Qihoo 360 (QIHU) Issues Response to Citron Report; Aims to Clear Up Misstatements

Qihoo 360 Technology Co. Ltd. (NYSE: QIHU), has responded to a follow-up report that appeared on the Citron Research homepage. The Company believes the article contains numerous errors of fact and misleading speculations. The Company would like to highlight certain key errors contained in the story.

Undercounted advertising links on hao.360.cn:

1. In the third quarter of 2011, there were a total of 125 to 130 paid advertising links on the front page of hao.360.cn, varying insignificantly from month to month, compared to Citron's claim of 60 to 65 links.
   
   
2. The Company charges its advertising customers on a per-link basis, not per-customer basis. Therefore, certain customers' multiple links on the front page should not be viewed as duplicates. There are approximately 30 such "duplicated" links that were eliminated in the Citron report.
   
   
3. Tracking URL is just one of many ways that advertisers use to measure the performance of advertising links. There are approximately 40 paid advertising links on hao.360.cn's front page that do not contain tracking URLs. Some long-term advertising customers choose not to use tracking URLs because they feel comfortable with the website's traffic pattern and also because a tracking URL may slow down users' browsing experience in some cases.

Underestimated prices of advertising links on hao.360.cn:

1. The average advertising price per link of RMB200,000 to RMB 250,000 cited in Citron's report was quoted from a sell-side analyst report, which was related to the Company's operating results of the first quarter of 2011. The Company has since then increased per link prices in the subsequent quarters and communicated the pricing trends to the public in quarterly earnings calls.
   
   
2. As of Q3 2011, the average price for an advertising link on hao.360.cn's front page was approximately RMB320,000 to RMB 350,000. The average price for an advertising link on the "Famous Sites" section of the page was approximately RMB 1 million.
   
   
3. Revenues generated from the advertising links on the front page of hao.360.cn accounted for approximately 75% of revenues generated from all advertising links within hao.360.cn domain, including vertical pages, but excluding search referral revenue.

Qihoo 360's web game ARPU

1. Web game is a different category of games compared to traditional MMORPG games. Typically, web games have shorter life cycle and higher ARPU than traditional MMORPG games. Qihoo 360's gaming ARPU is not comparable to that of other publicly listed Chinese gaming companies because almost all of them are focusing mainly on MMORPG games.
   
   
2. Qihoo 360 does not internally develop any of the web games placed on the Company's platform. All of those games are from third-party developers and the in-games monetization activities were also designed and implemented by the game developers. The Company has formed strong business relationship with almost all major independent web game developers in China, and the ARPU on the Company's platform is consistent with that of the Chinese web game industry.
   
   
3. The Company launched its web game platform in early 2010, and has since experienced tremendous revenue growth. In the past two years, the increase in the Company's web game revenues were mainly driven by growth of paid users. The monthly ARPU has been fairly stable at around RMB380.

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