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Where Are We in the Mobile Internet Transition? Stifel Internet Equity Research

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Where Are We in the Mobile Internet Transition? Stifel Internet Equity Research

  1. 1. Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 71-74 of this report. All prices are as of the close of business on May 8, 2015 Where Are We in the Mobile Internet Transition? Scott Devitt | swdevitt@stifel.com John Egbert | egbertj@stifel.com Lamont Williams, CFA | williamsl@stifel.com Alex Chavdaroff | chavdaroffa@stifel.com Ansel Parikh | parikha@stifel.com May 2015
  2. 2. 1 Stifel Mobile Update: Table of Contents • 2015: Where Are We in the Mobile Transition? • Mobile Usage Trends • Mobile Advertising Takeaways • Mobile eCommerce Takeaways • Mobile Travel Takeaways • Digital Media Company Impacts 2 3-10 11-18 19-30 31-33 34-52 • eCommerce Company Impacts 53-60 • Online Travel Company Impacts 61-65 • Price Target Methodologies & Disclosures 66-74
  3. 3. • Internet companies have greatly benefited from an inflection in traffic driven by the proliferation of mobile Internet devices. • However, with smartphone penetration approaching saturation in developed markets, we may be nearing the flat part of the S-curve in usage growth and could soon see signs of mobile maturity domestically. • Mobile monetization initially lagged usage growth but later saw an inflection as companies adopted better strategies for monetizing smaller screens. Facebook’s mobile-driven acceleration in 2Q:13 proved digital media companies could make money on mobile, leading to upward estimate revisions and significant multiple expansion. • eCommerce companies have seen significant customer usage shift to mobile, but mobile sales have lagged due to lower conversion rates and lower average order values. • Overall, monetization has a longer growth runway than usage but companies’ ability to make money will on mobile be tested as usage tailwinds fade. Companies with mobile-optimized business models, other usage growth drivers, international expansion stories, and / or product catalysts should prove to be attractive long-term investments. Summary: Where Are We in the Mobile Transition? Source: Stifel Research 2
  4. 4. 3Source: ITU, Forrester Research Mobile Broadband Penetration Approaching Saturation in Most Developed Markets Mobile broadband reach in developed markets doubled to 84% in the last 4 years, while developing markets lag at just 21% 84% 21% 32% 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 2007 2008 2009 2010 2011 2012 2013 2014 MobileBroadbandPenetration Developed Markets Developing Markets Global Average The Americas Africa Arab States Asia & Pacific CIS Europe
  5. 5. 4Source: eMarketer 2015 data (Time Spent), Internet Advertising Bureau (U.S. Ad Spend), Stifel Research Time Spent with Mobile Devices is Eating into Other Forms of Content Consumption in the U.S. Mobile now makes up one-quarter of time spent with media in the U.S., 4% higher than desktop Internet and second only to TV 8% 16% 44% 24% 8% 4% 13% 38% 21% 25% 0% 10% 20% 30% 40% 50% Print Radio TV Desktop Mobile U.S.TimeSpentwithMedia 2010 2011 2012 2013 2014
  6. 6. 3% 10% 25% 42% -20% 0% 20% 40% 60% 80% 100% 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.TrafficGrowth%y/y Desktop Visitors Desktop Usage Mobile Visitors Mobile Usage 5Source: comScore (March 2015 data, desktop includes Video Metrix), Stifel Research estimates (gaps in comScore data for tablets) U.S. Mobile Traffic Growing Much Faster Than Desktop; Mobile Time Spent Now Makes Up ~60% of Total Mobile 61% Desktop 39% Time Spent – 1Q:15 Mobile visitors / usage are growing much faster than desktop in the U.S. but both have decelerated recently, especially visitors
  7. 7. 6Source: comScore (March 2015 data), U.S. Census Bureau (population), Stifel Research Younger Demos Highly Penetrated; Future Growth in U.S. Mobile Reach Will Come From Older Generations In the U.S., mobile Internet usage is widespread among young people but still has a long growth runway ahead in older demos 0 5 10 15 20 25 30 35 40 45 50 Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 Age 65+ U.S.InternetReachbyDemo(mm) Mobile Internet Total Internet Total Population 86% 95% 91% 75% 79% 36% 91% 99% 93% 87% 85% 61% 76% 85% Total Ages 18+
  8. 8. 7Source: comScore (March 2015 data), U.S. Census Bureau (population), Stifel Research 30 34 39 40 43 55 0 10 20 30 40 50 60 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 Mature MobileTimeSpent(HoursinBillions) Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 Age 65+ U.S. Smartphone / Tablet Usage is Likely Nearing the Flat Portion of S-Curve; We Think It Is ~77% There We estimate U.S. mobile growth will “mature” in 1-2 years with 215mm users age 18+ using mobile devices 2.8 hours per day Greater Engagement ~77% to Maturity as of 1Q:15 +7 +5 Increased Reach
  9. 9. 73% > 80% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 MobileTimeSpent-%toMaturity Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 Age 65+ 8Source: comScore (March 2015 data), U.S. Census Bureau (population), Stifel Research Younger Demographics More Highly Penetrated; Much of Remaining U.S. Growth Driven by Users Age 65+ We estimate all younger demos are >80% to mature usage levels and most of the remaining growth should come from ages 45+
  10. 10. 9Source: comScore (March 2015 data), U.S. Census Bureau (population), Stifel Research We Outline Bear / Bull Case Expectations for Mobile Maturity; Expect Usage Growth <20% y/y by 2015-2017 43 55 1Q:15 Base Case Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 Age 65+ +2.0 +1.7 +1.9 +2.7 +1.3 +3.1 43 51 1Q:15 Bear Case 8-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 Age 65+ +1.4 +1.0 +1.4 +1.6 +0.8 +1.7 43 59 1Q:15 Bull Case Age 18-24 Age 25-34 Age 35-44 Age 45-54 Age 55-64 +2.7 +2.3 +2.6 +3.6 +1.5 +3.8 MobileMaturityScenarios–QuarterlyHours(B) Bear Case - 2015 80% Mobile Reach 202mm Mobile Users 2.7 Hours per Day Base Case - 2016 85% Mobile Reach 215mm Mobile Users 2.8 Hours per Day Bull Case – 2017 88% Mobile Reach 223mm Mobile Users 2.9 Hours per Day 85% to Maturity 77% to Maturity 72% to Maturity
  11. 11. 10Source: comScore (March 2015 data), Stifel Research We Expect Mobile Growth to Moderate in 2015 / 2016, Fall to Sub-20% Growth (i.e. Mid-2000’s Desktop Levels) 0 10 20 30 40 50 60 70 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 S-CurveofU.S.QuarterlyMobileHours(B) GrowthTransitionPhase *Note: Chart is representative of general mobile usage growth phases and not precise traffic data Scenarios Mobile should grow faster than other media for years to come but we expect a transition to mature growth (<20% y/y) by 2016
  12. 12. Mobile Advertising Takeaways
  13. 13. • U.S.-based digital media companies are at varying points of the mobile transition but most have seen significant usage shift to mobile. Many companies already receive the majority of their traffic from mobile apps. • As usage tailwinds slow in the U.S., we think the pressure will be on digital media companies to prove out their mobile ad monetization models before they no longer have the benefit of rapid user growth. • Although the U.S. advertising market is far from the only market deeply affected by trends in mobile, it represents a disproportionate amount of global ad spend and we believe it will be a key testing ground for determining the winners / losers of the mobile Internet transition. • Despite recent inflections in growth from specific ad trends (native, video, programmatic), mobile ad dollars continue to significantly trail usage and this gap represents a $28B opportunity in the U.S. alone. • We view Facebook as a clear winner with multiple platforms serving hundreds of millions of mobile users. Google may fare better in mobile than investors believe as search disintermediation fears seem overblown. Twitter faces tougher competition for dollars from emerging platforms. Advertising: Where Are We in the Mobile Transition? Source: Stifel Research 12
  14. 14. 13Source: Internet Advertising Bureau (U.S. Ad Spend), Stifel Research Mobile is the Fastest Growing Ad Category in the U.S. but Remains the Smallest Mobile now makes up roughly 8% of U.S. ad revenue among the 5 major ad categories in the U.S., up from <1% just 4 years ago 32% 9% 42% 16% 0% 18% 11% 41% 23% 8% 0% 10% 20% 30% 40% 50% Print Radio TV Desktop Mobile U.S.AdSpendbyCategory 2010 2011 2012 2013 2014
  15. 15. 14Source: eMarketer 2015 data (Time Spent), Internet Advertising Bureau (U.S. Ad Spend), KPCB, Stifel Research Mobile Ad Spend Still Under-Indexes Time Spent in U.S.; TV Joins Print Ads in Decline; Desktop & Radio Stable 4% 13% 38% 21% 25% 18% 11% 41% 23% 8% 0% 10% 20% 30% 40% 50% Print Broadcast Radio TV Desktop Internet Mobile Internet U.S.TimeSpentvs.AdSpend-2014 Time Spent Ad Spend Ad Dollar Opportunity $28BOppty $162B spent in these 5 categories in 2014 Usage / Spend Trends We think mobile ad spend parity is a $28B opportunity in the U.S.
