Social Media, the Economy, and Shifts in Consumer Behavior Keynote Address at Social Media Insider Summit August 18, 2011 Jordan Rohan, Managing Director, Equity Research Internet and Digital Media email@example.com 212-271-3765; @jordanrohan Stifel Nicolaus 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 25-27 of this report.
What Does It Mean To Peak? Microsoft has peaked, despite continued record profits. Apple continues upward with Innovative products, consumer imagination…(and record profits) Now is Facebook’s Moment in the Sun… … but moments in the sun can be so fleeting. Source: Apple’s “Get a Mac” campaign from 2006-2010 3
Internet Companies Have Cycles of Popularity Nasdaq Peak in 2000 Source: FactSet, StifelNicolaus estimates 4
Is This a Peak? December 2010 Source: TIME Magazine 5
TIME Magazine Has a Strong Record of Calling Peaks 6 Netscape Marc Andreessen February 1996 Microsoft (peak?) Apple (trough?) Investment in Apple August 1997 Intel Andy Grove Man of the Year December 1997 AOL Time Warner “The Merger” January 2000 Source: TIME Magazine
Magazine Covers Do Not Always Mark Peaks in a Company 7 Apple Continues to Innovate Amazon Executes Amazon’s Jeff Bezos Person of the Year December 1999 Apple iPod October 2005 Apple iPhone November 2007 Apple iPad April 2010 Source: TIME Magazine
What Could Change? What Could Make Facebook Become“Establishment” Instead of “Insurgent”?
Markets Digesting a Slower Growth Scenario, Globally
Right now, investors are de-risking as the economy moves through a period of de-leveraging. De-leveraging could continue to take years. It is a slow, painful process.
In the U.S., the Fed is running out of stimulative actions: Low GDP growth despite three years of zero interest rates, which are now pegged at zero through 2013. Stubbornly high unemployment.
Europe cleaning up (or holding together) the mess in Italy, Spain, Portugal, Ireland, Greece. Potential reorganization of the Euro Zone would be a destabilizing force.
More on the Economy – Leverage Remains High Nominal Home Mortgage Debt as a % of Nominal GDP Peak 1Q 2009 at 75.5% ‘91 – ‘97 Source: FactSet, Federal Reserve, StifelNicolaus. 10
We Have Been in Secular Bear Market Since 2000 Source: Dow Jones, U.S. Census, StifelNicolaus format. 11
After Adjusting for Inflation, the Last 12 Years Has Been Painful Source: FactSet. 12
Last Few Weeks Have Seen Extreme Volatility VIX (Fear) Index Spikes Up S&P rallies on QE2 Source: FactSet 13
Macro Backdrop Uncertain…Does it Matter for Social Media? Cyclical Influences are more negative than positive:
"Rates will remain unchanged, as will credit standards," says Nicholas Stanutz, head of the auto finance and dealer services group for Huntington National Bank. "What most probably will change is consumer confidence.“
“The biggest impact is emotional," David Cosper CFO of Sonic Automotive Inc. "The more people are afraid, the less likely they are to buy something, especially a big-ticket item like a car.“
Secular shift towards digital and social media is positive:
"Auto dealers not on Facebook are missing the boat because that's where their customers are," he says. "And that's where their customers expect them to be.“ – Matthew Funk writer for TK Carsites
Chuck Capps, Nissan dealership owner, used to spend $25,000 monthly on weekly newspaper, radio and TV advertising. Now he's only spending money online, with $8,000 monthly to TK Carsites.
Source: Automotive News, USA Today, August 2011 14
Facebook – Usage Metrics Show High Engagement, Frequency 16
FB accounts for 37% of all Internet visits and 16% of page views
FB visitors averaged more than one visit per day in July.
Facebook now working with Comscore and Nielsen to measure Internet GRPs.
Source: Wall Street Journal, comScore, StifelNicolaus Estimates
Facebook’s Opportunity: Improve Gross Profit per User Key Takeaways
Google/Amazon show best GP/User/Year at $63-$72 in the U.S.
Facebook has made progress in GP/User/Year, now up to nearly $18
U.S. Monetization 3-6x higher than International, on average
Note: Estimates for LinkedIn and AOL are approximate and based on Consensus. AOL 2001 US Unique Visitors estimate represents 70% of Worldwide, we estimate international revenue was 20% in 2001 and 5% in 2011E. AOL Revenues based on Consensus figures. Facebook revenue estimates based on gigaom.com tied to WSJ and NYT. Yahoo assume 70% US revenue based on historical breakout as are gross margin assumptions. Facebook we assume 65% of $5bn total revenue derived from US and we estimate 85% gross margins. Google revenue estimates based on Gross Revenue percentage splits. Amazon US are representative of North America reported data. Source: Company Reports, ComScore, gigaom.com, FactSet, ThompsonONE, Stifel Nicolaus Estimates 17
All Things Considered, Facebook Remains Dominant Platform …Visitor data shows no peak-like characteristics Source: comScore, StifelNicolaus Estimates 18
Despite Facebook’s Popularity, Consumer Sentiment is Mixed Facebook is the only Internet brand to rank among “Most-Hated” Why? Source: American Customer Satisfaction Index (ACSI) July 2011 19
Successful Launch of Google+ Toward the end of July G+ is close to 30mn Unique Visitors… Source: comScore, StifelNicolaus Estimates 20
Is Facebook Vulnerable to a Change in Consumer Preferences?
Once “invincible” Internet franchises face increased competition
Historically, consumer loyalty to Internet content properties shifts ~5 years
There is some “fashion risk” in social media, some vulnerability
No, we do not believe Facebook has peaked. The metrics still reflect a dominant platform with high user frequency and activity levels. But some signs exist that hype related to Facebook is peaking.
Facebook will peak some day. Consumers prefer choice and open platforms. Facebook has some shortcomings, including a declining signal-to-noise ratio in its stream. It also needs to improve monetization without alienating its core user base.
Technology and the shaky macro economy / stock markets could disrupt Facebook’sparty as well, even if there is very little direct impact on social media’s fundamentals. The potential sale of Twitter could alter the competitive landscape.
We continue to monitor the economy and the social media metrics closely, and welcome feedback and perspectives.