Jefferies eCommerce Research 2013

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Jefferies eCommerce Research 2013

  1. 1. INDUSTRY NOTE USA | Technology Internet April 10, 2013 Internet Fulfillment / Same-Day: The Next Killer App EQUITYRESEARCHAMERICAS Jefferies US Internet Team * Jefferies Equity Research pitz-fitz@jefferies.com Brian Pitz * Equity Analyst (212) 336-7413 bpitz@jefferies.com Brian Fitzgerald * Equity Analyst (212) 284-2491 bfitzgerald@jefferies.com Timothy O'Shea * Equity Associate (212) 284-3415 toshea@jefferies.com Sachin Khattar, CFA * Equity Associate (212) 323-3381 skhattar@jefferies.com Stan Velikov, CFA * Equity Associate (212) 284-2140 svelikov@jefferies.com * Jefferies LLC Key Takeaway We believe fulfillment and omni-channel capabilities represent the next high ground in the eCommerce war. The winners are not clear yet but major players are investing heavily. For now, Amazon and eBay have the most comprehensive offerings longer-term but leaders could change any time; more than a few other players are close behind. We reiterate our Buy ratings on AMZN and EBAY. Fulfillment is becoming critical for commerce as an impending online sales tax should soon neutralize any price advantage online retailers had. When this happens, we believe, fulfillment options will become a differentiating feature for many online (and offline) retailers. At the same time, Local becomes the new battleground in commerce. While 90% of all retail still happens in brick-and-mortar stores, 75% of total spending is within 15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving the transition to a world where it is expanding commerce beyond conventional stores and eCommerce websites. In such an omni-channel world consumers have multiple touch points with a brand / retailer and these have to be well integrated and optimized for a seamless user experience. We believe the growing importance of fulfillment and omni- channel already drives retailers to explore options beyond free shipping. With free shipping now available on approximately 50% of orders, retailers already feel renewed pressure to explore new fulfillment options. Over the past 2-3 years, competitive pressure and customer expectations have pushed online retailers to offer free / reduced shipping on an increasing number of orders with constantly shrinking minimum order requirements. Today, free / reduced shipping is a "must have" in eCommerce and online retailers are focusing their attention on the next wave of options that could give them a leg up on competition. Currently, same-day delivery and delivery to local secure lockers where customers pick up their goods on their own time schedule seem to be the biggest focus. With most of these services still in beta test, the landscape is constantly changing but we believe the major contenders have already emerged. Major players: There are generally three types of players in fulfillment – those that only fulfill, those that sell and fulfill, and those that source, sell and fulfill. For now, the first type are largely niche (location based) start-ups that have expanded from running errands for customers into same-day delivery. The other two types have the highest stakes in the game and are the ones, we believe, most likely to drive fulfillment into new territories. Key players here include not only the usual suspects - Amazon and eBay - but also Google, big national retailers, and the USPS. Potential winners: While it is not clear yet if consumers are actually ready to pay (and how much) for same-day delivery and similar services, the competition in fulfillment is on and major players are already investing. Which aspects of fulfillment (e.g. speed, flexibility, cost) will prove more important to consumers could determine which of the existing offerings will survive and thrive. Currently, we believe, Amazon and eBay have the most compelling offerings. Amazon is a clear leader, based on number of services, global fulfillment center footprint, and ability to manage demand elasticity through its digital assets. And while many retailers are wary of using Amazon as a channel, we believe longer- term it could become their best partner, especially for branded products/retailers (selling exclusive inventory through Amazon). eBay has partnered with top national retailers (while maintaining neutrality) and, in our view, has the most compelling offering that helps retailers leverage their own brands and assets to evolve their multi-channel strategies. Its products enable retailers to address the full opportunity of the converging online and offline markets. And while most of the other contenders' offerings are still in beta mode (i.e. could change materially), a few stand out as potentially strong enough to compete with Amazon and eBay. We believe two to keep an eye on are Walmart and Google. Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies 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. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 45 to 49 of this report.