  16. 16. 15Source: comScore (March 2015 data), Stifel Research Search Activity Had Been Less Prevalent on Mobile Devices, but Gap Appears to Be Narrowing 52% 52% 51% 55% 58% 53% 50% 46% 41% 48% 48% 49% 45% 42% 47% 50% 54% 59% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 U.S.SearchUsage/TotalBrowsing U.S.SearchMins-Desktopvs.Mobile(%) Desktop Search Share Mobile Search Share Desktop Search / Total Desktop Browsing Mobile Search / Total Mobile Browsing Crossover Mobile search traffic overtook desktop last year and is growing in traffic share, debunking search disintermediation theories
  17. 17. 16Source: comScore (March 2015 data), U.S. Census Bureau (population), Stifel Research Search Advertising Monetizes at Lower Rates on Mobile Today; Desktop Still Dominates Search Dollars Despite mobile generating more search activity, mobile search dollars lag desktop despite recent monetization improvements 2.6 2.7 3.2 2.8 3.0 3.1 3.5 3.1 3.2 2.9 3.7 1.2 1.3 1.5 $101 $106 $148 $42 $47 $54 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2Q:12 3Q:12 4Q:12 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 Revenueper1,000SearchMins(RPM) U.S.SearchAdRevenue($B) Desktop Search Rev. Mobile Search Rev. Desktop RPM Mobile RPM
  18. 18. 17 Search a Much Bigger Ad Business on Desktop, but Display Surpassed Search on Mobile in 2014 Search generally monetizes at lower rates on mobile, but some forms of mobile display (e.g. native ads) garner higher pricing Source: IAB (historical U.S. ad spend), IDC, SNL Kagan, Stifel Research estimates (projected U.S. ad spend) 5.8 5.9 6.0 7.0 4.3 4.5 4.5 5.7 1.3 1.4 1.4 1.8 1.2 1.3 1.5 2.0 0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1Q:14 2Q:14 3Q:14 4Q:14 U.S.DigitalAdSpend($B) Desktop Search Desktop Display Mobile Search Mobile Display 4.6 3.1 4.4 3.2 4.5 2.9 5.2 3.7
  19. 19. 18 Mobile Advertising is the Fastest-Growing Ad Category Globally; Mobile Ads Expected to Top $50B in 2016 Mobile advertising is expected to grow +40% y/y in 2015; none of the other major ad categories is growing in the double digits Source: IDC ad forecasts, Stifel Research estimates 244 255 268 281 298 318 36 37 36 37 37 38131 129 122 120 120 120 103 107 107 109 110 11017 28 39 53 69 88 -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 100 200 300 400 500 600 700 800 2013 2014 2015E 2016E 2017E 2018E GlobalAdSpendbyCategory($B) TV Radio Print Desktop Mobile TV y/y Radio y/y Print y/y Desktop y/y Mobile y/y
  20. 20. Mobile eCommerce Takeaways
  21. 21. • Mobile commerce is earlier in the monetization growth curve relative to digital media as friction / barriers to transactions on mobile devices have held back widespread consumer adoption. • As smartphone and tablet penetration has grown, time spent online through a mobile device has accelerated well ahead of transactions, resulting in a wide gap between usage and monetization. • Barriers to mobile monetization are slowly waning, setting the stage for sizable growth and strong eCommerce sales in the years ahead. • The key debate at this point remains… will monetization reach / surpass usage? Overall we believe that monetization will close the gap, though consumers’ use of multiple devices to shop could limit mobile’s ability to surpass usage. • We see Amazon and Alibaba as the primary beneficiaries of the mobile transition, with mixed/slightly positive impact to eBay’s operations. • We view Zulily as having already greatly benefited from the mobile transition early in its growth curve, while we think RetailMeNot faces multiple hurdles in efficiently monetizing its growing mobile traffic mix. Source: Stifel Research 20 eCommerce: Where Are We in the Mobile Transition?
  22. 22. 21Source: comScore, Stifel Research Mobile Usage Gaining Share from Desktop in the Retail Category Time spent in the retail category online is shifting from PC and Tablet to Smartphone in the U.S. 36% 34% 51% 14% 8% 52% 41% 0% 10% 20% 30% 40% 50% 60% Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 comScoreU.S.TrafficGrowth%y/y Smartphone Tablet Desktop
  23. 23. 22Source: comScore, Euromonitor, Stifel Research Mobile Monetization Lags Far Behind Usage More time is spent on retail platforms online through mobile devices but online sales are predominantly generated by PCs 39% 82% 46% 18%15% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Total Minutes Spent in Retail Category by Device in the U.S. (2014 Average) 2014 U.S. eCommerce Sales by Device Desktop Smartphone Tablet Includes both Smartphone and Tablets Note: Euromonitor eCommerce sales excludes C2C sales, sales of motor vehicles and parts, and event and travel tickets.
  24. 24. 23Source: IBM Digital Analytics Benchmark: Retail Industry Online Holiday Mobile Shopping Report 2014, Stifel Research Mobile Conversion and Average Order Values Are Well Below Desktop PCs Smartphone conversion is roughly 330bp below PC and average order value is 21% lower than PC, driving the gap in monetization $99.31 $112.73 $125.12 1.2% 3.5% 4.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Smartphone Tablet Desktop ConversionRate(%) AverageOrderValue($) U.S. Average Order Value and Conversion Rate by Device 2014 Holiday Season (Nov/Dec) Average Order Value Conversion Rate
  25. 25. 24Source: Monetate: Ecommerce Quarterly EQ4 2014, Stifel Research Lower Engagement / Add-to-Cart Rates Are Additional Drivers of the Mobile Monetization Gap Add-to-cart rates and average page views remain considerably higher on PCs and tablets relative to smartphones due to ease of use and convenience 8.35% 7.83% 7.54% 7.69% 9.26% 8.43% 7.89% 8.06% 7.90% 9.05% 5.41% 5.47% 4.45% 4.01% 4.72% 2% 3% 4% 5% 6% 7% 8% 9% 10% 4Q:2013 1Q:2014 2Q:2014 3Q:2014 4Q:2014 Global Add-to-Cart Rate by Device Traditional Tablet Smartphone 8.88 8.66 8.88 9.11 10.12 8.46 8.52 9.02 9.33 10.04 4.60 4.81 4.71 4.87 6.71 0.00 2.00 4.00 6.00 8.00 10.00 12.00 4Q:2013 1Q:2014 2Q:2014 3Q:2014 4Q:2014 Global Average Page Views by Device Traditional Tablet Smartphone
  26. 26. 25Source: Stifel Research Barriers to Mobile Commerce Remain … Though Waning Barriers to Mobile Purchases: • Smaller screen size • Payment security concerns • Lack of mobile optimized websites and mobile apps • Limited and/or slow connectivity • Lack of smartphone/tablet penetration • Buying on mobile device is not user friendly in many cases How Barriers are Being Addressed: • Introduction of larger mobile devices with larger screen sizes (iPhone 6 & Galaxy S6) • More secure mobile payment options (particularly from payments made through apps) • Mobile optimized sites and app development (accelerated by Google’s mobile search algorithm change) • Greater WiFi availability (particularly in shopping locations in the U.S. and in International locations) Barriers to mobile commerce are slowly waning, setting the stage for rapid growth in the years ahead
  27. 27. 26Source: Euromonitor, Stifel Research Strong Growth Opportunity Ahead for Mobile Commerce Global mobile commerce totaled over $150B in 2014, representing just 18% of eCommerce sales and is expected to reach $440B by 2018 86% 95% 91% 75% 79% 36% mCommerc e 2014-2019E CAGR: 28% $56 $97 $154 $220 $291 $363 $443 $574 $694 $840 $992 $1,150 $1,320 $1,493 10% 14% 18% 22% 25% 27% 30% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% $0B $200B $400B $600B $800B $1,000B $1,200B $1,400B $1,600B 2012 2013 2014 2015E 2016E 2017E 2018E MobileCommercePenetration(%) Global mCommerce Sales Global eCommerce Sales mCommerce Penetration (%) Sales(US$B) Note: Euromonitor eCommerce sales excludes C2C sales, sales of motor vehicles and parts, and event / travel tickets.
