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Release Date: July 2, 2012 Qihoo 360 When a Nigerian Prince files for IPO Ticker:
Release Date: July 2, 2012
Qihoo 360
When a Nigerian Prince files for IPO
Target Price:
Recent Price:
Implied Return:
Market Cap:
US$2 billion
You should have expected us

Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward-looking statements, expectations, and projections. You should assume these type of statements, expectations, and projections may turn out to be incorrect.

All facts, figures, and opinions are as at the last practicable date. This document has been prepared for informational purposes only. This document is not an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. However, if you do decide to buy shares of Qihoo, maybe you should consider parental locks on your trading account.

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A few years ago, the global Anonymous collective made headlines by hacking into corporate and government servers. Morals and ethics aside, most within the collective saw this practice as a sort of sport, a way to pit their technical skills against what were supposed to be the best IT departments the world had to offer those belonging to state governments and multinational corporations.

As the wins and losses piled up on both sides, attacking servers and websites became cliché, if not outright boring. Some within the collective sought other, more interesting challenges. With this background, a cluster of us from Anonymous decided to enter the financial markets.

Anonymous Analytics was established less than a year ago with the aim of using our skills to flush out corruption in the corporate world. We started with China not because Chinese companies are engaged in more fraud than Western companies, but because they are less apt at covering their tracks. China is new to capitalism, and Chinese managers are new to stealing money from the capital markets. But give them a few more years and they will learn how to hide their improprieties just as well as their Western counterparts. After all, China’s specialty isn’t manufacturing – it’s copying.

It’s this inexperience that has made exposing Chinese companies so common. But just like hacking websites, exposing Chinese frauds has become cliché, if not outright boring. Accordingly, we have turned our attention to several Western companies that may be surprised to find themselves in our crosshairs. We expect to release our first such report by year-end.

In the interim, there is still more work to be done in China. This report is an example of that. This report isn’t very long because it doesn’t need to be. The proof of fraud is simple and took a single phone call to obtain.

It wasn’t our intention to report on another Chinese company so soon, but sometimes finding smoking gun proof of fraud is too easy. Sometimes, management leaves the evidence in plain sight. Sometimes, all it takes to delist a multi-billion dollar company is a right-click of the mouse.

Love us. Hate us. Anonymous.


Executive Summary
Executive Summary

Qihoo 360 is an internet company that was brought public on the New York Stock Exchange in 2011. Reporting quarter after quarter of explosive growth that consistently beats analyst estimates, Qihoo has been heralded as the next great internet company on par with Baidu. Morgan Stanley went as far as to call it “a trusted online partner” when it initiated coverage with ‘Overweight’ two months ago.

Perhaps that should have been the first clue to question the glowing ‘buy’ recommendations that 12 of 13 analysts have on the stock. Ironically, the Company is so poorly regarded by its Chinese peers that several major internet firms, including Tencent and Baidu, have publically refused to conduct business with Qihoo. Moreover, Qihoo’s CEO, Mr. Hongyi Zhou is infamously credited with having introduced malware to China. 1

Analyst fanfare is understandable, if not naïve. Qihoo’s massive web traffic is supposed to be one of the largest in China. Once the Company manages to effectively monetize this traffic, the sky is the limit or at least that’s the story management has sold to investors.

It’s a good story. The only problem is that Qihoo’s massive traffic volume is a lie – and we have proof.

Several months ago, our team discovered a piece of code embedded in Qihoo’s directory page. This code was voluntarily placed by the Company so that comScore, an independent third-party auditor, could accurately measure the true traffic volume to the site.

We waited patiently with hopes that management would release the results of the traffic data to corroborate Qihoo’s claims of massive traffic activity. They never did. In fact, two weeks ago, the code that allowed comScore to measure the traffic volume was quietly removed as if the whole thing had never happened.

As a result, we mobilized our team and acquired the comScore data ourselves.