  2. 2. Key Takeaways Fulfillment is becoming critical for commerce as an impending online sales tax should soon neutralize any price advantage online retailers had. When this happens, we believe, fulfillment options will become a differentiating feature for many online (and offline) retailers. At the same time, Local becomes the new battleground in commerce. While 90% of all retail still happens in brick-and-mortar stores, 75% of total spending is within 15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving the transition to a world where it is expanding commerce beyond conventional stores and eCommerce websites. Reiterating Buy ratings on AMZN and EBAY In the ongoing eCommerce war, we believe, Amazon and eBay have the most comprehensive next-gen offerings and seem best positioned to benefit from these fundamental trends. Amazon is a clear leader, based on number of services, global fulfillment center footprint, and ability to manage demand elasticity through its digital assets. And while many retailers are wary of using Amazon as a channel, we believe longer-term it could become their best partner, especially for branded products / retailers (selling exclusive inventory through Amazon). eBay, at the same time, has partnered with top national retailers (while maintaining neutrality) and, in our view, has the most compelling offering that helps retailers leverage their own brands and assets to evolve their multi-channel strategies. Its products enable retailers to address the full opportunity of the converging online and offline markets. Amazon Near term, we will likely see a more significant impact to Amazon's CapEx growth as the company continues to aggressively build out fulfillment centers domestically and internationally. We expect FC build out for this year to peak in late Q2 into Q3, with a slowdown just ahead of the 2013 holiday season. So far, Amazon has commitments (part of state tax agreements) to build 9 new FCs in the US over the next 2 years and we estimate it could eventually build 5-10 more to rationalize its US footprint. According to Marc Wulfraat, President of MWPVL International, a supply chain and logistics consulting firm, having 40-45 facilities in the US is probably sufficient to cover the Top 20 markets for same-day delivery. However, internationally Amazon could grow its presence materially, especially in Australia, South America, Eastern Europe, and India. We estimate it could open another 10-15 within the next 2-3 years. We continue to expect Amazon to support additional same-day and next-day shipping tests, as we consistently see with Quidsi and Zappos products in several markets. We anticipate same-day tests will begin and grow on the core Amazon.com site by year end in some markets. Longer term, as Amazon drives same-day and next-day shipping into the top 20 or top 50 US markets (and eventually into the larger international markets), we believe same-day shipping will drive reaccelerating unit growth; the earliest impact could even begin in Q4 2013, but most likely will have a longer term impact in 2014 and beyond. Technology Internet April 10, 2013 page 2 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  3. 3. eBay Near term, eBay may have the performance edge as the Marketplaces / PayPal / GSI combo, with their combination of front-end and back-end eCommerce and digital marketing solutions, gives retailers competing against Amazon a real fighting chance. Further, the very nature of eBay being on the "retailers’ team" and enabling overall omni- channel commerce will likely be a huge selling point for eBay's services, especially among the offline sellers of commoditized goods. Longer term, we believe the biggest challenges for eBay will be achieving significant scale in fulfillment and same-day shipping, though we are in no way counting them out of the competition. Over time, as consumers begin to digest and appreciate the value of same-day shipping, and eventually even start to EXPECT or REQUIRE near instantaneous shipping, we believe the next leg down for traditional brick-and-mortar could begin... As competing with this service level will likely be very difficult from a cost perspective. Offline – who wins, who loses? Amazon IS indeed a competitor in many product categories – again, namely in consumer products – with the likes of Best Buy; that is unlikely to change. And we believe that same- day shipping capabilities could provide the next level of pain for the offline retailers in these categories. If Amazon is successful in its same-day shipping efforts, some of these retailers could give Amazon exclusive inventory to ship same day, replacing their tradition fulfillment businesses. We believe that unique product brands that sell almost exclusively through their own stores or exclusive channels could win while commodity product sellers of consumer electronics, media (books, movies, video), etc. would likely lose. The net of it all... Amazon may actually become LESS of a competitor to some players in the offline world over time as larger brands (specialty, luxury, exclusive) decide that "if you can't beat 'em, join 'em" strategy could actually work and allocate a certain percentage of their inventory to Amazon's FBA (many already provide eBay with access to exclusive SKUs and inventory)... Think about it... Why should specialty retailers maintain 1,000's of specialty stores / fulfillment centers when one could maintain a fraction of those stores as strategically well-placed "showrooms" to allow consumers to satisfy their need to occasionally view actual merchandise? Let's use an example such as the offline retailer Lululemon; once the customer can try on a pair of yoga pants and determine that she is size small in a flagship store; she can order new styles and colors directly online - and potentially even have them delivered to her hotel in a few hours if she forgets them on a business trip. (Note: there isn’t a single Lululemon product to be found on Amazon’s site). Our sense is that Lululemon would not pay to actually provide that level of service to their customer direct from their stores, but why not someday leverage the most efficient supply chain platform in the world in an exclusive merchandise deal with Amazon? Some 39% of units Amazon sells on its site are already from third parties. Why, with the success of FBA, shouldn't that number represent 70% of total units? We think it could. Technology Internet April 10, 2013 page 3 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  4. 4. The Race in eCommerce Fulfillment Convenience is one of three major components, along with selection and price, which drive consumers to choose one retailer over another (offline and online alike). And flexibility or choice of fulfillment options is a critical element of convenience, we believe. In the early days of eCommerce, free / reduced shipping was the exception and usually was tied to requirements of minimum order size. Later, the order size requirements began to shrink and in the past 2-3 years completely disappeared, particularly during the holiday shopping season. The reasons for this trend, however, were not that retailers were getting more generous but rather that they were responding to customer and competitive pressure. According to a January 2013 comScore survey, without free shipping, 54% of consumers would abandon a purchase. Per comScore, the number of transactions with free shipping continues to increase – from roughly 35% in 2008 to 47% in 2012. Exhibit 1: Free Shipping Penetration Continues to Grow Source: comScore, Jefferies Now that free / reduced shipping has pretty much established itself as a “must have” for online retailers, the battle for customers is moving to new frontiers in fulfillment, such as same-day delivery and delivery to local secure lockers where customers pick up their goods on their own time schedule. This trend is further accelerated by increasing local competition and an impending Internet sales tax. Amazon has been in this game probably the longest but this fact has not discouraged a growing list of competitors to enter the field. It is still the first inning of a game that could take years to play out but we have already seen what happens with losers – Kozmo and Urbanfetch, two companies that offered free one-hour delivery in the late 1990’s, crashed and burned spectacularly in the last Internet bubble. Now most players have more sound and profitable business models or simply are so big that they could afford to keep a loss leader that builds customer loyalty and doesn’t give competitors a lot of breathing space. 35% 42% 43% 46% 47% 65% 58% 57% 54% 53% 2008 2009 2010 2011 2012 Transactions w/ Free Shipping Transactions w/ Paid Shipping Technology Internet April 10, 2013 page 4 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  5. 5. Key Players There are generally three types of players in the fulfillment game – those that only fulfill (F), those that sell and fulfill (SF), and those that source, sell and fulfill (SSF). Currently, in addition to Amazon (SSF), major players include eBay (SF), Walmart (SSF) and Google (SF) – all three of them testing a variation on same-day delivery service (and all three still in beta). The list of other players includes Barnes & Noble (SSF), Nordstrom (SSF), the US Postal Service (F) and start-ups such as Exec (F), Instacart (F), Postmates (F), Shutl (F), TaskRabbit (F), and WunWun (F). Amazon Amazon is one of the largest online retailers in the world and currently has one of the most comprehensive fulfillment offerings; it includes free shipping, same-day delivery, and delivery to a neighborhood locker. Free Shipping Amazon Prime, the company’s membership program, offers free two-day shipping on millions of eligible items with no minimum order size; for all other items, standard or no- rush shipping is also free. Shipping upgrades for expedited delivery in the US are available too. Prime Members also enjoy unlimited instant streaming of more than 33,000 movies and TV episodes as well as access to the Kindle Owners’ Lending Library where they can borrow one Kindle book for free each month. All this for a $79 annual fee. By far, in our opinion, Amazon Prime has been the gold standard in free / reduced shipping that other online retailers are trying to match. Exhibit 2: Amazon Prime Source: Amazon, Jefferies Same-Day Delivery Amazon also offers Local Express Delivery, a same-day delivery service available in 10 metro areas – Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York City (and parts of New Jersey), Philadelphia, Phoenix, Seattle, and Washington, DC. It costs $3.99 per item for Prime members and $8.99 per shipment + $0.99 per item for non-members (gift cards $3.99 per shipment). The cut-off times vary from 7am in Chicago and Amazon Prime offers free two- day shipping on millions of eligible items with no minimum order size; for all other items, standard or no-rush shipping is also free Technology Internet April 10, 2013 page 5 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  6. 6. Indianapolis to 12pm in Seattle. Orders placed after the deadline are delivered the next business day with Saturday and Sunday delivery available for certain locations. Local Express Delivery was launched in October 2009 in seven metro areas – Baltimore, Boston, Las Vegas, New York City, Philadelphia, Seattle, and Washington, DC. It covered thousands of items and cost $5.99 per item for Prime members and $15-$20 per item (based on category) for non-members. By holiday season 2009 it had expanded to include Chicago, Indianapolis and Phoenix. Customers ordering as late as 10:00am- 10:30am (1:00pm for Seattle) could get their orders delivered the same day. Delivery to Neighborhood Locker Amazon Locker, another shipping service by the company, solves a different problem. Shoppers who are unable to wait at home for delivery can pick up their Amazon package from a secure locker at their own convenience. At check-out, for eligible items, users can select a convenient locker location and, once the package arrives there, they receive an e- mail or text message with instructions and a unique pick-up code. Packages are available for pick-up for three business days after receipt