Qihoo CFO Denies Anonymous’s Report of Lower Online Traffic

Qihoo 360 Technology Co. (QIHU), a Chinese developer of online security software, denied allegations made by Anonymous Analytics that user traffic on its website is lower than reported. The shares sank 7.5 percent.

The information cited in Anonymous’s report is “inaccurate,” Chief Financial Officer Alex Xu said yesterday by phone from Beijing. “This report is basically a repetition of what other short sellers said before,” which Qihoo has denied and clarified in the past, he said.

Qihoo had been “exaggerating” user traffic on its hao.360.cn site, according to a report published yesterday by Anonymous, citing data from Reston, Virgina-based ComScore Inc. (SCOR), an Internet traffic data provider.

“Qihoo’s directory page gets significantly less traffic than management has led the capital markets to believe,” Anonymous said in the report. “All that massive traffic volume that was supposed to transform Qihoo into an Internet marvel doesn’t exist.”

American depositary receipts of the Beijing-based Qihoo tumbled to $16 yesterday in New York, the lowest since Jan. 13. They surged as much as 5.3 percent to $18.20 before Anonymous’s report was published. The slump triggered a short-selling restriction by the Securities and Exchange Commission that forces traders who want to bet on a further drop to wait after the stocks fall 10 percent from the prior day’s closing level.

Xu said Qihoo has been working together with ComScore since the beginning of the year, seeking to provide third-party data to investors. The data have yet to be finalized, he said.

‘Technical Problems’

“We haven’t officially released the data as some technical problems remain to be solved for applying ComScore’s system in China” including compatibility and safety, Xu said.

The Chinese company said in April that it rejected “all allegations” made by Citron Research and other individuals which had questioned revenue from the hao.360.cn site. Qihoo said then that it “stands by” its filings to the SEC.

Qihoo, which also provides computer desktop software including a browser, had net income of $14 million for the first three months, compared with a net loss of $21.4 million a year ago, according to its May 22 statement. Second-quarter sales will more than double from a year earlier to as much as $73 million, from $69.3 million in the prior quarter, it estimated.

Sino-Forest, China Medical

Chinese companies have come under scrutiny in the past year as short sellers who profit from declining share prices have claimed accounting fraud or mismanagement. Sino-Forest Corp. filed for bankruptcy in March after it was accused by a short- seller of misstating business and assets. Trading of China Medical Technologies Inc. (CMEDY)’s ADRs was suspended last week by the U.S. Securities and Exchange Commission, which cited questions on the accuracy of the company’s information.

Anonymous in April questioned the financial statements of Huabao International Holdings Ltd. (336), a Hong Kong-listed maker of flavors and fragrances used in cigarettes. Huabao shares dropped 8 percent before trading in its shares was halted for six days. The company responded by describing Anonymous Analytics’ allegations as “incorrect.”

To contact the reporters on this story: Belinda Cao in New York at lcao4@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editors responsible for this story: Tal Barak Harif at tbarak@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

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