  28. 28. 27Source: Euromonitor, Stifel Research Mobile Commerce Extending the eCommerce Growth Profile As barriers to mobile commerce slowly wane, mobile commerce is poised to drive eCommerce sales in the years ahead. • Mobile commerce is expected to grow at over twice the rate of eCommerce (PC only) sales through 2018. • Higher penetration of eCommerce sales will come largely at the expense of brick-and- mortar sales, particularly in developed markets with higher traditional retail density. • In emerging markets, where traditional retail is less developed, we expect eCommerce, enhanced by mobile, to drive incremental sales. 15% 15% 15% 13% 11% 11% 10% 87% 73% 59% 43% 32% 25% 22% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015E 2016E 2017E 2018E Global eCommerce Sales Growth (PC Only) Global mCommerce Sales Growth 3% 4% 4% 5% 5% 5% 6% 6% 4% 4% 5% 6% 7% 7% 8% 8% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 2011 2012 2013 2014 2015E 2016E 2017E 2018E eCommerce Penetration (PC Only) eCommerce Penetration (PC + Mobile) Note: Euromonitor eCommerce sales excludes C2C sales, sales of motor vehicles and parts, and event and travel tickets. Global eCommerce Sales Growth Global Penetration of Retail Sales
  29. 29. 28Source: Euromonitor, Stifel Research Mobile Commerce Penetration Varies Widely Across Geographies Higher smartphone penetration and greater mobile connectivity in APAC regions and the UK are driving higher % of mobile commerce sales 36% 18% 18% 29% 31% 13% 35% 11% 5% 18% 14% 27% 0% 5% 10% 15% 20% 25% 30% 35% 40% World China Japan South Korea India Australia Russia Brazil USA Germany UK Mobile Commerce Penetration (2014)
  30. 30. 29Source: Criteo: State of Mobile Commerce Q1 2015, Stifel Research Mobile Commerce Different Across Product Categories Consumers are more comfortable buying certain categories through mobile devices 36% $86 $80 $91 $45 $86 $36 $114 $95 $96 $70 $102 $85 $0 $20 $40 $60 $80 $100 $120 Fashion & Luxury Sporting Goods Health & Beauty Home Mass Merchants Travel Mobile Average Order Value in Relation to Desktop (100) Smartphone Tablet Desktop
  31. 31. 30Source: PayPal: PayPal Mobile Research 2014/2015 Global Snapshot, comScore, Stifel Research Will Mobile Monetization Reach Usage? Ultimately we believe mobile monetization will approach its usage level though it may not surpass it 36% • Smartphones are an important tool for product/merchant research prior to a purchase. Purchases, however, are frequently completed on another device. • Over 60% of consumers use multiple devices to shop for products. • While we expect mobile commerce to grow handsomely in the years ahead, a sizable portion of the population will continue to use smartphones as an agent for research and complete purchases on PCs and/or in stores. 10% 15% 18% 21% 25% 27% 36% 0% 10% 20% 30% 40% Make a purchase while on the go Make a purchase at home/work Scan barcode or QR code Price comparisons while in store Read customer / user reviews Find information about store and/or location Search for product information Smartphone Uses Related to Shopping % of Consumers Who Have Done Over the Last 12 Months
  32. 32. Mobile Travel Takeaways
  33. 33. • Online travel is at a similar stage of the mobile monetization curve as eCommerce, but convergence between mobile usage and monetization will be driven by conversions and unique travel related use cases; Research and a collaborative planning process will drive cross-device usage. • Due to the lower purchase frequency / high AOV of travel products, mobile apps are not a primary source of transactions relative to media / eCommerce. • Mobile web constitutes a large portion of mobile traffic, which highlights the continued significance of paid channels such as Google mobile search and meta-search. • To better position themselves for mobile tailwinds and maintain growth online travel companies like Priceline and TripAdvisor have expanded into the post- booking ecosystem where mobile facilitates the local discovery process. • The key debate revolves around which tactics best position a company to take advantage of increasingly mobile user bases and whether companies should focus on core travel products or expand to more mobile-centric verticals. • Overall, travel is in the early innings, but we are positive on Priceline and TripAdvisor’s efforts to better monetize mobile users through in-destination verticals. Online Travel: Where Are We in the Mobile Transition? Source: Stifel Research 32
  34. 34. Source: Company reports, PhocusWright, eMarketer, Visa Consumer report, Criteo, comscore, Stifel estimates Online Travel: Post-Booking Presents A Long-Term Opportunity To close the gap between mobile usage and monetization, online travel companies focus on mobile web for core travel products and, more recently, apps that address the post- booking market. • Usage: In 2014 mobile accounted for 32% of time spent on online travel services; However mobile web constitutes a large portion of mobile usage, highlighting the continued importance of paid channels. • Booking Penetration: According to a study by Criteo, 21% of hotel bookings are made on mobile, but the value of these bookings are 30% lower, primarily due to last-minute deals. • Post-Booking: Approximately 58% of travel spend occurs in-destination, including dining (14%) and attractions (12%). These activities are more mobile- centric due to the local discovery process involved. 10% 14% 17% 22% 26% 31% 11% 15% 20% 25% 29% 33% 7% 9% 11% 15% 18% 22% 3% 5% 7% 9% 12% 15% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% FY:13 FY:14 FY:15E FY:16E FY:17E FY:18E Mobile Bookings Penetration US Europe APAC LATAM %ofOnlineBookings 1Q:15 (U.S.) App %of Mobile Usage Web %of Mobile Usage Priceline 31% 69% Expedia 48% 52% TripAdvisor 15% 85% HomeAway 20% 80% Travel 35% 65% 33
  35. 35. Digital Media Company Impacts
  36. 36. Facebook: Dominant Mobile Audience, Revenue Growth Levers from New Mobile Businesses 35Source: comScore, Stifel Research Dominant global user base • Facebook has amassed arguably the largest / most engaged audience on the Internet today, though core growth is increasingly being driven by late adopters / users in emerging markets. • Facebook has unique optionality from its growing family of apps, most notably Instagram, Messenger, WhatsApp, and Oculus VR. Several of these services have user bases in the hundreds of millions. Strong monetization model, beneficiary of mobile / key secular growth themes • Facebook’s native ad units cracked the code for mobile display advertising and the company is poised to be the biggest beneficiary of the shift of ad dollars to mobile, in our view. • Facebook also benefits from other secular themes in Internet; digital video consumption, cross-screen ad targeting, programmatic buying, and off-platform advertising. Facebook U.S. Visitors Facebook U.S. Time Spent 130 142 147 148 155 62 59 58 56 53 68% 71% 72% 72% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 50 100 150 200 250 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Total MAUs Mobile % 179 183 183 163 159 408 453 505 519 618 69% 71% 73% 76% 80% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 100 200 300 400 500 600 700 800 900 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(B) Desktop Mins Mobile Mins Mobile % NASDAQ: FB Buy, $95 PT
