By: Liu Zhicheng, Internet Circle

Recently, 360 Security (referred to as 360 for business operations) unveiled its 2025 interim report.

According to the data, the company's revenue in the first half of the year reached RMB 3.827 billion, marking a 3.67% year-on-year increase.

Regarding profits, the net profit attributable to the parent company for the first half of the year stood at -RMB 282 million, with a non-GAAP net profit of -RMB 297 million. The data also reveals that in the second quarter, the company's main business revenue saw a 0.45% decline.

Prior to this interim report, the company's revenue had been on a continuous downward trajectory. Annual report data indicates that from 2021 to 2024, 360 Security's annual revenue plummeted from RMB 10.89 billion to RMB 7.948 billion.

With the release of this interim report, the downturn appears to have been halted. 360 Security's revenue seems to have broken free from the decline seen in the same period last year and returned to growth.

However, beyond returning to growth, this interim report also uncovers another aspect: the company still failed to achieve profitability during the reporting period.

Throughout the first half of the year, 360 Security's net profit attributable to shareholders remained in the negative territory, with a non-GAAP loss of RMB 297 million after six months. Although this represents a significant reduction from the non-GAAP net loss of RMB 516 million in 2024, the company still couldn't turn a profit.

The data shows that while the company's revenue did rise, the improvement in profits may be more closely tied to cost changes.

On one hand, operating costs decreased by 6.01% in the first half of the year, and on the other, management expenses dropped by 8.05%. Additionally, the data reveals that due to increased promotion of AI products, sales expenses in the interim report soared by 34.85% year-on-year, while R&D expenses hit RMB 1.565 billion, accounting for 40.89% of revenue.

What does this signify?

The reduction in losses may primarily stem from effective cost control, as the profit-generating capacity of the main business still seems inadequate. Coupled with the increased marketing costs for AI products and the necessary high R&D expenditures for transitioning to AI, this resulted in the company's failure to achieve profitability in the first half of the year.

Overall, while the strategic direction of AI + security is on the right track, with such substantial R&D investment, when will 360 Security's AI narrative translate into real profits? The market is watching closely.

Is 360 Security's AI Gambit a Walk in the Park?

Today, 360 Security's financial report is segmented into internet and smart hardware services and the security business.

In reality, there are three core areas: security, search, and AI.

Let's first delve into one of the fundamentals: security.

According to annual report data, in 2024, the company's revenue from security and other businesses was RMB 1.287 billion, down 27.06% year-on-year. The latest interim report data shows that revenue from the security business in the first half of the year was RMB 253 million.

Whether the security business can withstand growth pressure in the next six months is a matter of keen interest.

360 Security boasts strong technology and stable competitiveness in the security field. However, compared to other businesses, the revenue scale of the security business is still relatively modest. From a revenue structure perspective, in the first half of the year, the security business accounted for only 6.6% of total revenue. Last year, security and other businesses made up 16.2% of total revenue.

While the security business is stable, it struggles to drive revenue growth.

In reality, security is more akin to a 'thankless' business. Similar to public relations, when done well, its value becomes invisible. If bosses don't see tangible results, they are less likely to invest more money in this area.

How can we persuade bosses to spend on security?

360 Security's approach is to leverage the AI card, branding digital security with AI. The advantage of this strategy is that it simplifies market education, but the downside is that AI may not necessarily spur industry growth.

Simply put, large enterprises have their own security teams, while for most small and medium-sized enterprises (SMEs), just slapping an AI label on it may not be enough to convince SME owners to part with their money. Moreover, corporate spending on security is a fixed cost. Figuring out how to sustain and extract more value from this business is the question at hand.

From the financial report, beyond the security business, it's the internet business, represented by search, that truly underpins 360 Security's commercialization.

The data shows that smart hardware and value-added services have a relatively small footprint, with internet advertising and services being the major revenue contributors. According to the interim report data, 360 Security's internet advertising and services revenue in the first half of the year was RMB 2.095 billion, accounting for 54.7% of total revenue in the first half of the year.

In the same period last year, internet advertising and services revenue was RMB 2.036 billion, making up 55% of revenue. In terms of both amount and proportion, there has been little change.

Does this imply that Nano AI Search hasn't brought about sufficient growth?

In terms of business, in November last year, 360 Group officially launched Nano Search. According to Tianyancha APP trademark information, the trademark for 360 Security's Nano Search was only applied for on November 26, 2024. In August this year, Nano AI was upgraded to 'Multi-Agent Swarm,' further bolstering its AI capabilities.

Today, 360 Security has search, AI, and intelligent agents, seemingly resembling a 'mini' Baidu. The market may naturally wonder: Can 360 Security succeed by treading Baidu's path?

The data doesn't lie.

Changes in the data from the two interim reports seem to suggest that revenue from internet advertising services remains stagnant, or rather, the value brought by AI hasn't been reflected in advertising revenue.

So, where does the value of AI for 360 Security lie?

The Internet Circle team believes it may reside in secondary market valuation.

Looking back at the secondary market, it's evident that in late September last year, 360 Security's stock price was below RMB 9. By late November last year, it had surged to around RMB 15. On August 28, the closing price of 360 Security's stock was RMB 11.78.