As detailed in this report, management chose to keep the data secret because it shows irrefutably that Qihoo’s directory page gets significantly less traffic than management has led the capital markets to believe. All that massive traffic volume that was supposed to transform Qihoo into an internet marvel doesn’t exist.

Qihoo was supposed to be the next great internet company. It turns out that it’s just another fraud.

We have reason to believe that the SEC already has Qihoo on its radar. Given the information presented in this report, along with other issues that we have omitted, we believe that Qihoo will be delisted from the NYSE and management charged with securities fraud.

1 Malware and computer viruses are incredibly prevalent in China. To be widely acknowledged as the man responsible for this a new level of infamy.



Qihoo 360 is a Chinese internet company that was brought public in 2011 on the New York Stock Exchange by UBS and Citigroup. Evidence suggests that these two investment banks have no analysts with any internet or IT knowledge, because shortly after its debut, Qihoo was the target of multiple articles questioning its accounts which defy any semblance of reality.

But Qihoo and its Chairman and CEO are no strangers to controversy, with both sharing a sordid history. For context and to truly appreciate the magnitude of swindling we’re dealing with here, we provide a summary of some of the more colorful issues surrounding Qihoo and its Chairman/ CEO, Mr. Hongyi Zhou, a man infamously known in China as “the Father of Malware.” 2

Early 2000s Origins of Mr. Hongyi Zhou

The Event: Mr. Zhou first appeared on the internet scene in the early 2000s with a website called For the sake of brevity, was effectively a search engine.

What Happened Next: Mr. Zhou was sued for defamation by the CNNIC (China Internet Network Information Center), an entity under China’s Ministry of Information. The CNIIC suit was successful and Mr. Zhou was ordered to pay restitution and issue a public apology. Perhaps, more relevant to investors than the outcome of the case, is what was uncovered about Mr. Zhou and his company during the discovery process:


Mr. Zhou falsely advertised that had attracted investments from various prominent venture capital firms. As an example, Mr. Zhou claimed that Japan’s JAFCO had invested US$10 million into However, filings showed that there were no external investors, and the company was 100% owned by Mr. Zhou and his wife alone. 3


On October, 2001, Mr. Zhou claimed that was China’s first profitable internet company.’s homepage went as far as to state that “monthly income keeps growing at 20%.” However, records obtained from China’s Ministry of Commerce showed that had negative equity. A representative from CNNIC stated that there were only two possible explanations either was fabricating its numbers, or Mr. Zhou was lying to the Ministry of Commerce. 4


November, 2003 Yahoo! acquires

The Event: Following a messy lawsuit with the Chinese government, Mr. Zhou promptly sold to Yahoo for $120 million. As part of the acquisition, was renamed Yahoo! China, and Mr. Zhou was appointed CEO with compensation tied to the division’s financial performance.

What Happened Next: Within a year, Mr. Zhou was fired from Yahoo! China. Yahoo quickly discovered that installed itself on client computers and redirected search results. This was widely deemed as malware by the industry, which forced Yahoo to scrap the project.

Our sources tell us that during this time, Yahoo also discovered that Mr. Zhou was falsifying the financial results of his division in order to boost his compensation. In 2006, Yahoo! China filed a suit claiming that “Zhou has embezzled from Yahoo China and defrauded it.” 5 This suit was later won by Yahoo, and Mr. Zhou was ordered to pay restitution and publically apologize. 6

August, 2006 Mr. Zhou assumes his role as Qihoo’s CEO and Chairman

Mr. Zhou was appointed CEO and Chairman of Qihoo after being fired from Yahoo! China. Building on his history of deceptive business practices, Mr. Zhou found himself and Qihoo in various lawsuits brought on by some of China’s biggest internet companies, including Tencent, Kingsoft, and Baidu. All these lawsuits involved charges of deceptive and/or illegal business practices by Qihoo, and in each case the courts ordered Qihoo to issue a public apology and pay restitution.