  37. 37. Facebook Continues Grow Usage Across All Screens; Older Demos Growing the Fastest 36Source: Stifel Research Facebook users / engagement continue to grow, even in mature markets like the U.S. However, much of the core platform growth is being fueled by older demographics, which are valuable to some advertisers but less so to others. Facebook Cross-Screen Growth – 1Q:15 vs. 1Q:14 NASDAQ: FB Buy, $95 PT 3% 6% 7% 13% 22% 23% 30% 28% 28% 33% 49% 74% 0% 10% 20% 30% 40% 50% 60% 70% 80% Persons: 18-24 Persons: 25-34 Persons: 35-44 Persons: 45-54 Persons: 55-64 Persons: 65+ FacebookGrowhy/y Visitor Growth Time Spent Growth
  38. 38. 97 142 300 308 600 700 700 1,441 0 200 400 600 800 1,000 1,200 1,400 1,600 LinkedIn YELP Instagram Twitter Messenger Facebook Groups Whatsapp Facebook Monthly Active Users (mm) Facebook’s Portfolio of Highly-Used Apps Bodes Well for the Company’s Future Growth 37Source: Stifel Research Facebook’s growing portfolio of apps offer future growth levers • Facebook’s family of apps includes several with hundreds of millions of users, including WhatsApp (700mm), Groups (700mm), Messenger (600mm), and Instagram (300mm). • Each of these standalone platforms is larger than notable Internet platforms Twitter, Yelp, and LinkedIn. • These apps continue to grow at rapid rates and, importantly, skew toward younger demographics more than the core Facebook platform does. This enables Facebook to ensure it hits the younger demographics highly sought after by advertisers. • WhatsApp also notably skews toward non-U.S. countries, many of which are in regions where Facebook is relatively under-penetrated (notably eastern Europe and Asia Pacific). Total Usage % by Users 13-34 40% 48% 52% 42% 57% 73% 0% 10% 20% 30% 40% 50% 60% 70% 80% Facebook Whatsapp Instagram % Total Usage by U.S. Users 13-34 % Total Users % Total Minutes NASDAQ: FB Buy, $95 PT Facebook’s Portfolio of Apps vs. Social Peers
  39. 39. Facebook Has Both Platform and Monetization Developments as Avenues of Growth 38Source: Stifel Research, IDC (ad forecasts), company reports 3 7 12 17 22 27 4 4 4 5 6 6 7 11 16 22 27 33 3% 4% 6% 9% 11% 13% 0% 5% 10% 15% 20% $0 $5 $10 $15 $20 $25 $30 $35 $40 2013 2014 2015E 2016E 2017E 2018E %Share FacebookAdRevenue($B) Mobile Ad Rev Desktop Ad Revenue % global digital ad market Facebook has numerous sources of positive optionality from its emerging platforms, off-platform ad monetization, and digital video ads. Of these, only video ads are in our estimates today, but even still, Facebook seems poised to continue to take a greater share of global digital advertising expenditure. NASDAQ: FB Buy, $95 PT
  40. 40. Google: Fears of Search Disintermediation from Mobile Apps Appear Overblown 39Source: comScore, Stifel Research Google U.S. Active Users Google U.S. Time Spent 136 151 156 157 165 95 85 78 80 76 59% 64% 66% 66% 69% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 50 100 150 200 250 300 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Total MAUs Mobile % 212 218 239 248 232 158 172 191 177 210 43% 44% 44% 42% 48% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 50 100 150 200 250 300 350 400 450 500 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(B) Desktop Mins Mobile Mins Mobile % NASDAQ: GOOGL Hold, $550 FV Not seeing evidence of widespread search disintermediation • The bear thesis that vertical-specific mobile apps would disrupt Google search queries does not appear to be playing out, as Google recently disclosed that mobile search queries in 10+ countries, including the U.S. and Japan. Mobile search minutes also represent a similar proportion of total browsing activity as desktop. • However, mobile search does appear to be cannibalizing desktop search dollars; desktop search advertising grew just +2% y/y in 2014, which was significantly below overall desktop ad spend of +9% y/y, implying mobile search may not be as incremental as previously thought. Mobile does appear incremental to Android / Google Play / YouTube • Mobile does appear incremental in other ways; Android solidifies Google’s mobile query share and Google has multiple mobile apps among the top 10 most used (Search, Google Maps, Gmail, and YouTube) on both iOS and Android.
  41. 41. 0 2 4 6 8 10 12 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Minutes(inBillions) Time Spent on Google Search in U.S. Desktop Mobile 40Source: comScore Mobile Search Now Larger than Desktop in 10+ Markets Including the U.S. and Japan Consumers in the U.S. and several other markets now spend more time searching on mobile devices than on desktop NASDAQ: GOOGL Hold, $550 FV
  42. 42. $39.3 $18.4 $3.5 $43.6 $18.8 $5.9 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 U.S. Desktop Ad Expenditure U.S. Desktop Search Ad Expenditure U.S. Mobile Search Ad Expenditure TotalU.S.AdDollars(inBillions) 2013 2014 41 However, Mobile Search Revenue May Be Less Incremental than Previously Thought Google’s recent disclosure of higher mobile search query share than previously thought, coupled with stalling desktop search growth / slowing overall growth, suggests mobile search may not be as incremental to revenue as some investors thought early on. Source: IAB NASDAQ: GOOGL Hold, $550 FV
  43. 43. 114 83 52 0 20 40 60 80 100 120 Google Desktop Search Google Mobile Search Google Play MinutesinBillions Mobile Driving Growth in Google’s Key Growth Segments – YouTube and Google Play 42Source: Company reports, comScore, Stifel Research YouTube video views now 50% mobile despite the smaller screen • YouTube’s Global video views continue to grow at healthy rates, led by mobile devices / international markets despite smaller screen sizes and bandwidth limitations. Google Play could make up for potentially slower search growth • Google Play usage is now at roughly 25% of the level of time spent on Google Search and over half of mobile search time spent. • Google Play is stronger internationally where Android holds much higher smartphone market share in many countries and has over a billion users in total. • Google also just launched app-install ads in Google Play earlier this year, tapping into a fast-growing revenue stream that Facebook and Twitter have benefited from. Global Video Views from Mobile U.S. Time Spent in 2014 29% 40% 50% 0% 10% 20% 30% 40% 50% 60% 2013 2014 2015 NASDAQ: GOOGL Hold, $550 FV
  44. 44. GrubHub: Business Model Made for Mobile 43Source: comScore, Stifel Research GrubHub U.S. Active Users GrubHub U.S. Time Spent 0.9 2.1 2.6 2.5 3.9 1.6 1.6 1.5 1.5 1.5 35% 56% 64% 62% 72% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 1 2 3 4 5 6 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Total MAUs Mobile % 0.4 1.1 1.2 1.1 1.20.6 1.7 2.1 1.8 2.0 61% 62% 64% 64% 62% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(B) Desktop Mins Mobile Mins Mobile % NYSE: GRUB Buy, $52 PT GrubHub was made for mobile devices • At 1Q:15 earnings, GrubHub disclosed that ~53% of orders were placed through mobile devices, and management expects orders to continue to transition to mobile. • Online takeout orders were made for on-the-go consumers and as more restaurants adopt GrubHub’s OrderHub / DeliveryHub mobile apps, consumers know more about the progress of food deliveries than ever before. • GrubHub Active Diner growth should not be limited by slowing mobile growth since the service is very early in most markets in the U.S. No difference in mobile economics • Unlike digital media or eCommerce companies that often have lower conversion rates on mobile due to screen size limitations / friction related to payments, we think GrubHub likely converts mobile orders as well or better than desktop orders since native apps are actually a smoother / simpler experience than the GrubHub and Seamless websites.
