Qihoo 360

Prospectus Summary

PROSPECTUS SUMMARY
You should read the following summary together with the entire prospectus, including the more detailed information regarding us, the ADSs being sold in this offering and our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should consider carefully, among other things, the matters discussed in the section entitled "Risk Factors." Unless otherwise indicated or the context otherwise requires, all references in this prospectus to "we," "us," "our," and "our company" are to Qihoo 360 Technology Co. Ltd., its subsidiaries and consolidated entities, collectively. "China" or "PRC" refers to the People's Republic of China, excluding Taiwan, Hong Kong and Macau; "shares" or "ordinary shares" refers to our ordinary shares, including Class A and Class B ordinary shares; "ADSs" refers to American depositary shares, each representing Class A ordinary shares; "Renminbi" or "RMB" refers to the legal currency of China; and "$" or "U.S. dollars" refers to the legal currency of the United States. We commissioned iResearch Consulting Group, or iResearch, and Horizon Research and Consulting Group, or Horizon, market research firms in China, to prepare reports for the purpose of providing various industry and other information and illustrating our position in the Internet and mobile security products and services market in China. Information from these reports appears in the "Prospectus Summary," "Industry," "Business" and other sections of this prospectus.

Overview

We are the No. 3 Internet company in China as measured by user base, according to a report we commissioned from iResearch. In January 2011, we had 339 million monthly active Internet users, representing a user penetration rate of 85.8% in China, according to iResearch. Recognizing security as a fundamental need of Internet and mobile users, we offer comprehensive high-quality Internet and mobile security products free of charge, providing users with secure access points to Internet activities. As a result, we have amassed a large and loyal user base, which we monetize primarily through offering online advertising and Internet value-added services.

We are also the No. 1 provider of Internet and mobile security products in China as measured by user base, according to iReseach. In January 2011, we had 328 million monthly active Internet security product users, representing a user penetration rate of 83.9% in China, according to iResearch. Our core Internet and mobile security products include:

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360 Safe Guard and 360 Anti-virus, the No. 1 and No. 2 Internet security products in China, with 301 million and 248 million monthly active users in January 2011, respectively, according to iResearch;


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360 Mobile Safe, the No. 1 mobile security product in China, with a market share of 58.2% as measured by the number of active users in January 2011, according to iResearch.

On top of our core layer of Internet and mobile security product offerings, we have further developed various platform products to meet a full spectrum of security related needs of Internet users and create trusted access points to Internet activities. Our platform products include:

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360 Safe Browser, the No. 2 web browser in China, only after Microsoft Internet Explorer, with 172 million monthly active users and a user penetration rate of 44.1% in China in January 2011, according to iResearch;


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360 Personal Start-up Page, the default homepage of 360 Safe Browser and a key access point to popular and preferred information and applications, with 98 million monthly active users in China in January 2011, according to iResearch;


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360 Application Store, a key access point to securely obtain and manage software and applications; and


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360 Safebox, a solution that protects users against thefts of personal account information.

Leveraging our large user base, we are developing open platforms on which third-party Internet product and service providers, such as web game developers, e-commerce websites and software and application developers, offer their products and services. These open platforms allow us to effectively monetize our large user base through revenue sharing arrangements with third parties. For example, our open platform for web games enables our users to access web games provided by over 30 web game developers using their 360 accounts, and our open platform for group-buy provides users with daily updated deal information from over 200 group-buy websites. Our open platforms enable our users to securely access a wide variety of products and services, which in turn enhances our users' experience and loyalty and further grows our user base.

Our products and services are supported by our cloud-based security technology, which we believe is one of the most advanced and robust technologies in the Internet security industry. Our cloud-based security technology enables us to continuously update and enhance our capabilities to detect Internet security threats on a real-time basis. By utilizing this cloud architecture, we believe we are able to offer superior performance through reduced usage of user computing resources, particularly in comparison to traditional anti-virus software. As the effectiveness of our cloud-based security technology increases with the size of our user cloud, growth of our user base enhances our malware detection capabilities, which in turn helps us to attract even more users.

We have been able to leverage our large user base and our strong brand recognition to grow our paying customer base. We generate revenues primarily through offering the following services:

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Online advertising. We offer advertising services by providing marketing opportunities on our websites and secure platform products to our advertising customers. We also offer search referral services to search engine companies.


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Internet value-added services. We offer web games developed by third parties, provide Internet security services such as remote technical support to paying customers and provide other Internet value-added services.

We have grown significantly since we commenced operations in 2005. Our monthly active Internet users increased from 122 million in December 2008 to 231 million in December 2009 and 339 million in January 2011. Our revenue was $16.9 million, $32.3 million and $57.7 million, respectively, in 2008, 2009 and 2010, representing a CAGR of 84.8%. We first became profitable in 2009 and our net income increased by 102.7% from $4.2 million in 2009 to $8.5 million in 2010.

Industry Background

With rapidly increasing broadband penetration in China, Internet usage in China has been on the rise in recent years. According to iResearch, the number of Internet users in China grew from 137 million in 2006 to 457 million in 2010, representing a CAGR of 35.2%, and is expected to grow to 667 million in 2013. Users are also increasingly conducting Internet activities through mobile devices, including mobile-banking, mobile-commerce, mobile-gaming and mobile social networking, among others. According to iResearch, the number of mobile Internet users in China increased from 17 million in 2006 to 303 million in 2010, representing a CAGR of 105.3%, and is expected to grow further to reach 658 million by the end of 2013.