Objectively, numerous factors influence market changes, such as foreign investment and market fluctuations under macroeconomic influences. However, the Internet Circle team believes that AI may also be a significant contributing factor.

Market capitalization is always in flux. While the market may be enthusiastic about AI concepts, this enthusiasm is fleeting. As long as this 'fever' persists, the specific target may not matter. In the past, it could have been baijiu (Chinese white liquor), banks, or consumer goods; today, it happens to be AI.

The tide will eventually recede, and what truly matters is whether a company can generate profits for its shareholders.

The impact of AI isn't entirely positive; it also brings operational pressures.

For instance, the increased marketing expenses surrounding Nano AI in the first half of the year have objectively put profitability under pressure. Additionally, betting on AI means committing to long-term high R&D investment. With an uncertain commercialization outlook, whether these R&D investments will impact future profit performance is a question that warrants consideration.

From the market's perspective, 360 Security's foray into AI today may also be a desperate move. On one hand, PC-side traffic continues to decline, and MAU growth of core products is also problematic. Today, 360 Security faces pressures akin to those during its mobile transition.

Today, 360 Security's issue isn't growth but a need to refactor (reconstruct) its business model.

From search and security to AI, what needs to change may not just be the business structure but also 360 Security's DNA. How to more thoroughly transform into an AI company rather than continuing as an internet service company may be a question that 'Uncle Zhou' (a nickname for 360 Security's founder) needs to ponder.

The Question of Nano AI's Entry Point: Application-Side Innovation May Not Be the Panacea

On the path to becoming an AI company, 360 Security has already taken numerous strides. In the AI era, 360 Security aims to be the 'super entry point' for users.

You see, 360 Search is the PC entry point, and 360 Security Guard is the security entry point. The 3Q War was also fought over entry points. However, the value of the search entry point far outweighs that of security, which has shaped today's revenue structure in 360 Security's financial report.

This year, 'Uncle Zhou' has spared no effort in promoting his Nano AI, hoping to make it a super app sensation in the AI era.

Isn't this a form of 'path dependency'? Past commercial success at 360 Security relied not just on technology but more on products: first seizing an entry point and then gradually commercializing.

To seize the AI entry point, 360 Security has organized a group, bringing together more than a dozen major models on the market, seemingly aiming to become the WeChat or Alipay of the AI era.

Reality is often unforgiving.

According to the latest fifth edition of the 'Global Top 100 Generative AI Consumer Applications' released by renowned venture capital firm a16z, among the web-based rankings, there are 11 products developed by Chinese companies, with 5 ranking in the top 20.

These five are DeepSeek, Kuake, Doubao, Kimi, and Alibaba's Tongyi Qianwen.

The competition for AI entry points is fierce.

In reality, Nano AI isn't without its strengths. For example, the 'Multi-Agent Swarm' upgrade in August did bring about product experience innovations.

A more objective issue for Nano AI may be that without breakthroughs in underlying technology, 'innovations and fixes' at the application layer may struggle to establish a true advantage or barrier.

After all, the AI application track is highly competitive.

These days, everyone is scrambling to innovate at the application end, with various intelligent agents and AI searches emerging. The question for 360 Security is whether Nano AI can sustain its application-side innovations.

For Kuake, Doubao, Kimi, and Yuanbao, this isn't an issue. Giants like Alibaba, ByteDance, and Tencent aren't short of money, and they themselves are super entry points, eliminating the need to maintain high marketing expenses to sustain product MAU activity.

A classic example is WeChat. After Yuanbao integrated with DeepSeek, the entire nation seemed to enter the AI era overnight. This is something 'Uncle Zhou' can only dream of. Unless Nano AI can truly achieve a DeepSeek-like evolution in underlying technology.

Why did DeepSeek surpass ChatGPT overnight?

It was due to breakthroughs in underlying technology, leading various apps and enterprises across industries to integrate with DeepSeek. With technological advantages, DeepSeek naturally lacks no commercialization prospects.

To maintain application-side innovation and the competitiveness of Nano AI, 360 Security may need to sustain high-intensity R&D investment in the coming quarters.

In other words, more financial pressures may be on the horizon.

Looking at the data, from 2022 to 2024, 360 Security's net profit attributable to shareholders has been in the red for three years, with a cumulative net loss of RMB 3.79 billion. In 2024, the net cash flow generated from operating activities was only RMB 326 million.

The issue of generating profits may be becoming increasingly urgent.

'Currently, the traffic to Nano AI isn't bad, but to change the market's perception of 360 Security, more subsequent performance will be needed to verify,' said an investor who has been following the AI industry for many years. 'In the market, the AI premium is diminishing, and ultimately, performance will be the deciding factor.'

To wear the AI crown, one must bear the weight of R&D.

The logic of marketing-driven AI growth is unsustainable. In the future, how far can 360 Security's AI journey go?

We'll have to wait and see.

Disclaimer: This article is based on legally disclosed content and publicly available information, with commentary provided. However, the author does not guarantee the completeness or timeliness of this information. Additionally, the stock market carries risks, and caution is advised when entering. This article does not constitute investment advice, and investment decisions should be made at your own discretion.