Morgan Stanley: Qihoo 360 Has 'Attractive Valuation'

Morgan Stanley cut its price target on Qihoo 360 Technology Co Ltd QIHU Monday form $111.50 to $85.00 and maintained an Overweight rating.

Analysts led by George Meng said the stock had an "attractive valuation" and highlighted that it had dropped over 20 percent in the past two weeks in addition to a decline of 60 percent from approximately one year ago.

With the stock trading trading at 12x 2015 and 9x 2016 estimated non-GAAP EPADS, respectively, the firm "recommend investors to accumulate on stock price weakness."

Meng thought the weakness in the stock was due to concerns over a webgame slowdown, app store market share loss and regulatory risk on its online lottery business."

Overall, however, the analysts felt that the stock was not a "value trap" and that the market had become too pessimistic.

Meng acknowledged that the "overall webgame market is likely to slow down in 2015," however, the company's webgame revenue was only 23 percent of revenues in Q3 2014 and the firm estimated the webgame revenue contribution in 2015 to be less than 15 percent.

Meng concluded that "mobile game growth should offset the webgame slowdown."

Qihoo was scheduled to report Q4 earnings on March 9 and Meng expected "revenue to grow 89 percent YoY and 11 percent QoQ to $418 million, slightly higher than the company's guidance of 85-87 percent YoY revenue growth."

The analysts thought Q4 non-GAAP net income would increase 8 percent year-over-year to $104 million which was 6 percent below consensus of $111 million.

Qihoo 360 Technology recently traded at $46.41, up 1.5 percent.