Game Over? Chinese Gaming Execs Crunch Numbers, Prove Qihoo’s High ARPU

Qihoo's casual gaming portal - it has an ARPU of $68?

The jabs and lunges are coming thick and fast in the verbal boxing match between the short sellers Citron Research and the Chinese tech execs who run the CitronFraud website. Now, the ad-hoc alliance has produced a post signed by the heads of nine major Chinese gaming firms, and they say they’ve debunked one of the core aspects of Citron’s attacks on Qihoo (NYSE:QIHU) – that of its high online gaming ARPU.

Citron, headed by Andrew Left, has been shorting Qihoo and calling it “overvalued” for the past year, with an especial focus on its ads and gaming revenues. But the newest post on the CitronFraud site says it has all the answers about Qihoo’s wan.360.cn game portal. The gaming execs’ post begins:

We, a group of nine Chinese gaming companies, join forces to take up Citron on its recent challenge that Qihoo’s ARPU claim of 400 RMB [$63] is fraudulent, “demonstrated” by Citron’s comparisons with other gaming companies in its reports. We prove here that Citron’s analysis lacked basic understanding of the Chinese gaming market. Citron compared different types of companies against each other, and didn’t even understand how ARPU is measured (!). We pooled our gaming statistics together to form a trusted third-party validation of gaming ARPU for Qihoo and its true peers, and we found that: 1) Qihoo’s ARPU is just about average in a group of five comparable gaming platform companies, and 2) The average ARPU of a large number of popular games on the Qihoo platform is also in line with Qihoo’s reported number.

Game over?

The central tenet of this argument is that “Citron compared apples to oranges… and to bananas.” That’s because, they say, Citron’s Andrew Left compared Qihoo’s gaming operations to companies like Shanda (NASDAQ:GAME), Changyou (NASDAQ:CYOU), and Zynga (NASDAQ:ZNGA) who “are in totally different spaces of games.”

The gaming execs use this iResearch graphic to highlight Qihoo's gaming space.

The gaming execs point out that the likes of Shanda and Changyou make very different kinds of games to Qihoo. While the latter focuses on web-based and very casual games, those others in the Citron comparison do MMORPGs which monetize over longer periods, making their ARPUs seem low when reported in quarterly results. The post makes a jab:

[Andrew] either does not understand such difference or, even worse, he just deliberately conceals those facts to make his fraudulent argument for economic gains. […] Mr. Left’s comparison is like comparing the price of home mortgage vs. hotel room. He is advised to compare Westin with Marriott prices, not with HSBC payments!

And so, recommends the anti-Qihoo alliance, Qihoo’s gaming platform should be compared with very similar ones aimed at casual browser games in China, such as Duowan, PPS, 37Wan, or Yaowan (“wan” means “play,” in case you’re wondering). The group concludes: