Coup for Qihoo with medical e-commerce joint venture
Chinese search engine Qihoo has formed a joint venture with Sinopharm Group to develop a medical e-commerce platform, which will sell prescription and over-the-counter drugs online. Sinopharm will provide the resources and drugs, while Qihoo will develop and protect the e-commerce platform, as well as provide search, cloud computing, big data and mobile applications.
The medical e-commerce business is set to be a major revenue driver in China this year. Industry leaders Alibaba and JD.com have invested heavily in developing e-commerce platforms and forming partnerships with pharmaceutical firms in order to take a large share of this growing market. Sinopharm is the largest pharmaceutical company in China, which makes this joint venture quite a coup for Qihoo.
Over the past 12 months, healthcare has been a major target for search engines. Healthcare advertising is a major revenue driver for the industry, and after Baidu’s dispute with private healthcare union Putian, Qihoo will likely have gained some ground on its biggest rival.
I have discussed previously how Qihoo needs to diversify away from search, because rival Baidu has such a large market share of the search engine industry. The company has made several strategic moves into new markets that I believe will generate strong revenue streams in the long run.
Management and risk description
Investors shouldn’t expect to see the new medical platform until the second half of the year at the earliest, but the key event in this trade view will be the second-quarter earnings release, which is expected in August.
It should also be noted that despite consistently beating earnings and revenue consensus, Qihoo’s share-price reaction after an earnings release is difficult to predict, and is often negative over a three-day period. Investors should be aware that even despite strong earnings, the share price may react negatively to the release.
Time horizon: Three months
— Edited by Gayle Bryant