of notice. Complementary to other shipping options, Amazon Locker is free and is currently available in Seattle, New York City, and some shopping centers in the UK. Reportedly, Amazon has signed agreements with 7-Eleven, RadioShack, Rite Aid, and Staples for hosting its lockers in their national chain locations. Exhibit 3: Amazon Locker Source: Internet, Jefferies “White Truck” Network for Localized Delivery Reportedly, for the “last mile” of its services Amazon has engaged several “white truck” companies that offer local delivery in numerous cities. The list of its partners includes A-1 Express and Dynamex, for Local Express Delivery, and Ensenda, LaserShip, OnTrac, and Prestige for Prime deliveries. While it’s hard to control the quality of user experience completely, by leveraging third-party carriers with established infrastructure in major Technology Internet April 10, 2013 page 6 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  7. 7. markets, Amazon can enter new markets quickly and can spare itself the investment in a fleet of its own. Later, the company can always decide to bring this aspect of fulfillment in-house, once demand levels and the economics become clearer. Excellence in Order Processing Another piece of Amazon’s fulfillment platform is Kiva Systems, maker of robotic order fulfillment systems which streamline the process of picking, packing and shipping eCommerce orders for delivery. Amazon closed the acquisition of Kiva in May 2012 but its Quidsi (Soap.com and Diapers.com) business had been using Kiva robots since before 2010. While we believe management may not initially plan to retrofit Kiva robots into all existing FCs (based on existing fulfillment centers’ layout / type), we believe all newly- built ones will feature the systems. Kiva’s integrated inventory storage, quality control and order fulfillment systems not only expedite order processing (2-3x vs. pick-to- conveyor and 5-6x vs. manual pick-to-cart / pick-to-pallet environments, according to MWPVL International) but also improve order accuracy and optimize warehousing. Its adaptive and dynamic software algorithms are constantly seeking new efficiencies to improve throughput. Such optimization helps cut costs in more than one way. According to the two Quidsi co-founders, thanks to Kiva robots, the company was able to offer free overnight shipping on orders over $25 to customers in about 70% of the US. Kiva began working with companies like Staples and Walgreens in 2004 and today it counts among its customers more than a dozen of the biggest retailers in the US including Crate & Barrel, Drugstore.com, Gap, Gilt Groupe, Office Depot, Saks Fifth Avenue, and Toys “R” Us. Kiva Systems might as well prove the driver behind Amazon’s Local Express Delivery service as its efficiency is hard to match. Since Kiva does not require batching and waving of orders, any online order can be processed in as little as 15 minutes (from the time a shopper places the order to when his/her picked, packed and labeled package is sitting on a delivery truck). This compares to a roughly 2-hour average processing time in current Amazon fulfillment centers. Exhibit 4: Kiva Robots in Action at a Warehouse Source: Internet, Jefferies While Kiva has many advantages, it may not be well-suited for all fulfillment settings. Kiva systems sacrifice cubic volume and there is no way to take advantage of warehouse height. In addition, according to some retailers (Kiva customers), its replenishment software is not as robust as other applications and it doesn't integrate well with outbound sortation software of any kind. We believe this is an opportunity for Amazon to improve Online orders can be processed in as little as 15 min in FCs with Kiva robots (pictured below) vs. an average of ~2 hrs for current Amazon FCs Technology Internet April 10, 2013 page 7 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  8. 8. Kiva’s software stack (Amazon is well known for its expertise) and re-launch its products in the market. Perhaps this was one reason Amazon bought Kiva in the first place – being able to re-engineer the product and make it even better. Digital Content While it may seem strange, digital content is another weapon in Amazon’s arsenal that helps the company control shipping costs if not make its fulfillment offerings better than competitors’. Starting in 2H11, Amazon began offering Prime Members who would agree to downgrade their shipping (from the standard for Prime 2-day shipping) the option to earn credit ($1 per order, increased to $3 in 2H12) that can be used for digital downloads from the Amazon MP3 Store or for a movie from Amazon Instant Video. The new shipping option, called No-Rush Shipping, allows Amazon to ship orders for delivery in 5-7 days and thus more effectively balance shipping loads during critical shopping periods. Exhibit 5: Digital Content as Load Balancer Source: Amazon, Jefferies The combination of Prime, Amazon Locker, and Local Express Delivery helps create the most comprehensive fulfillment service existing today, in our view. How these services fit into Amazon’s overall strategy can be gleaned, we believe, from the company’s evolving position on the question of online sales tax and its push for new domestic fulfillment centers. Until 2011-12, Amazon waged a high-profile war on the issue of eCommerce tax with populous states such as New York, California, and Texas (note: its New York tax case is currently in state appeals court); and new fulfillment center locations, we think, may have been equally based on proximity to customers as well as on state tax laws. Expanding Domestic Footprint While Striking Advantageous Tax Windows Then, in late 2011, the company made an abrupt turn and began striking deals