  45. 45. LinkedIn: Less Mobile Than Peers, and That’s OK; Over 50% Mobile Visits, Ads Growing Fast 44Source: comScore, Stifel Research LinkedIn Reported Monthly Visitors Sponsored Update Revenue Growth 45 49 49 45 47 46 48 48 48 20 26 29 31 35 38 42 45 49 31% 35% 37% 41% 43% 45% 47% 48% 51% 0% 20% 40% 60% 80% 100% 120% 140% 0 20 40 60 80 100 120 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 LinkedInReportedMonthlyVisitors(mm) Total Visitors Mobile Visitors % Mobile Visitors Total Visitors y/y Mobile Visitors y/y 2 5 6 9 8 12 104 10 14 21 22 35 37 373% 153% 89% 530% 241% 161% 0% 100% 200% 300% 400% 500% 600% 0 10 20 30 40 50 60 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 LinkedInMarketingRevenue($mm) Desktop SU Revenue Mobile SU Revenue Desktop Growth y/y Mobile SU Growth y/y NYSE: LNKD Buy, $250 PT LinkedIn late to the mobile party, but now catching up • As a professionally-focused service, LinkedIn generates more usage from desktop computers than most Internet sites from members at work. Because of this, LinkedIn’s mobile transition has taken place more gradually than its peers. • However, in 1Q:15 LinkedIn saw 51% of unique visiting members come from mobile devices, and the company has been investing a great deal in its multiple mobile app experiences. Marketing benefiting from mobile shift, other businesses boosted indirectly • LinkedIn’s mobile monetization model mirrors those of FB / TWTR (in-stream sponsored ads), but with four diverse businesses (talent, sales, marketing, and premium subs), LinkedIn is less dependent on mobile ad dollars than its peers. • LinkedIn’s other businesses benefit indirectly from the increased usage that its mobile services generate, by giving its customers greater access to its professional members.
  46. 46. Pandora: Most Mobile Service of the Bunch, Biggest Winner from Connected Car Adoption 45 Pandora Active Listeners by Format Pandora 1Q:15 Usage vs. Peers 66 70 71 70 72 8 7 5 9 7 89% 91% 94% 89% 91% 0% 20% 40% 60% 80% 100% 0 10 20 30 40 50 60 70 80 90 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 PandoraAvg.ActiveListeners(mm) Mobile MAUs Total MAUs Mobile % 0.0 0.0 0.2 0.3 0.5 3.5 4.9 10.3 0.0B 2.0B 4.0B 6.0B 8.0B 10.0B 12.0B Yelp Linkedin eBay Twitter Amazon Google Pandora Facebook U.S.TimeSpentin1Q:15 NYSE: P Buy, $25 PT Like Radio, Pandora is all about mobile • Over 90% of Pandora’s ~80mm monthly active users listen from mobile devices each month and we estimate roughly 84% of hours are streamed on mobile, which is not surprising as radio is inherently a “mobile” activity. • Pandora has ridden the wave of mobile device adoption to impressive usage levels for a <$5B company; in 1Q:15 Pandora served more domestic usage hours (5B) than every U.S.- based Internet company other than Facebook (10B), and more than Google, Amazon, Twitter, eBay, LinkedIn, and Yelp combined. Upside from connected car listening • Although growth in listener hours has been slowing, we think Pandora is 2-3 years ahead of its peers in penetrating the in-car listening opportunity, which makes up close to half of all radio listening in the U.S. today. • Pandora’s listenership currently represents 10% of total radio listening, but it estimates its share is only 2% of listening in the car currently. Source: comScore, Stifel Research
  47. 47. Pandora’s Proportional Share of U.S. Digital & Radio Ad Budgets is 5x What It Generates Today 46Source: IDC (2015 ad markets), company documents (LTM = last 12 months), comScore (7% = P minutes / total Internet), Stifel Research estimates NYSE: P Buy, $25 PT Despite steady monetization upticks, Pandora under-indexes its share of radio & digital advertising; at parity Pandora would generate ~$3.8B in ad revenue in 2015 Broadcast Radio Ad Market $18.5B Digital & Mobile Display Ad Market $27.0B P Share @ 10% = $1.85B P LTM Audio Revenue ~$500mm (3%) P LTM Display Revenue ~$250mm (1%) P Share @ 7% = $1.93B Revenue @ Parity = $3.8B ~5x LTM revenue
  48. 48. 72% 76% 80% 64% 77% 85% 27% 41% 49% 38% 44% 53% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2012 2013 2014 Twitter Facebook LinkedIn Yelp Twitter: Mobile First, But Now What? 47Source: Company reports, MAUs are as of end of each period Twitter is the archetype of a mobile-first company • Twitter was born a mobile company and up until 2013, it was an even more mobile company than Facebook in terms of percentage of users coming from mobile devices. • Despite Twitter’s logged in user base being a minority of the visitors coming to the site, registered monthly active user growth has stalled over the past few quarters and we believe an early emphasis on monetization distracted the company from making necessary platform improvements build a long-term, sustainable audience. • Twitter has recently stepped up its product efforts in attempts to reverse this trend, but it may be too little, too late for it to have any chance of reaching its goal of a billion daily users. Mobile MAUs - % of Total FB and Twitter User Growth 68 56 51 211 172 16558% 30% 21% 25% 16% 13% 0% 10% 20% 30% 40% 50% 60% 70% 0 50 100 150 200 250 2012 2013 2014 Y/YUserGrowth Users(mm) Twitter Net Adds Facebook Net Adds Y/Y Growth - Twitter Y/Y Growth - Facebook NYSE: TWTR Hold, $36 FV
  49. 49. $1.62 $1.68 $2.10 $1.77 $1.85 $1.98 $2.50 $2.05 $3.85 $4.63 $6.34 $5.84 $6.61 $8.01 $12.52 $10.78 $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 AdRevenueperMAUper1,000Mins FB Time-Adjusted ARPU TWTR Time-Adjusted ARPU 48 We Do Not Believe Management’s Assertion that Monetization is in its “Early Days” on Twitter Source: Company reports, comScore, Stifel estimates Unlike many other Internet companies, we do not believe Twitter will be able to combat industry headwinds of slowing mobile usage with ad pricing, as Twitter already monetizes at over 5x the rate of Facebook today in the U.S. when adjusting for time spent – a valuable measure of potential ad inventory. NYSE: TWTR Hold, $36 FV
  50. 50. 49 1Q:15 Saw Twitter Begin to Hit a Wall with How Much Advertisers Are Willing to Pay Source: Company reports, comScore, Stifel estimates 100 121 153 220 226 277 320 432 388 423 519 644126% 113% 123% 121% 125% 129% 109% 96% 72% 52% 62% 49% 0% 20% 40% 60% 80% 100% 120% 140% 0 100 200 300 400 500 600 700 Y/YGrowth TwitterAdRevenue($mm) Desktop Ad Revenue Mobile Ad Revenue Total Ad Revenue - y/y growth NYSE: TWTR Hold, $36 FV The compelling part of Twitter’s investment story had been persistent hyper-growth advertising; however, the company’s 1Q revenue miss was a worrisome sign that advertisers could be questioning its ROI.