Users' growing reliance on the Internet and the increasing exchange of personal information and virtual assets over the Internet through various devices have created strong incentives for hackers to develop malware to profit from exploiting these confidential data. According to iResearch, the largest number of malware samples collected by a single Internet security provider in China increased dramatically from approximately 538,000 in 2006 to over 650 million in 2010. This has led to a strong and growing adoption of Internet and mobile security solution in China. According to iResearch, the number of Internet security users in China reached 394 million in 2010, an increase from 89 million in 2006, representing a CAGR of 45.0%, and is expected to grow further to reach 559 million by 2013. The accumulated number of activated users of mobile security products is expected to grow from 27 million in 2009 to reach 254 million by 2012.

The growing complexity of threats, and increasing focus on terminal-end processing performance, particularly for processor and power-constrained mobile devices, have resulted in an increasing demand among users for a pan-security solution covering system protection, privacy protection, and performance optimization across devices. Traditional anti-virus technologies are no longer sufficient in safeguarding users against the rapid proliferation and evolution of security threats, and cloud-based security technology has emerged as a superior Internet security solution.

Strengths and Strategies

We believe the following strengths have contributed to our success and differentiate us from our competitors:

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largest user base of Internet and mobile security products and services in China;


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innovative pan-security solutions creating secure Internet access points;


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strong monetization potential through open platforms;


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leading Internet and mobile security brand in China;


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leading cloud-based Internet technologies and strong R&D capabilities creating high entry barriers; and


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seasoned management team with extensive industry knowledge and proven execution capabilities.

Our goal is to enhance our position as the largest Internet and mobile security product and service provider and a leading Internet company in China and ultimately become a leading Internet company globally. To achieve our goal, we intend to:

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continue to expand product and service offerings to grow user base and promote brand recognition and loyalty;


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further monetize our large user base through open platforms;


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continue to focus on R&D to enhance cloud-based Internet and mobile security technologies;


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capitalize on the fast growing mobile Internet market;


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selectively pursue international business expansion; and


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strengthen existing and build new strategic alliances and selectively pursue investments and acquisitions.

Challenges and Risks

The successful execution of our strategies is subject to certain challenges and risks that may materially affect us, including:

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our ability to continue to innovate and provide attractive products and services to attract and retain users;


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our ability to keep up with rapid changes in technologies and Internet-enabled devices;


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our ability to leverage our user base to attract customers for our revenue-generating services;


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our dependence on online advertising for a substantial portion of our revenues; and

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our ability to compete effectively.

Please see "Risk Factors" and other information included in this prospectus for a detailed discussion of these challenges and risks.

Corporate History and Structure

In 2005, Mr. Xiangdong Qi, our director and president, founded our business, which originally focused on user generated content search and aggregation. Mr. Hongyi Zhou, our chairman and chief executive officer, joined us in August 2006, and together with Mr. Qi, reshaped our primary business. In July 2006, we launched 360 Safe Guard, our first Internet security product that protects users against malware, and entered the Internet security market.

We were incorporated in the Cayman Islands as an exempted limited liability company on June 9, 2005. On December 31, 2010, we changed our name from Qihoo Technology Company Limited to Qihoo 360 Technology Co. Ltd., or Qihoo 360. We conduct our business operations in China through our wholly-owned subsidiaries and affiliated entities. We formed a wholly-owned subsidiary, Qizhi Software (Beijing) Co., Ltd., or Qizhi Software, one of our primary operating entities, in China in December 2005.

In November 2010, we formed three Hong Kong subsidiaries that we expect to become intermediate holding companies for our operations in China: Qiji International Development Limited, or Qiji International, 360 International Development Co. Limited, or 360 International, and Qifei International Development Co. Limited, or Qifei International. Qiji International, 360 International and Qifei International are all wholly-owned by Qihoo 360.

The following diagram illustrates our corporate structure as of the date of this prospectus:

Corporate Information

Our principal executive offices are located at Block 1, Area D, Huitong Times Plaza, No. 71 Jianguo Road, Chaoyang District, Beijing 100025, People's Republic of China. Our telephone number is +86 10 5878 1000 and our fax number is +86 10 5878 1001. Our registered address in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Corporation Service Company, 1180 Avenue of the Americas, Suite 210, New York, New York 10036-8401.

Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our corporate website address is www.360.cn. The information contained on our website is not a part of this prospectus.

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The Offering

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The number of ordinary shares outstanding after this offering:

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is based on 149,874,756 shares outstanding as of the date of this prospectus, assuming the conversion of all outstanding preferred shares into 78,314,016 ordinary shares upon the closing of this offering; and


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excludes 11,050,850 ordinary shares issuable upon the exercise of options to purchase ordinary shares outstanding as of the date of this prospectus with exercise prices ranging from $1.50 to $6.0 per share and a weighted average exercise price of $3.88 per share.

Unless otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase up to Class A ordinary shares in the form of ADSs in this offering.

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