Qihoo has aliented so many industry players with its business practices that Tencent, Kingsoft, Baidu, Maxthon, and Keniu posted a joint statement accusing Qihoo of unfair competition and announced in a press conference that their software and services would be configured to become non-compatible with Qihoo’s applications. 7 Yahoo founder Jerry Yang took it one step further and advised potential investors in the US not to trust his “old acquaintance” from China. Perhaps that is why Mr. Zhou had difficulty rounding up supporters during a Hong Kong trip to discuss Qihoo’s IPO. 8

February, 2012 Apple bans Qihoo Apps

Earlier this year, Apple temporarily banned all iOS apps by Qihoo. These apps were removed because of abnormal user ratings. It was found that the App Store rankings had been manipulated to promote Qihoo apps. 9 The relevance of this event will become apparent by the end of this report.

this event will become apparent by the end of this report. Qihoo’s CEO is effectively a

Qihoo’s CEO is effectively a real life internet troll with a background that defies belief. He has been credited for introducing computer viruses into China. He has alienated industry peers. He has been to court more times than is sensible. And now he’s running a multi-billion dollar NYSE listed fraud. If Mr. Zhou didn’t exist, would it be possible to invent such a character?







Qihoo’s Business Model
Qihoo’s Business Model

Qihoo has a very straightforward and easy to understand business model. Qihoo is best known for its Qihoo 360 browser and anti-virus software products, both which are popular in China. Despite the prominence of these products, the Company makes no money from them. Browsers do not generate any revenue as anyone who remembers Netscape Navigator will attest to. Likewise, it is impossible to charge for software products in China, which has the highest piracy rate in the world. This makes the prospect of selling anti-virus programs so challenging that most (including Qihoo’s own anti-virus) are free to download.

Instead, Qihoo leverages its browser and anti-virus user base to generate revenue from (i) online advertising and (ii) web-based games. As presented in Exhibit 1, the Company generates all of its revenue from these two sources.

Exhibit 1 Revenue Source, 2011 (in millions of US$)

140 120 100 80 60 40 20 0 Online advertising Web-based games Other services
Online advertising
Web-based games
Other services

Source: Company filings

Online advertising sales come primarily from selling link space to advertisers on Qihoo’s directory page, Web-based gaming revenue comes predominantly from browser-based subscription games or in-game virtual item sales.

Based on our analysis, we are absolutely confident that management is wildly exaggerating earnings from both these segments. Listening to Qihoo proclaim that their shitty web-games earn vastly more per paying player than World of Warcraft while analysts nod in acceptance is an unbearable exercise 10 . In any case, this report will focus solely on the online advertising segment, as it generates the vast majority of Qihoo’s company-wide revenue.

“Dear Friend, I have an urgent business proposal for you.”

-Prince Okoye of Nigeria

10 World of Warcraft play-time costs about $10 per month per player in China. Qihoo claims its games earn US$60 per month per paying player. The average salary in China is US$300 a month. Whatever.


Online Advertising
Online Advertising

Qihoo’s primary revenue generator is its directory page, Exhibit 2 presents a screenshot of this page.

Exhibit 2

revenue generator is its directory page, Exhibit 2 presents a screenshot of this page. Exhibit


As unintuitive as it may seem, this simple directory site purportedly generates the majority of Qihoo’s advertising revenue, which in 2011 amounted to a reported US$123 million, up over 200% from US$39 million in 2010. Site revenues are generated two ways, Direct Links and Google Search Queries:

Google Search Queries uses the Google search engine to conduct search queries. Google pays Qihoo a pre-determined fee for each search query originating from the site. This relationship is by no means unique as Google has this type of agreement with legions of sites and applications. Anyone can create a site and code in the Google search component and start collecting payments from Google. Despite this non-relationship, Qihoo refers to Google 42 times in its 2011 annual report and 48 times in its IPO prospectus.

It should be noted that any sensible Chinese internet company would use Baidu as its third party search engine. However, as we mentioned in the ‘History’ section of this report, Qihoo has alienated most of its peers in the Chinese internet space, including Baidu, so it’s forced to use Google – a company that no longer even operates in China.

In any case, only a fraction of online revenue comes from Google. The vast majority of company-wide revenue is earned from selling link space on

Direct Links Direct link sales on the page represent the bulk of revenue for Qihoo. We are somewhat surprised that a company valued at over US$2 billion can survive mainly by selling links on a directory site. We know of no other internet company that earns material revenue in this way, as there are countless directory sites on the internet, and even more that have long gone out of business. As a prominent example, Baidu operates its own directory page, but earnings are so negligible that Baidu doesn’t bother to report the segment separately.

Exhibit 3 shows a side by side comparison of (owned by Baidu), and (owned by Qihoo).


Exhibit 3 (owned by Baidu)

Exhibit 3 (owned by Baidu) (owned by Qihoo) Qihoo states that on average it (owned by Qihoo)

3 (owned by Baidu) (owned by Qihoo) Qihoo states that on average it can

Qihoo states that on average it can charge approximately RMB320,000 to RMB350,000 (~US$50,000) per month, per link on its directory page. In some cases, Qihoo claims it can charge up to RMB1 million (~US$156,000) per month per link in its “Famous Sites” section. 11

These figures may seem like exorbitant monthly sums to charge clients to simply place a link on a crowded directory page and they are. As we previously mentioned, we know of no other company, public or otherwise, that has generated material revenue by selling links on a directory page, much less created a sustainable business from this model.

So, how does Qihoo justify its claims of charging small fortunes for link space?


Apparently the answer has to do with Qihoo’s expansive user base and audience reach. You see, the underlying driver of all advertising pricing online or otherwise has to do with audience exposure.

On its Q4 2012 conference call, management states:

“I think we are right now we’re probably closer or near what the hao123 is pricing on the per link basis… the traffic on our Personalized Start-Up Page already surpassed hao123 a while ago and today we believe we have at least 20% plus kind of a traffic advantage over hao123. So in other words, the from a price performance perspective, we have about 25% advantage over hao123.”

Qihoo claims that its directory page gets 20% more traffic than even Baidu’s directory page. And so it appears, huge traffic flow is the reason Qihoo can charge absurd sums for its link space. This is also the reason Qihoo has apparently succeeded in establishing a multi-billion dollar enterprise based on a business model no other company in the world has been able to effectively monetize.

It turns out that Qihoo’s traffic volume is the primary driver of its great fortunes.

It turns out that Qihoo’s traffic volume is the reason the Company has reported revenue growth of 200% per year in the last three years a stratospheric growth rate unmatched in the industry and void of all logic.

It turns out that Qihoo’s traffic volume is the reason that as of this writing, 12 of 13 analysts had buy recommendations on Qihoo.

But, what if it turns out that Qihoo’s purported traffic volume is a complete lie? What if has only a fraction of the traffic that Qihoo claims?

The reality is that Qihoo is an internet company whose primary prospect is a delisting. We have uncovered smoking gun evidence that Qihoo is grotesquely exaggerating its traffic volume, and in the process committed securities fraud.

“Jerry, just remember, it’s not a lie if you believe it.

-George Costanza, Seinfeld


Secrets Hidden in Plain Sight
Secrets Hidden in Plain Sight

We have been monitoring since last year when questions involving Qihoo finances first appeared. At the beginning of this year something happened we noticed a change in the website’s source code. The change was small and barely noticeable, but crucial: a comScore tag was added to Qihoo’s HTML code. Exhibit 4 presents a screenshot of this tag, which is highlighted by the red box.

Exhibit 4

to Qihoo’s HTML code . Exhibit 4 presents a screenshot of this tag, which is highlighted


What is comScore?

To understand the significance of this discovery, it helps to understand what comScore is. ComScore is the premier independent third party verifier of internet traffic statistics. It is used by a multitude of major corporations, including Financial Times, AOL, Microsoft, Yahoo, and Baidu. Third party verifiers such as comScore are often used by these organizations to corroborate traffic volume for potential advertising clients. As would be expected, most prospective advertisers require independent verification of traffic data instead of just taking the word of the company they are considering for advertising.