  51. 51. Specifically, Twitter Seems to be Losing Share to Other Social Media Platforms 50Source: comScore U.S. cross-screen reports Twitter’s share losses in mobile time spent seem to indicate diminishing social relevance • The proliferation of mobile devices has allowed social / mobile startups to rapidly gain share in short periods of time. • Other startups seem to be flourishing as Twitter’s engagement stalls; private companies like Snapchat and Pinterest have continued to see strong user and engagement growth in the U.S. and now rival Twitter’s domestic size. • Instagram growth also continues to outpace Twitter; U.S. consumers now spend more than 2x as much time on Instagram as Twitter. • We think Facebook was wise to take its time monetizing Instagram; pushing the envelope on invasive advertising too early could have negatively impacted the platform’s growth trajectory. Twitter’s Y/Y Growth and Share of U.S. Social Minutes Twitter vs. Other Social Platforms in U.S. -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% Feb-2013 Aug-2013 Feb-2014 Aug-2014 Feb-2015 Y/YGrowthinMinutes U.S.ShareofSocialMinutes Share of Total U.S. Social Media Time Y/Y Growth 55 24 23 23 0 10 20 30 40 50 60 Instagram Twitter Snapchat Pinterest Billions NYSE: TWTR Hold, $36 FV
  52. 52. (6) (4) (2) 0 2 4 6 8 10 12 14 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 YelpMonthlyUniqueVisitors(mm) Total Adds Mobile Adds 102 108 117 120 132 138 139 135 142 40 45 50 53 61 68 73 72 79 57% 59% 62% 59% 60% 61% 64% 65% 65% 43% 29% 8% 52% 29% 0% 10% 20% 30% 40% 50% 60% 70% 0 20 40 60 80 100 120 140 160 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 YelpMonthlyUniqueVisitors(mm) Total Visitors Mobile Visitors Mobile Share of Searches Total Growth y/y Mobile Growth y/y Yelp: Mobile Responsible for User / Engagement Growth, But Usage Appears to Be Slowing 51Source: Company reports, Stifel Research NYSE: YELP Hold, $48 FV Yelp Monthly Visitor Growth Yelp Monthly Visitor Additions Mobile-first company, but mobile user growth slowing • With 56% of users / 65% of local searches coming from mobile and a quality app experience, Yelp exhibits all the signs of a mobile-first company. • Despite the quality of Yelp’s local content, both overall and mobile user growth has slowed in recent quarters domestically and international growth has practically come to a halt. User growth fuels business signups, the lifeblood of Yelp’s local business • Yelp’s investment story has centered around paying local advertisers, which Yelp acquires through its valuable funnel of 2mm+ claimed businesses • However, slowing user additions may be challenging advertiser growth
  53. 53. Yelp’s User Growth Fueled Its Business; May Be Impacting Local Advertiser / Revenue Growth 52Source: Stifel Research NYSE: YELP Hold, $48 FV 6.1 5.7 8.0 9.1 5.9 7.5 7.1 6.2 84% 71% 66% 54% 42% 68% 69% 66% 60% 51% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 1 2 3 4 5 6 7 8 9 10 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 Y/YGrowth YelpLocalAdvertiserAdds(k) Local Advertisers Added Advertiser Growth y/y Local Ad Revenue y/y Yelp’s slowing user growth may be responsible for the material deceleration of Local Business Advertisers / Local Revenue
  54. 54. eCommerce Company Impacts
  55. 55. 54Source: Company reports, comScore, PayPal research, Criteo, Amazon & eBay Have Leading Mobile Commerce Platforms Smartphones are multi-functional for eCommerce shoppers: • Mobile shoppers primarily use smartphones for 1) product research, 2) business details, and 3) reviews. • Moreover, shoppers spend more on apps and are more likely to make repeat purchases on mobile apps vs. mobile web. Amazon / eBay well-positioned vs. traditional retail: • Both Amazon / eBay have strong mobile app usage relative to traditional retailers. The commission models employed by both allow each to benefit from incremental mCommerce transactions without having to bridge a monetization gap as some ad- based models do. • Additionally as, leading platforms Amazon and eBay control a disproportionate share of mobile transaction activity. 36% 1Q:15 (U.S.) App %of Mobile Usage Web %of Mobile Usage Mobile App vs. Web Engagement Amazon 72% 28% 4.2x eBay 70% 30% 4.7x Etsy 78% 22% 7.8x Wayfair 13% 87% 2.7x Zulily 75% 25% 10.6x Average 62% 38% 6.0x Best Buy 16% 84% 3.5x Gap 7% 93% 1.4x Nordstrom 18% 82% 15.6x Target 74% 26% 3.7x Wal-Mart 63% 37% 2.8x Average 36% 64% 5.4x 27% 35% 29% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1Q:14 1Q:15 Average Top Quartile Mobile Share of eCommerce Transactions Note: Top quartile consists of retailers with the highest share of mobile transactions
  56. 56. Amazon: Benefits from Mobile in eCommerce and AWS 55Source: comScore, Stifel Research Amazon is a beneficiary of mobile in its retail and AWS businesses • During the holiday season nearly 60% of customers shopped using mobile devices. • Amazon has escaped many of the challenges of mobile monetization in the retail business given the company monetizes by % of transaction. • Amazon has benefitted from showrooming (facilitated by mobile usage) due to its business model built on low price ad convenience.. Mobile is also a competitive differentiator versus traditional retailers which have been late to develop mobile commerce platforms. • The growth in mobile usage has also driven demand for AWS services due to strong growth in app development. Mobile benefits outside of retail • Mobile based services such as Instant Video and Prime Now are driving stickiness in the ecosystem. Amazon U.S. Active Users Amazon U.S. Time Spent 101 99 104 112 119 63 60 63 62 57 62% 62% 62% 64% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 20 40 60 80 100 120 140 160 180 200 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Total MAUs Mobile % 12 10 11 13 12 22 24 24 25 28 66% 70% 69% 66% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 5 10 15 20 25 30 35 40 45 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(B) Desktop Mins Mobile Mins Mobile % NASDAQ: AMZN Hold, $358 FV
  57. 57. eBay: Mobile Could be a Key, Long-term Growth Lever for Marketplaces 56Source: comScore, Stifel Research eBay sees tailwinds from mobile in its Marketplace business • Mobile GMV grew 59% y/y to $17 billion in 4Q:14, representing 23% of total GMV (vs. 21% in 3Q:14). • Similar to Amazon, Marketplaces’ draws a significant portion of mobile traffic through its app, creating a unified experience from discovery to purchase. • Though still in the early stages, effective mobile engagement with new and old users through features, like daily deals, could lead to a reinvigoration in growth. eBay U.S. Active Users eBay U.S. Time Spent 60 66 70 73 83 37 34 38 41 39 62% 66% 65% 64% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 20 40 60 80 100 120 140 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Total MAUs Mobile % 9 8 8 9 10 14 15 16 15 13 62% 65% 66% 62% 57% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 5 10 15 20 25 30 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(B) Desktop Mins Mobile Mins Mobile % NASDAQ: EBAY Buy, $65 PT
  58. 58. 57Source: Company reports, PayPal, Payfirma PayPal: Mobile Presents Opportunities but also New Competition PayPal acquired Braintree in 2013 to boost its mobile payment capabilities and mobile accounted for 20% of TPV generated in 2014. However, due to the low barriers to entry created by the ubiquity of mobile devices, the competitive environment has become more intense. 36% 3% 9% 15% 20% 0% 5% 10% 15% 20% 25% $0 $50 $100 $150 $200 $250 FY:11 FY:12 FY:13 FY:14 Desktop TPV Mobile TPV Mobile Penetration TPV($B) %ofTotalTPV PayPal Mobile TPV Increasing Competition NASDAQ: EBAY Buy, $65 PT
