Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

By newsdoug on February 8, 2012

Qihoo 360 (NYSE: QIHU) seems to pride itself in its ability to make headlines, usually by touting user numbers that some believe are highly inflated, and the latest events that have propelled this company onto the front page just underscore its highly controversial nature. Qihoo, better known for launching assaults on others, both in the courtroom and in the business arena, saw its applications abruptly removed from Apple’s (Nasdaq: AAPL) China app store, amid allegations of manipulation of the ratings information posted by buyers of its apps. (English article; Chinese article) The reports are full of innuendo and of course Apple itself is refusing to comment, but the implication seems to be that Qihoo itself may have tried to manipulate the user ratings to make its apps look better than the ratings were otherwise saying. This would totally come as no surprise, as this kind of manipulation is relatively easy to do and can have a huge impact on sales. What’s more, Qihoo has shown little or no reluctance to use this kind of tactic in the past, and in fact this looks relatively benign compared to some of the other things it has been accused of over the years. Other reports have Qihoo implying that the manipulation that resulted in the ouster of its apps may have been engineered by one of its many enemies, with Internet leader Tencent’s (HKEx: 700) name frequently mentioned after the companies got in a major spat less than 2 years ago that also made national headlines. Of course, as all this is happening, Qihoo is also coming under attack from a small US research house, Citron, which has mounted a campaign for several months now accusing the company of vastly overstating its user numbers. (previous post) Qihoo’s shares took a slight hit overnight, dropping 4 percent to around $17 in US trading on Tuesday after reports of the latest spat came out. Qihoo has vowed to have its apps back in Apple’s China app store in the next 24-48 hours, though I suspect the company will get a severe lecturing from Apple if the manipulation allegations are the source of the removal, and it could be a week or longer before the apps return. At the end of the day, this particular development isn’t all that significant by itself, but is just the latest piece in a stream of news that reveals the true nature of Qihoo, which will ultimately serve to undermine confidence in the company and its stock.

Bottom line: The latest brouhaha over the removal of Qihoo apps from Apple’s China store underscores the company’s credibility issues, which will ultimately hurt both its reputation and stock.

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