For its part, comScore gathers traffic data using two primary sources: either an internet panel or a tag.

Internet Panel: A panel is a piece of plug-in software that is embedded in a browser. This software records a user’s browsing habits and sends the information back to comScore’s servers. According to comScore, around 2 million users in 170 countries have volunteered to install the comScore panel. However, given its nature, data gathered from internet panels is susceptible to sampling error.

Tag: A tag is a script voluntarily embedded into a webpage’s source code. Because it is hardcoded directly into the site, traffic data gathered by this method is highly accurate. It is not susceptible to sampling error, and it is not affected by any form of anti-virus software. ComScore goes as far as to state that the tag “account*s+ for 100 percent of a site’s audience”. Due to its accuracy, many companies voluntarily place the tag on their site. Exhibit 5 shows’s source code which contains the comScore tag as an example.

Exhibit 5

tag on their site. Exhibit 5 shows Yahoo .com’s source code which contains the comScore tag


When we became aware of the comScore tag on, we were intrigued enough to pay attention to it, but not enough to pursue the matter. That all changed two weeks ago.

You see, after months of the comScore tag quietly laying active on, it was just as quietly removed on or around June 20, 2012. If you examine’s source code today, you will no longer find the tag. But that’s okay. We had the foresight to mirror the webpage and its source code using FreezePage.

Note: Freezepage ( is an independent service that copies a website and all its associated content and code at a specific point in time. Once copied, the page is time stamped and cannot be altered. Below are the most recent copies of on two different dates.

To access the source code and view the now-removed comScore tag, click on “More Info” as highlighted in Exhibit 6, and then click on “Source Code” under “Properties”. The tag will be near the bottom of the source code.

Exhibit 6

tag will be near the bottom of the source code. Exhibit 6 In the event management

In the event management tries to backtrack and re-add the comScore tag in response to this report, we have also mirrored as it appears today, without the tag:


The Smoking Gun

It’s unusual for a company that deals predominantly in advertising space to quietly add and then remove a comScore tag after only a few months of activity. We can think of no positive reason for such a covert move. Neither could a representative from comScore when we called them.

When asked if they knew any reason someone would remove their tag, the representative answered that “[the company] probably didn’t like what they saw.”


Our sources have acquired the comScore statistics spanning three months that the tag was active. As presented in Exhibit 7, Qihoo had every reason to remove the tag.

Exhibit 7

comScore Data

February, 2012


Total Unique

Average Daily

Reach in China (Percent)

Visitors (000)

Visitors (000) (Baidu) (Qihoo)











March, 2012


Total Unique

Average Daily

Reach in China (Percent)

Visitors (000)

Visitors (000) (Baidu) (Qihoo)











April, 2012


Total Unique

Average Daily

Reach in China (Percent)

Visitors (000)

Visitors (000) (Baidu) (Qihoo)











This data proves definitively that Qihoo has been lying to investors about its traffic volume. By any measurement, gets embarrassingly less traffic than

Of course, this will come as no surprise to critics who have questioned Qihoo’s accounts since its IPO. In fact, we don’t even really think it will come as much of a surprise to the analysts promoting the stock. To not have suspected that Qihoo was committing a grand fraud in the face of all other evidence would take a level of ineptitude we do not believe any analyst is capable of.


Acquiring this proof was almost too easy. It was effectively handed to us by management’s own carelessness. And perhaps because it is so simple, it is so devastating.

In the end, the one outstanding question is “why would management risk putting the tag on their website in the first place?”

Without the tag, we would still have been able to acquire the comScore data. However, the data would have been compiled using the panel method. Management would have been able to claim that the data was completely inaccurate and the results were affected by sampling error and anti-virus programs. Management would then go on to insist that gets incredible amounts of traffic that isn’t being properly measured. In fact, this was their defense when confronted by their Alexa ranking. 12

So, why would management risk putting the tag on their website?