with state and local governments that granted Amazon tax holidays of different length in exchange for commitments to build new fulfillment centers and employ thousands of people. It also initiated a campaign to encourage comprehensive resolution of the tax question on the federal level instead of the piecemeal approach by individual states. This, we believe, was triggered by Amazon’s insight that 1) the days of no online sales tax were numbered, 2) fast local delivery can be a great competitive weapon that reinforces an online retailer’s offline presence, and 3) many state and local governments were willing to sign accelerated deals given their financial situations. In a matter of 16 months (beginning with California in September 2011) Amazon reached agreements with 8 states. While some might argue that an online tax is a potential near-term negative catalyst for eCommerce stocks, we believe the real impact should be fairly insignificant. Amazon has been collecting for years punitive VAT in many international locations and this has not had any discernible impact on international sales growth rates. In fact, as we have seen in states such as NY, the imposition of sales tax did not really impact sales; Technology Internet April 10, 2013 page 8 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  9. 9. ultimately – price, selection and service (along with convenience and speed, which are service-related derivatives) are the main levers that resonate with online shoppers. In Exhibit 6 below, we take a look at Amazon’s US operational footprint with a tax overlay. We believe, the company will continue to expand its presence in select states, primarily those that provide optimal infrastructure and proximity to markets with high concentration of Amazon.com customers who are most likely to choose same-day delivery if offered. Exhibit 6: Current View of Amazon’s US Sales Tax Footprint Source: Amazon, Jefferies Amazon currently collects taxes in 9 states – Arizona, California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas, and Washington. In the second half of 2013, the company has agreed to begin collecting taxes in 4 other states – Connecticut, Massachusetts, New Jersey, and Virginia. Following that, in 2014 Amazon will begin collecting taxes in Indiana, Nevada and Tennessee; and in 2016 it adds South Carolina to its tax rosters. So that’s 16 states by 2016. Currently, the company has operations in the following (21) states: Arizona, California, Delaware, Georgia, Indiana, Kansas, Kentucky, Michigan, New Jersey, Nevada, New Hampshire, New York, North Dakota, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin, and West Virginia. Included here is a mix of both operational / business headquarters as well as fulfillment (FC) and customer service (CSC) centers. The following exhibit shows Amazon’s current customer service center footprint. The company has announced plans to open 1 new CSC in Kentucky in 2013. ●States currently collecting online sales taxes (AZ, CA, KS, KY, NY, ND, PA, TX, WA) ●States collecting online sales taxes starting in 2H13 (CT, MA, NJ, VA) ●States collecting online sales taxes starting in 2014 (IN, NV, TN) ●States collecting online sales taxes starting in 2016 (SC) ●States with an Amazon.com point-of-presence or affiliated business -- zappos, woot!, audible.com, quidsi, etc. (AZ, CA, DE, GA, IN, KS, KY, MI, NJ, NV, NH, NY, ND, PA, SC, TN, TX, VA, WA, WI, WV) Technology Internet April 10, 2013 page 9 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  10. 10. Exhibit 7: Amazon Customer Service Centers Source: Amazon (http://www.amazon.com/b/?node=239366011), Jefferies The following exhibit shows what we believe is Amazon’s worldwide fulfillment center footprint as of 1Q13. By our estimates, excluding Quidsi and Zappos, the company operates close to 90 fulfillment centers globally with a total space in excess of 55MM square feet. Reportedly, Amazon had plans to open a fulfillment center in Mumbai, India in 2012 but we couldn’t find a confirmation of this. In addition, we understand that a new fulfillment center is planned to open in France sometime in 2013. Exhibit 8: Amazon International Fulfillment Centers Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies Americas Europe Asia United States United Kingdom China North Dakota Edinburgh, Scotland Beijing Washington Ireland India West Virginia Cork Hyderabad Costa Rica Germany Japan Heredia Berlin Sapporo San Jose Regensburg North America Europe Asia United States United Kingdom China Arizona (4) Hemel Hempsted, Hertfordshire Beijing (2) California Marston Gate, Milton Keynes Chengdu Delaware (2) Swansea, Wales Guangzhou Indiana (5) Dunfermline, Fife, Scotland Shenyang Kansas Gourock, Inverclyde, Scotland Suzhou Kentucky (7) Doncaster, South Yorkshire Wuhan Nevada (2) Peterborough, Cambridgeshire Xiamen New Hampshire Rugeley, Staffordshire Xi'ian Pennsylvania (6) Germany HaErbin South Carolina (2) Augsburg Kunshan Tennessee (5) Bad Hersfeld (2) Nanning Virginia (3) Koblenz Tianjin Washington (2) Leipzig Japan Canada Pforzheim Ichikawa Toronto Rheinberg Sakai Vancouver Werne Yachiyo France Daito Montelimar Kawagoe City Saran (Orléans) Kawajima Sevrey Sayama Italy Tajimi Castel San Giovanni Tokoname City Spain Tosu San Fernando de Henares Yoshinodai By our estimates, Amazon operates close to 90 Fulfillment Centers globally with a total space in excess of 55MM sq ft See pages 12-15 for a more detailed listing of Amazon’s Global Fulfillment Center footprint including size, location, etc. Technology Internet April 10, 2013 page 10 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  11. 