August 9, 2012 (Chinavestor) Annual Data: From the cash flows of Qihoo 360 Technology Co. (NYSE:QIHU) shown below, it is found that all three cash flows (cash from operations, CFO, cash from investing activities, CFI, and cash from financing activities, CFF) increased significantly in magnitude. For CFO, the increase in 2010 from 2009 is mainly due to the increase of net income and the positive accounts receivable from negative in 2009. The increase of CFO from year 2010 to 2011 is because of further increase of net income and depreciation and amortization, with another large portion of positive share-based compensation.
Note for “share-based compensation”:
The CFO is prepared by conducting (net income + adjustment to reconcile net cash provided by CFO + Changes in operating assets and liabilities). The amount of “share-based compensation” is $47,989 in 2011, and it is actually share-based compensation expenses that are included in the general business activities. It is added back to net income to get CFO along with other items such as “depreciation and amortization”. The data graph below shows the detail of these expenses. The increase of this share-based compensation expense is mainly due to the expansion of QIHU’s business.
There are two different “share-based compensations”. One is related to the stock options that are granted to employees and nonemployees, which are mentioned in QIHU’s annual report. The other one is the share-based compensation expenses that are related to the firm’s business. The CFO listed share-based compensation is referring to the latter one.
The steady increase of CFI from year 2009 to 2011 consists of QIHU’s continuous investment in its fundamental business activities, while the huge increase of the CFF in 2011 is accountable to the IPO of Qihoo 360 Technology Co. (NYSE:QIHU) during that year.
The free cash flows of QIHU are $4.62, $10.76, and $45.99 million in 2009, 2010, and 2011, respectively. It increased 133% and 327% in year 2010 and 2011. The IPO of Qihoo 360 Technology Co. (NYSE:QIHU) in 2011 has helped to its free cash flow’s increase during this period. This steady yet faster pace of increase of free cash flow for QIHU indicates its better ability to meet future financial obligation and better fundamental business development these years.
The comparison of cash from operations (CFO) shows that QIHU’s scale of CFO is relatively small, as compared to those of SOHU Inc. (NASDAQ:SOHU), NetEase Inc. (NASDAQ:NTES), and Tencent Inc. (HKG:0700). However, the speed of the CFO increase for Q Qihoo 360 Technology Co. (NYSE:QIHU) is higher than these competitors in the industry.
The comparison of free cash flow between Qihoo 360 Technology Co. (NYSE:QIHU) and its competitors illustrates a few things. At first, it indicates that all the competitors are bearing decreased free cash flow from 2010 to 2011, while Qihoo 360 Technology Co. (NYSE:QIHU) is generating free cash flow at a faster rate than former year during this period. Another finding be extracted through this comparison is that QIHU’s free cash flow is still very small compared to all the other competitors except for SINA Inc. (NASDAQ: SINA).
The two consecutive years’ decrease of SINA’s FCF is because, starting from 2010, it began investing much more money than usual years to expand its business in “weibo”, which is a twitter-like product in China. The big decrease of FCF in 2011 is due to both somehow decreased unlevered CFO and further increased CFI.
In conclusion, Qihoo 360 Technology Co. (NYSE:QIHU) has a fairly good cash flow position. It has generated increasingly more cash flow in CFO due to its expanding business, and is investing at a good pace for the future development of the company. The cash financed by its IPO has granted Qihoo 360 Technology Co. (NYSE:QIHU) enough funds for otherwise adverse economy condition or further business expansion. The FCF of QIHU is in a good trend because it’s both increasing in scale and growing in a faster speed.