  59. 59. 58Source: Company reports, Alibaba Merchant forum, Stifel estimates Alibaba: Setting Up for Mobile Tailwinds 36% 7% 19% 39% 48% 56% 61% 1% 6% 23% 35% 42% 42% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% $0 $100 $200 $300 $400 $500 $600 $700 FY:13 FY:14 FY:15 FY:16E FY:17E FY:18E ($Billions) Mobile GMV vs. Mobile Revenue Non-Mobile GMV Mobile GMV Mobile % of Total Revenue 2.50% 2.55% 2.44% 2.36% 2.62% 2.82% 0.49% 0.91% 1.79% 1.94% 2.33% 2.53% 2.66% 2.94% 2.89% 2.87% 3.07% 3.30% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% FY:13 FY:14 FY:15 FY:16E FY:17E FY:18E TakeRate Mobile vs. Desktop Take Rates Blended Take Rate Mobile Take Rate Non-Mobile Take Rate Alibaba’s hybrid ad model gives it the ability to close the monetization gap between desktop and mobile through improvements in conversion. • Usage: Mobile traffic now accounts for 55% of total traffic (vs. 25% last year) and the company expects this to exceed 70% by the end of 2015; However, mobile currently only accounts for 23% of revenues. • Investments into Monetization: Alibaba is making investments focused on mobile users such as new ad formats, improving ad relevancy, and social media tools for merchants. • Early Innings for Monetization: We believe Alibaba’s current investments will position it to take advantage of long-term mobile usage tailwinds as it climbs the steepening monetization S-curve. NYSE: BABA Buy, $102 PT
  60. 60. 59Source: Company reports, comscore, Stifel estimates RetailMeNot: Multiple Hurdles to Mobile Monetization 36% RetailMeNot has seen faster than expected adoption of its mobile platform, but faces multiple hurdles to effectively monetize its mobile traffic. • Attrition: 20-25% of mobile visits go un- monetized despite delivering a customer to a retail partner’s site; The company is experimenting with single use coupon codes, CPC pricing, and full marketing packages for retailers to address this issue. • Lower Mobile AOV: Comscore estimates 87% of time is spent on coupon platforms through mobile. RetailMeNot started on desktop, but needs to improve mobile conversions to offset monetization headwinds. • Retailer Adoption: The long-term focus remains the $20-30B in-store addressable market, but retailers have been slow to integrate beacon and mobile PoS technology. $0.42 $0.44 $0.43 $0.43 $0.42 $0.42 $0.36 $0.34 $0.29 $0.26 $0.23 $0.22 $0.06 $0.08 $0.09 $0.11 $0.12 $0.13 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 $0.50 FY:13 FY:14 FY:15E FY:16E FY:17E FY:18E RevenueperVisit(monetization) Mobile vs. Desktop Revenue per Visit Desktop Monetization Blended Monetization Mobile Monetization 18% 28% 41% 54% 64% 72% 3.0% 5.9% 11.0% 17.2% 23.5% 29.1% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 FY:13 FY:14 FY:15E FY:16E FY:17E FY:18E ($Milions) Mobile Visits vs. Mobile Revenue Desktop Visits Mobile Visits Mobile Revenue % of Total NASDAQ: SALE Hold, $20 FV
  61. 61. 60Source: Company reports, comscore, Stifel estimates Zulily: Further Along the Monetization Curve than Peers Flash sales companies rode the mobile adoption wave more than traditional eCommerce players. • Flash sales models saw early tailwinds from the mobile transition due to the frequent engagement, time sensitive nature, and entertainment aspects of the promotions. • As a result, we believe zulily is further along the S-curve than eCommerce peers in other verticals and will see less incremental benefits from mobile adoption trends going forward. 36% 2.9 2.8 3.7 4.8 5.5 5.4 5.9 6.8 6.339% 42% 45% 45% 47% 49% 50% 50% 55% 0% 10% 20% 30% 40% 50% 60% 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1Q:13 2Q:13 3Q:13 4Q:13 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 Total Orders Mobile Orders % of Total (N.A.) Mobile Orders % of TotalOrders(mm) %ofNorthAmericanOrders 1Q:15 (U.S.) Mobile %of Total Usage Desktop %of Total Usage App %of Mobile Usage Web %of Mobile Usage Zulily 58% 42% 74% 26% Hautelook 52% 48% 54% 46% Joss and Main 38% 62% 68% 32% MyHabit 34% 66% N/A N/A NASDAQ: ZU Hold, $12 FV
  62. 62. Online Travel Company Impacts
  63. 63. Priceline: Exploring In-Destination Opportunities and Refining Core Products 62Source: Stifel Research, comScore Focusing on mobile web, but positioning to capture app-heavy use cases. • In the last 12 months leading up to 1Q:15 Priceline saw over 100mm reservations on smartphones – we expect high-20%/low- 30% of bookings are made through mobile. • Rolled out last minute Booking Now mobile app in Jan. 2015. • Priceline acquired Kayak (2012) and OpenTable (2014) which are app-centric with 77% and 60% of mobile usage through apps in 1Q:15. Priceline U.S. Active Users Priceline U.S. Time Spent 6 7 8 6 7 11 14 13 12 15 35% 34% 39% 33% 33% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0 5 10 15 20 25 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Desktop MAUs Mobile % 63 68 77 52 54 129 162 148 113 153 33% 30% 34% 32% 26% 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 50 100 150 200 250 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(mm) Mobile Mins Desktop Mins Mobile % NASDAQ: PCLN Buy, $1,350 PT
  64. 64. Expedia: Investing in Core Competencies 63Source: Stifel Research Concentrating on optimizing mobile for core travel products. • 25% of transactions were booked on mobile devices (4Q:14) and Hotels.com saw mobile traffic penetration exceed 50% on peak days. • The pending acquisition of Orbitz should increase the company’s mobile presence with Orbitz’s instant mobile rewards and loyalty program. • Continued investment in meta-search platform, Trivago, should position the company to better address the traveler using mobile devices for trip research. Expedia U.S. Active Users Expedia U.S. Time Spent 11 11 12 10 14 13 15 15 14 18 46% 42% 44% 41% 43% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 0 5 10 15 20 25 30 35 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Desktop MAUs Mobile % 110 86 93 66 115 194 210 217 174 267 36% 29% 30% 28% 30% 0% 5% 10% 15% 20% 25% 30% 35% 40% 0 50 100 150 200 250 300 350 400 450 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(mm) Mobile Mins Desktop Mins Mobile % NASDAQ: Expedia Hold, $109 FV
  65. 65. HomeAway: Investing & Partnering to Extend Mobile Capabilities 64Source: Stifel Research Exploring in-destination opportunities. • Unlike hotels or flights, vacation rentals typically require collaboration with spouses, family members, or friends, reducing the emphasis on last-minute mobile bookings. • HomeAway partnered with Uber and Instacart in Sept. 2014 to give guests access to transportation and grocery delivery services while staying at a vacation home. • The company acquired property management app Glad to Have You in March 2014 to enable better communication between owners and guests. HomeAway U.S. Active Users HomeAway U.S. Time Spent 5 6 6 5 7 6 6 6 5 6 44% 48% 50% 50% 54% 0% 10% 20% 30% 40% 50% 60% 0 2 4 6 8 10 12 14 16 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Desktop MAUs Mobile % 81 94 87 66 134 217 174 169 116 214 27% 35% 34% 36% 38% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0 50 100 150 200 250 300 350 400 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(mm) Mobile Mins Desktop Mins Mobile % NASDAQ: AWAY Hold, $30
  66. 66. TripAdvisor: Strengthening Mobile Presence from Pre-Trip Research to Post-Booking Activities 65Source: Stifel Research Diversifying away from advertising model and accompanying mobile headwinds. • ~50% of monthly active users navigate to the site from mobile devices. • Rolled out commission based, mobile Instant Booking in the U.S. and internationally to boost revenue per mobile user. • Acquired Viator and LaFourchette in 2014 to expand into the attractions and restaurant reservation verticals. TripAdvisor U.S. Active Users TripAdvisor U.S. Time Spent 14 14 18 16 32 13 13 14 17 23 52% 52% 55% 48% 58% 0% 10% 20% 30% 40% 50% 60% 70% 0 10 20 30 40 50 60 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.MonthlyVisitors(mm) Mobile MAUs Desktop MAUs Mobile % 144 124 125 97 256 117 117 137 122 242 55% 51% 47% 44% 51% 0% 10% 20% 30% 40% 50% 60% 0 100 200 300 400 500 600 1Q:14 2Q:14 3Q:14 4Q:14 1Q:15 comScoreU.S.Minutes(mm) Mobile Mins Desktop Mins Mobile % NASDAQ: TRIP Hold, $84 FV
  67. 67. Price Target Methodology & Risks