12 Alexa ranks as the 15 th most visited site in China and as 27 th . Confronted with this information, management claimed that Alexa didn’t properly measure traffic to due to its anti-virus software which deletes plug-ins. Yes, it’s a stupid defense, we know.


Desperate Times Call for Desperate Measures
Desperate Times Call for Desperate Measures

Since its IPO, Qihoo’s numbers have been thrown into question. As a result, many analysts, investors, and critics have called for management to provide independent verification of Qihoo’s traffic claims.

On December 6 th , 2011, management held an emergency conference call with analysts and investors to address concerns of financial irregularities brought on by a third party. During the conference call, the following exchange took place with one of the callers:

Analyst: And finally, my last question is would you consider conducting third-party verifications of click- throughs just to try and settle all these allegations once and for all, because this is really getting annoying?

Zouli Xu (CFO of Qihoo): We are actually in the process of talking to some well-known third parties as a sort of backup data source… we are in the process of talking or communicate with those third-party, well-known third-party data trackers, and hopefully in the foreseeable future, in not very long time later, we’ll have this third party, a second source of third-party data come up to provide it to the investors.

Management knows that Qihoo is doomed as a publically traded company given the constant scrutiny. The only way to vindicate itself is to get a reputable third-party to vouch for Qihoo’s traffic volume. Of course, the problem is that Qihoo does not generate the traffic management claims. So what to do?

We have reason to believe that management installed the tag in order to find a way to manipulate the traffic analytics gathered by comScore. Over the last few months, Qihoo’s technical team was likely busy trying to crack comScore’s system in order to fabricate the data.

In fact, we are so certain of this that we invite engineers at comScore to analyze data coming out of since the beginning of the year. We are confident they will find anomalies in their system (particularly with regards to the months of April and May).

In any case, this wouldn’t be the first time Qihoo has attempted to manipulate ranking data. Recall from page 5 that earlier this year Qihoo’s apps were temporarily banned by Apple due to unusual ranking activity.

Perhaps it speaks to the integrity of comScore’s data, because with the tag removed, we suspect Qihoo has abandoned hopes of cracking comScore’s sytem and manipulating the third-party verification that it so desperately needs.

So, what’s next for Qihoo?



Qihoo 360 is a company with a questionable future that was rushed through an IPO process by incompetent investment banks. Reading through its regulatory filings, we felt a sense of embarrassment for UBS and Citigroup for signing off as Qihoo’s underwriters – especially in an era where Chinese companies are blowing up left and right.

It’s unbelievable that Qihoo has been able to survive this long as a company with a market cap over US$2 billion. It’s even more unbelievable how many analysts consider Qihoo to be the next great Chinese internet company.

It’s not.

Qihoo has managed to play on the lack of in-depth technical knowledge and critical thinking of its investment bankers, analysts, and investors. Critics that often voiced valid concerns regarding the Company’s accounts were brushed off by management as ‘not understanding the internet.’

Every analyst that covers Qihoo has a different view of its growth prospects from the mobile market, to vertical search to desktop applications. While there is no coherent view of how this Company will monetize its user base, all analysts agree that Qihoo’s future is predicated on the enormous traffic the Company is able to generate from its web properties.

As it turns out, this enormous traffic doesn’t exist.

This story will not end well. We suspect that the SEC already has Qihoo on its radar. Given the proof presented in this report, we doubt it will take the regulators long to conduct their own investigation to confirm our findings. Once completed, we expect Qihoo to eventually be delisted for securities fraud.

In any case, Qihoo still hasn’t delivered the independent third-party verification that was promised seven months ago. We can’t fathom why since these things only take a couple of months at most, but we’ll leave it up to management to provide an explanation. In the meantime, we look forward to management responding to this report by claiming “Anonymous doesn’t understand the internet.”

we look forward to management responding to this report by claiming “Anonymous doesn’t understand the internet.”