11. The following exhibit shows Amazon’s current US fulfillment center footprint. The company operates 41 fulfillment centers with an estimated 33MM square feet of space and has announced plans for 9 new FCs to open over the next 2 years. Exhibit 9: Amazon US Fulfillment Centers (Total Number if >1) Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies State Operational Planned Arizona Goodyear Phoenix (3) California Ontario / San Bernardino Patterson Tracy Connecticut TBD Delaware Middletown New Castle Indiana Indianapolis Jeffersonville Plainfield (2) Whitestown Kansas Coffeyville Kentucky Campbellsville Hebron (3) Lexington (2) Louisville Nevada Fernley Las Vegas New Hampshire Nashua New Jersey Robbinsville TBD Pennsylvania Breinigsville / Allentown (2) Carlisle (2) Hazleton Lewisberry South Carolina Cayce / Lexington Spartanburg Tennessee Charleston / Cleveland Chattanooga Lebanon (2) Murfreesboro Texas Schertz Coppell Haslet Virginia Chester Petersburg Sterling Washington Bellevue DuPont Sumner Technology Internet April 10, 2013 page 11 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  12. 12. The continuing build out of fulfillment centers is helping the company manage shipping costs more effectively. While these costs keep growing (outpacing revenue growth from 4Q10 to 1Q12), the pace is currently decelerating and in 4Q12 reached its lowest point in over three years. The following exhibit gives a comprehensive view of Amazon’s global presence from a geo-spatial perspective. It includes offices, fulfillment centers, customer service centers, data centers, and software development centers. Exhibit 10: Amazon Global Locations Source: Amazon Table 1: Amazon Worldwide Fulfillment Centers State / Country Amazon.com Identifier Address / Location Opened Size Type Arizona PHX4 16920 W Commerce Dr Goodyear, AZ 85338-3620 Jun '08 1.4MM sq ft Non-sortable PHX3 6835 W Buckeye Rd Phoenix, AZ 85043-4428 Sep '07 1.0MM sq ft Big sortable PHX6 4750 W Mohave St Phoenix, AZ 85043 Oct '10 1.2MM sq ft Big sortable PHX7 800 N 75th Ave Phoenix, AZ 85043 Sep '11 1.2MM sq ft California ONT2 1910 E Central Ave San Bernardino, CA 92408 Oct '12 950K sq ft Delaware PHL7 560 Merrimac Ave Middletown, DE 19709-4652 Oct '12 1.2MM sq ft PHL1 1 Centerpoint Blvd New Castle, DE 19720-4172 Nov '97 202K sq ft Big sortable Indiana IND4 710 S Girls School Rd Indianapolis, IN 46231-1132 Jun '11 903K sq ft Technology Internet April 10, 2013 page 12 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  13. 13. Table 1: Amazon Worldwide Fulfillment Centers State / Country Amazon.com Identifier Address / Location Opened Size Type SDF8 900 Patrol Rd Jeffersonville, IN 47130-7761 Oct '12 1.0MM sq ft IND2 715 Airtech Pkwy Plainfield, IN 46168 Oct '08 943K sq ft Non-sortable IND5 800 Perry Rd Plainfield, IN 46168-7637 Aug '11 926K sq ft IND1 4255 Anson Blvd Whitestown, IN 46075-4412 Aug '08 1.0MM sq ft Big sortable Kansas TUL1 2654 N US Highway 169 Coffeyville, KS 67337-9254 Apr '99 750K sq ft Big sortable Kentucky SDF1 1048 S Columbia Ave Campbellsville, KY 42718-2454 May '99 770K sq ft Big sortable CVG1 1155 Worldwide Blvd Hebron, KY 41048-8648 Jun '05 427K sq ft Specialty CVG2 1600 Worldwide Blvd Hebron, KY 41048-8640 Dec '05 543K sq ft Specialty CVG3 3680 Langley Dr Hebron, KY 41048-9135 Jul '07 711K sq ft Replenishment LEX1 1850 Mercer Rd Lexington, KY 40511-1013 Nov '00 604K sq ft Big sortable LEX2 172 Trade St Lexington, KY 40511-2607 Jun '06 380K sq ft Returns Center SDF2 4360 Robards Ln Louisville, KY 40218-4512 Sep '05 110K sq ft Specialty Nevada RNO1 1600 Newlands Dr E Fernley, NV 89408-8903 Jan '99 786K sq ft Big sortable LAS2 3837 Bay Lake Trl North Las Vegas, NV 89030 Oct '08 284K sq ft Small sortable New Hampshire BOS1 10 State St Nashua, NH 03063-1012 Jul '07 64K sq ft Small sortable Pennsylvania ABE2 705 Boulder Dr Breinigsville, PA 18031-1533 Jul '10 600K sq ft Big sortable ABE3 650 Boulder Dr Breinigsville, PA 18031-1536 Jun '11 997K sq ft PHL6 675 Allen Rd Carlisle, PA 17015-7788 Aug '10 1.2MM sq ft Non-sortable PHL4 21 Roadway Dr Carlisle, PA 17015-8806 Sep '10 559K sq ft Non-sortable AVP1 550 Oakridge Rd Hazleton, PA 18202-9361 Jul '08 630K sq ft Replenishment PHL5 500 McCarthy Dr Lewisberry, PA 17339-8725 Aug '10 750K sq ft Non-sortable South Carolina CAE1 4400 12th Street Ext Cayce, SC 29172-3300 Oct '11 1.0MM sq ft GSP1 402 John Dodd Rd Spartanburg, SC 29303-6312 Oct '12 1.0MM sq ft Tennessee CHA2 225 Infinity Dr NW Charleston, TN 37310-1400 Sep '11 1.2MM sq ft CHA1 7200 Volkswagen Dr Chattanooga, TN 37416-1757 Sep '11 1.0MM sq ft Big sortable BNA1 14840 Central Pike Lebanon, TN 37090-8118 Sep '11 449K sq ft BNA2 500 Duke Dr Lebanon, TN 37090-8123 Oct '12 1.0MM sq ft BNA3 2020 Joe B Jackson Pkwy Murfreesboro, TN 37127-7792 Oct '12 1.0MM sq ft Virginia RIC2 1901 Meadowville Technology Pkwy Chester, VA 23836-2841 Oct '12 1.1MM sq ft RIC1 5000 Commerce Way Petersburg, VA 23803-6917 Oct '12 1.0MM sq ft BWI1 22630 Dulles Summit Ct Sterling, VA 20166-9565 Oct '10 1.0MM sq ft Small sortable Washington SEA8 1227 124th Ave NE Bellevue, WA 98005-2111 Aug '07 313K sq ft Small sortable BFI1 1800 140th Ave E Sumner, WA 98390-9624 Jun '11 492K sq ft Canada YYZ1 6363 Millcreek Dr Mississauga, ON L5N 1L8 Feb '11 502K sq ft 450 Derwent Pl Delta, BC V3M 6H4 Fall '12 194K sq ft Technology Internet April 10, 2013 page 13 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  14. 