Qihoo Under Fire From News Report

http://www.youngchinabiz.com/en/news/1911-qihoo-under-fire-from-baidu-report

Friday, 01 March 2013 09:15

[Newspaper attacks Qihoo] Security software specialist Qihoo 360 (NYSE: QIHU), known for its frequent attacks against its adversaries, is coming under fire itself in the last couple of days from a news report questioning its integrity. One of China's top business newspapers, the National Business Daily, has issued the in-depth report detailing some of Qihoo's allegedly dubious business practices, prompting Qihoo to sue in response. (newspaper report)

Industry watchers will know that Qihoo does indeed have a reputation for such business practices, and also for filing lawsuits and getting sued itself. I wrote earlier this week that the company's announcement of a major new government contract might signal that Qihoo was trying to change its image in a bid to boost investor confidence (previous post) But this latest report, combined with the typical response to file a lawsuit, certainly won't help to change Qihoo's current image.

Qihoo's US-listed shares have dropped about 6 percent this week after the report came out. The company's stock has more than doubled since last summer, after it launched its new so.com search engine to challenge industry leader Baidu (Nasdaq: BIDU) and quickly gained 10 percent market share.

But many US-based investors were probably less familiar with Qihoo's spotty reputation due to some of its business practices, and this new National Business Daily report is probably raising awareness to that side of the company. The news report is quite long and in-depth, led by a photo of a Trojan Horse.

It starts by noting that Qihoo's apps were pulled from Apple's app store last year and have yet to reappear, with the implication that Apple had received complaints about some of those products. It contains a number of other unnamed sources leveling similar complaints, before launching its own detailed report on how Qihoo's core security products are loaded with hidden software that secretly reconfigures users' computers to favor Qihoo products and become biased against rivals.

I won't give my own assessment of the accuracy of the report, although its general tone certainly seems consistent with Qihoo's reputation and also some of its past actions that resulted in high-profile dispuates with Baidu and Tencent (HKEx: 700), China's 2 biggest Internet companies. As I said above, Qihoo has responded to this attack by saying it has filed a lawsuit against National Business Daily (Chinese article)

I suspect this lawsuit is mostly targeted at convincing worried Wall Street investors that the report's allegations aren't true. Qihoo came under a similar assault from another report in Forbes magazine last year, that time questioning some of its accounting. (previous post) In that case, investors seem to have largely ignored the report after Qihoo's denial of the allegations.

Qihoo has good reasons for wanting to change its image, as it tries to raise its profile following the launch of its offensive against Baidu in the lucrative online search market. It has hyped the engine's rapid rise nearly nonstop since then, in a campaign that included news leaks of potential tie ups with other smaller Chinese search engines and even global search titan Google (Nasdaq: GOOG). In my view, this latest controversy, including Qihoo's response, shows the company really needs to clean up its reputation if it wants to be taken seriously by investors. But this latest tussle shows that its spotty behavior patterns may be in the company's DNA, and therefore very hard to change.

Bottom line: A newspaper attack on Qihoo alleging unethical business practices and Qihoo's lawsuit in response reflect the company's current spotty reputation, which it may have trouble changing.

 

Not to start a trade war, but this is just one of many reasons I stick with American and European companies. Yeah, Google is somewhat shady, but at least the money they earn is kept here---oh wait, they have $5 billion in an offshore account? Gotta love 'em if you are a stockholder, though.