  68. 68. 67 Alibaba • Price Target Methodology: We arrive at our $102 target price through a DCF analysis with an 11% discount rate and 4.5% terminal growth rate. • Risks: Difficulty with international expansion outside of China and into new businesses, concentrated voting ownership, and Chinese geopolitical and macro concerns present key risks to future share performance, in our view. eBay • Price Target Methodology: Our $65 price target is derived from our sum-of-the-parts (SOTP) analysis combined with a probability-weighted acquisition premium. We apply 2016E EBITDA multiples of 10x for eBay, 14x for PayPal, and 9x for eBay Enterprise in our SOTP. Additionally, we expect that unlike Expedia and TripAdvisor the new eBay and PayPal entities could be potential strategic assets. To account for this optionality, we assume a 20% acquisition premium with a 25% probability, which adds $3 to our $62 SOTP implied price. • Risks: In addition to general market and macroeconomic risks, we believe risks for eBay include increased eCommerce and payments competition, adverse effects resulting from the separation of the marketplace and payments business, and slower eCommerce growth domestically and in international markets. Facebook • Price Target Methodology: We use a DCF approach to arrive at our $97 target price, utilizing a perpetual growth rate of 4.5% and discount rate of 10%. • Risks: In addition to general market and macroeconomic risks, the risks to Facebook include: competition for consumer time spent, reliance on product cycles for growth, user engagement for certain demographics, and shifts in advertising trends. LinkedIn • Price Target Methodology: We use a 12-month DCF valuation approach to arrive at our $250 target price, utilizing a WACC of 10.5% and terminal growth rate of 4.5%. • Risks: Cyclical pressures on recruitment activity, uncertain ceiling on target addressable market opportunities, engagement gap vs. other social media services, transition to a more content-focused marketing platform, and potential competition from larger technology companies making a push into professional networking. Priceline • Price Target Methodology: We use a 12 month DCF approach to arrive at our $1,350 price target with a perpetual growth rate of 2.75% and discount rate of 11.0%. • Risks: There are always risks that the target price for any security will not be realized. In addition to general market and macroeconomic risks and currency fluctuations, for Priceline, these risks include: increased competition from other travel operators, competition from other payment solutions, a reduction in participation from major travel suppliers, and the ability to produce an effective return on marketing spend to drive new bookings. Source: Company reports, Stifel Research Price Target Methodology & Risks: Market Cap >$10B
  69. 69. 68 GrubHub • Price Target Methodology: We arrive at our $52 price target using a 12-month forward DCF analysis with an 11.5% discount rate and 4.5% terminal growth rate. • Risks: Competition from larger Internet players, difficulty in small / mid-tier city expansion, potential merger integration issues, and challenges in international expansion. MercadoLibre • Price Target Methodology: We use a 12-month DCF approach to arrive at our $160 target price, with a perpetual growth rate and discount rate assumption of 4.5% and 11%, respectively. • Risks: There are geopolitical and macroeconomic risks in addition to the persistent risk of competition from other e-commerce companies, such as Submarino, Rakuten, and Amazon. Pandora • Price Target Methodology: We arrive at our 12-month target price of $25 through a DCF approach utilizing a 4.5% perpetual growth rate and 11% discount rate. • Risks: Intensifying competition from several types of music services (radio broadcasters, other Internet radio services, on-demand music platforms, digital downloads, music video streaming sites, piracy, etc.), uncertain impact of the upcoming Copyright Royalty Board arbitration process on content cost structure, constrained investment capacity in an increasingly innovative digital music space due to limited near-term profitability, and challenges to international expansion. Source: Company reports, Stifel Research Price Target Methodology & Risks: Market Cap <$10B
  70. 70. 69 Amazon • Fair Value Methodology: We arrive at our $358 fair value using a 12-month forward DCF analysis with an 10.0% discount rate and 4.0% terminal growth rate. Expedia • Fair Value Methodology: We arrive at our $109 fair value using a 12-month forward DCF analysis with an 11.5% discount rate and 2.5% terminal growth rate. Google • Fair Value Methodology: We arrive at our $550 fair value using a 12-month forward DCF analysis with an 9.0% discount rate and 3.0% terminal growth rate. TripAdvisor • Fair Value Methodology: We arrive at our $84 fair value using a 12-month forward DCF analysis with an 11.0% discount rate and 4.5% terminal growth rate. Twitter • Fair Value Methodology: We arrive at our $36 fair value using a 12-month forward DCF analysis with an 11.5% discount rate and 4.5% terminal growth rate. HomeAway • Fair Value Methodology: We arrive at our $30 fair value using a 12-month forward DCF analysis with an 11.0% discount rate and 4.0% terminal growth rate. RetailMeNot • Fair Value Methodology: We arrive at our $20 fair value using a 12-month forward DCF analysis with an 14.0% discount rate and 3.0% terminal growth rate. Yelp • Fair Value Methodology: We arrive at our $48 fair value using a 12-month forward DCF analysis with an 10.5% discount rate and 4.5% terminal growth rate. zulily • Fair Value Methodology: We arrive at our $12 fair value using a 12-month forward DCF analysis with an 11.0% discount rate and 3.5% terminal growth rate. Fair Value Methodology: All Market Caps
  71. 71. Important Disclosures
  72. 72. Important Disclosures & Certifications I, Scott Devitt, and I, John Egbert, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Scott Devitt, and I, John Egbert, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com. For applicable current disclosures for all covered companies please visit the Research Page at www.stifel.com or write to the Stifel Research Department at the following address. US Research Stifel Research Department Stifel, Nicolaus & Company, Inc. One South Street 16th Floor Baltimore, Md. 21202 71
  73. 73. The equity research analyst(s) responsible for the preparation of this report receive(s) compensation based on various factors, including Stifel’s overall revenue, which includes investment banking revenue. Our investment rating system is three tiered, defined as follows: • BUY -We expect a total return of greater than 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. • HOLD -We expect a total return between -5% and 10% over the next 12 months with total return equal to the percentage price change plus dividend yield. • SELL -We expect a total return below -5% over the next 12 months with total return equal to the percentage price change plus dividend yield. Of the securities we rate, 52% are rated Buy, 45% are rated Hold, and 3% are rated Sell. Within the last 12 months, Stifel or an affiliate has provided investment banking services for 20%, 8% and 0% of the companies whose shares are rated Buy, Hold and Sell, respectively. Important Disclosures & Certifications (continued) 72
  74. 74. Additional Disclosures Please visit the Research Page at www.stifel.com for the current research disclosures and respective target price methodology applicable to the companies mentioned in this publication that are within Stifel's coverage universe. For a discussion of risks to target price please see our stand-alone company reports and notes for all Buy-rated and Sell-rated stocks. The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Stifel, or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed within. Past performance should not and cannot be viewed as an indicator of future performance. As a multi-disciplined financial services firm, Stifel regularly seeks investment banking assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions. Affiliate Disclosures “Stifel”, includes Stifel Nicolaus & Company (“SNC”), a US broker-dealer registered with the United States Securities and Exchange Commission and the Financial Industry National Regulatory Authority and Stifel Nicolaus Europe Limited (“SNEL”), which is authorized and regulated by the Financial Conduct Authority (“FCA”), (FRN 190412) and is a member of the London Stock Exchange. Registration of non-US Analysts: Any non-US research analyst employed by SNEL contributing to this report is not registered/qualified as a research analyst with FINRA and is not an associated person of the US broker-dealer and therefore many not be subject to NASD Rule 2711 or NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Important Disclosures & Certifications (continued) 73
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