14. Table 1: Amazon Worldwide Fulfillment Centers State / Country Amazon.com Identifier Address / Location Opened Size Type UK LTN1 Marston Gate Distribution Centre Ridgmont Milton Keynes, Bedfordshire MK43 0ZA 1998 550K sq ft GLA1 2 Cloch Road, Faulds Park Gourock, Inverclyde, Scotland PA19 1BQ Jul '04 300K sq ft CWL1 Ffordd Amazon Crymlyn Burrows Swansea, South Wales SA1 8QX Apr '08 800K sq ft EUK5 Phase Two, Kingston Park Flaxley Road Peterborough, Cambridgeshire PE2 9EN Oct '09 500K sq ft LBA1 Unit 1, Balby Carr Bank Doncaster, South Yorkshire DN4 5JS Dec '10 415K sq ft BHX1 Towers Business Park Power Station Road Rugeley, Staffordshire WS15 1NZ Aug '11 700K sq ft EDI4 Amazon Way Dunfermline, Fife, Scotland KY11 8ST Nov '11 1.0MM sq ft LTN2 Boundary Way Hemel Hempsted, Hertfordshire HP2 7LF Nov '12 450K sq ft Germany FRA1 Am Schloss Eichhof 1 36251 Bad Hersfeld, Hessen Aug '99 452K sq ft FRA3 Obere Kuehnbach/ Amazonstrasse 1 36251 Bad Hersfeld, Hessen Aug '99 1.2MM sq ft LEJ1 Amazonstrasse 1 04347 Leipzig, Saxony Sep '06 807K sq ft EDE4 Wahrbrink 25 59368 Werne, North Rhine-Westphalia Sep '11 1.4MM sq ft DUS2 Amazonstrasse 1 47495 Rheinberg, North Rhine-Westphalia Dec '11 1.2MM sq ft MUC3 Amazonstrasse 1 86863 Graben, Bavaria Dec '11 1.2MM sq ft STR1 Amazonstrasse 1 / Bauschlotter Strasse 75177 Pforzheim, Baden-Wurttemberg Sep '12 1.2MM sq ft CGN1 Amazonstrasse 1 / Am Autobahnkreuz 56072 Koblenz, Rheinland-Pfalz Nov '12 1.2MM sq ft France ORY1 1401 Rue du Champ Rouge, Pole 45 45770 Saran, Loiret Dec '07 753K sq ft MRS1 Building 2 Rue Joseph Garde ZAC Les Portes de Provence 26200 Montelimar Aug '10 388K sq ft LYS1 ZAC du Parc d'Activite du Val de Bourgogne 1 Rue Amazon 71100 Sevrey, Burgundy Sep '12 431K sq ft Italy MXP1 Parco Logistico Bertola Via Dogana Po 2 29015 Castel San Giovanni Oct '11 269K sq ft Spain MAD4 Avenida de la Astronomia 24 28830 San Fernando de Henares (Madrid) Jul '12 301K sq ft China PEK3 Yizhuang, Beijing Apr '04 400K sq ft SHA1 Suzhou, Jiangsu Nov '06 500K sq ft CAN1 Guangzhou, Guangdong May '07 120K sq ft CTU1 Chengdu, Sichuan Nov '09 194K sq ft PEK5 Tongzhou, Beijing 2010 180K sq ft XIY1 Xi'an, Shaanxi Aug '10 WUH1 Wuhan, Hubei Sep '10 300K sq ft XMN1 Xiamen, Fujian Sep '10 17K sq ft SHE1 Shenyang, Liaoning Oct '10 SHA2 Kunshan, Jiangsu Oct '11 1.3MM sq ft TSN2 Tianjin, Tianjin Jan '12 NNG1 Nanning, Guangxi Nov '12 538K sq ft HRB1 Harbin, Heilongjiang Japan NRT1 Ichikawa, Chiba Nov '05 670K sq ft KIX1 Sakai, Osaka Aug '09 731K sq ft Technology Internet April 10, 2013 page 14 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  15. 15. Table 1: Amazon Worldwide Fulfillment Centers State / Country Amazon.com Identifier Address / Location Opened Size Type NRT2 Yachiyo, Chiba Oct '07 367K sq ft NRT5 Kawagoe City, Saitama Jul '10 419K sq ft KIX2 Daito, Osaka Nov '10 271K sq ft HND1 Yoshinodai, Saitama 2011 HND2 Sayama, Saitama 2011 HND3 Kawajima, Saitama 2011 NGO1 Tokoname City, Aichi Apr '11 HSG1 Tosu, Saga Jul '12 244K sq ft Tajimi, Gifu Dec '12 861K sq ft India BOM1 Mumbai, Maharashtra 2012 Source: MWPVL International; Amazon, FCC.gov, Google, Foursquare, Jefferies Technology Internet April 10, 2013 page 15 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  16. 16. eBay eBay is one of the biggest eCommerce platforms in the world and currently offers a compelling suite of products and services that facilitate omni-channel commerce. Same-Day Delivery At this time, the company offers eBay Now, its same-day delivery service, only in San Francisco, San Jose and parts of New York City. It works directly with hundreds of local stores (those available on its Milo platform) including retailers such as Babies “R” Us, Best Buy, Free People, GNC, Guitar Center, Home Depot, Macy's, Office Depot, Radio Shack, Target, Toys “R” Us, Urban Outfitters, and Walgreens, thus circumventing the warehousing issue. The service costs $5 per order while in beta and the minimum order is $25 which can go up in periods of peak demand. Currently, eBay Now is available through its mobile website (now.ebay.com) and an iOS app and users log in with their eBay user ID. Shoppers fill their carts with items from participating retailers and place the order by clicking a “Bring It!” button. Delivery takes about an hour depending on order size, traffic, proximity of store(s), how busy stores are, and seasonal factors. The app allows users to track the progress of their order by following the shopping valet who is assigned to that order. Once they deliver the item, valets can help the shopper through the checkout process (using PayPal Here on their cell phone). Accepted payment methods include PayPal and major credit cards, no cash. Exhibit 11: Screenshots of eBay Now App Source: App Annie, Jefferies The service launched in exclusive beta in Aug 2012 in San Francisco and expanded to New York City and San Jose by early 2013. Beta testers were offered $15 off their first order and the $5 delivery fee was waived on their first three orders. eBay continues to work on the offering and this summer it will expand it to two new cities – Chicago and Dallas. The company also plans to introduce a new feature – Scheduled Delivery – which has been requested the most by current users. While eBay doesn’t have Amazon’s fulfillment capabilities, its same-day delivery service has a fighting chance of success, in our view, because the company can leverage several of its strengths. First, its local shopping platform Milo, acquired in December 2010 for $75MM, pulls real-time product inventory data from national retailers and local small businesses. It thus gives users up-to-the-minute info which is crucial for same-day delivery orders (reducing the number of instances when a shopper finds something in search results only to discover on the merchant’s website that the item is out of stock). Second, combining eBay Now with PayPal Here for the checkout makes the service that much Technology Internet April 10, 2013 page 16 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  17. 