with a much broader report questioning many of Qihoo’s operational figures, including its advertising revenues. (Chinese article) Qihoo responded by issuing a statement “strongly rejecting” the allegations, and also threatening legal action. (Qihoo statement) As a veteran reporter, I know it’s one thing when a small brokerage questions a company’s data, as many observers will suspect that brokerage is making such allegations to make some quick profits by short selling the company’s stock. But it’s quite another thing when a big publication like Forbes makes similar or even bigger allegations, as such publications understand the risks of printing material that might be considered defamatory and are much more careful about what they publish. Such publications also strictly forbid their reporters to trade in the stocks that they write about. In this case, I’ve had a look at the Forbes article and it does indeed appear that the author, Richard Pearson, has done quite a bit of research, including trying to contact the people who sell ads that are a main revenue source for Qihoo. Nothing in his research allows him to directly accuse Qihoo of falsifying data, but many of his arguments do seem convincing about why he believes the company may be engaged in questionable accounting. I’m quite confident that Deloitte, which is Qihoo’s accountant, will feel compelled to investigate some or all of the issues pointed out in the Forbes article, and wouldn’t be surprised at all to see it resign the Qihoo account if it doesn’t like what it finds. What surprises me quite a bit is how resilient Qihoo’s stock has been despite all this controversy. Its shares were trading around $20 when the initial Citron report came out last year and went down a bit afterwards. But they have rebounded sharply since then and were even above $25 before this latest Forbes story came out. And yet despite the strong arguments in the Forbes report, Qihoo shares have only fallen a relatively modest 11 percent since the article came out, indicating investors aren’t completely convinced that there are any problems. I previously said “let the buyer beware” when Qihoo made its initial public offering last year, as the company had a history of lawsuits being filed against it as a result of some of its dubious business practices. (previous post) I would take this opportunity to reiterate that message, and would be willing to bet this latest controversy involving Qihoo is far from over.

Bottom line: An attack on Qihoo 360 by Forbes magazine marks the beginning of a new controversy for the company, in the latest of a string of accounting scandals for US-listed Chinese firms.

Related postings 相关文章:

◙ Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

◙ Citron Keeps Up Qihoo Assault 香橼继续攻击奇虎

◙ Inflated Qihoo Bounces Back on Hot Air