China IPO: Qihoo’s Zhou Wins Big While His Rivals Simmer?

Investors have anointed another Chinese Internet titan in Zhou Hongyi, whose Qihoo 360 Technology saw its shares bid up 134% on its first day of trading Wednesday after its initial public offering on the New York Stock Exchange. The security-and-browser company, which turned a profit of $8.5 million last year, is valued by investors at close to $4 billion — making Zhou, whose family owned 21.5% of the company before the share offering, not quite a billionaire.

Zhou’s Qihoo joins Victor Koo’s online video site Youku.com as two of the hottest MAKE MONEY NLOG$;IPOs to hit the U.S. markets in recent months, as China’s Internet market keeps producing winners on stock paper, if not always on the balance sheets. Youku.com has yet to turn a profit and is, like Zhou’s business, surrounded by well-funded competition, but investors value the business at $5.3 billion. E-Commerce China Dangdang, only thinly profitable, is not trading at its peak but is also valued at more than $1 billion.

Other publicly listed companies, like Baidu and Sina Corp., are trading at or near all-time highs. Some analysts believe Sina CEO Charles Chao will take advantage of investor sentiment for the Chinese Internet to spin off Sina’s popular Weibo service, a Twitter with Facebook-like features, in what would be another blockbuster IPO.

Zhou is a familiar face in China’s competitive Internet business — perhaps too familiar for some of his competitors who despise him. He has been in very public dustups with many competitors over the years, most recently with antivirus rival Kingsoft, which just won a Beijing court judgment in a lawsuit claiming Zhou made defamatory statements (as mentioned in Qihoo’s updated IPO filing). He also scuffled last fall with his biggest rival for advertising revenue, billionaire (Pony) Ma Huateng’s social networking giant Tencent, which said Qihoo’s antivirus software was unfairly targeting its instant messaging software (Qihoo claimed that Tencent’s software was invading users’ hard drives). Billionaire Robin Li’sBaidu has raised the same concerns about Qihoo targeting its toolbar.

Zhou’s reign as the dark prince of the Chinese Internet dates back to his early success as the founder of the search and online marketing site www.3721.com, which became ubiquitous in China, sometimes to the consternation of users who found the 3721 toolbar difficult to uninstall from their computers. He sold that business in 2004 to Yahoo China, then ran Yahoo China for 19 rocky months before splitting off to launch an eventual rival to his 3721 in Qihoo, creating yet another enemy in Yahoo China’s eventual owner, Jack Ma and Alibaba Group.

Qihoo has since evolved to become China’s leading antivirus company and the producer of a popular browser that is built on top of Internet Explorer 6. The company relies heavily on advertising revenue — one of the reasons Zhou finds himself in scuffles with so many of his peers in the industry — and earned more than 20% of its revenue last year from directing search to Google. Zhou’s fisticuffs with his rivals seem to be working for him so far. It is unclear his company will prove to be worth $4 billion in the long run, but his competitors won’t be thrilled that Qihoo now has much more cash at its disposal to fight its battles.

SOURCE: FORBES.COM

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