17. more desirable for small local businesses that would likely choose PayPal over other payment services if that comes with being able to list their inventory in the eBay Now database. Third, eBay’s no conflict of interest could be another strong magnet for national and local retailers. Theoretically, as it gathers enough data over time, eBay may decide to start sourcing and selling the most popular products itself but we believe this is very unlikely to happen as it runs against the company’s credo. Fourth, eBay offers local and national retailers access to 60MM+ monthly shoppers (avg. monthly unique visitors in 2012) which only a few other players could match (i.e. Google and Amazon). And lastly, eBay already has 150,000 stores on eBay Local. Omni-Channel Capabilities As the lines between online and offline commerce are blurring, we believe it is important for retailers of all sizes to embrace omni-channel in order to grow their business and stay ahead. Today's consumers expect an omni-channel experience, but retailers still think and operate in terms of multiple channels – the digital store, the physical store, the wholesalers, their outlets, and the resellers, among others. eBay, through GSI Commerce and PayPal / Marketplaces, helps retailers respond by enabling them to have a meaningful online presence. eBay’s product line helps these retailers leverage their own brands and assets to evolve their multi-channel strategies to seamlessly meet the increasing demands of the omni-channel consumer. GSI’s products enable retailers to address the full opportunity of the online and offline markets. It has built solutions to help clients attract, engage, convert, and retain their customers through a combination of demand generation, commerce technology, and multichannel operations. By leveraging GSI’s full omni-channel portfolio, retailers are able to 1) attract, engage, and retain customers through demand generation and digital marketing; 2) deliver a seamless brand experience through eCommerce technology and multichannel operations; and 3) offer a highly-functional Web store, order management, fulfillment, and customer service. The combination of GSI and eBay extends eBay’s open commerce platform capabilities and helps retailers win in a connected environment, allowing them to grow faster and more profitably than on their own. Technology Internet April 10, 2013 page 17 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  18. 18. Two Omni-Channel Case Studies: Dick’s Sporting Goods and Fifth & Pacific / Kate Spade #1 Dick’s Sporting Goods is a good example of a leading retailer trying to optimize omni-channel. Some of its key pain points include: 1) be where customers want to be 24/7 (in store, online, on a smartphone or tablet); 2) offer fast and free shipping to customers; 3) leverage better physical stores and employees; 4) enable ship-from-store; 5) enable in-store pick-up for online orders; 6) engage and convert more shoppers across all channels and 500+ physical stores. The results (powered by GSI products): Leveraging multi-channel solutions, including Web-enabled store associate ordering system, ship-from-store, and in-store pick-up technologies, Dick's has created a virtual distribution network closer to their customers, enabling fast and free shipping. The company also improved optimization of inventory across its network, making inventory more productive, reducing out-of-stock items, and capturing incremental sales. #2 Fifth & Pacific / Kate Spade provide another example of how GSI, in combination with PayPal / eBay, is producing results. The relationship with Kate Spade evolved from being a single-solution provider to being a strategy and innovation partner – developing solutions for a connected consumer that win. The pain points for Kate Spade include: 1) transition from brick and mortar-only to truly omni-channel; 2) enable overnight ship capability with 9pm cutoff time; 3) use stores to drive more demand to the web and use the web to drive more demand to the stores; 4) drive more users, deeper loyalty, more transactions, higher transaction value, and grow the brand. The results (powered by GSI / PayPal / Marketplaces): eBay Marketplaces has evolved into a way to source new users into the Kate Spade NY franchise (rather than being a clearance vehicle to get rid of excess inventory). Kate Spade is in the process of rolling out an entirely new POS system (incorporating PayPal) to every store in the world, driven by the need to have a system in the store to support true multi-channel marketing and sales. Across all three brands, multi-channel customers are more loyal, more committed, and LTV is meaningfully higher than for single-channel customers. Technology Internet April 10, 2013 page 18 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  19. 19. Google While Google is known as the world’s leading search engine and one of the largest players in online advertising, the company’s presence in eCommerce fulfillment should not be surprising – shopping is one of its key advertising verticals. Same-Day Delivery Another one of the big players – Google – has been reportedly testing in private a same- day delivery service in San Francisco since October 2012. The company just announced last week the new service officially and opened it to a limited number of external testers for a trial period of six months. Google Shopping Express, as the service is called, allows a user to search for and purchase in-stock items from local retailers without leaving the Google page. Then the user can select a delivery window and a Google courier delivers the goods in one of the company-inscribed vans. Exhibit 12: Google Shopping Express Source: Google, Jefferies The service, as it currently exists, will require Google to partner with local or national retailers but it frees the company from investing in physical fulfillment centers. Current Beta Testers of the service are given a free six-month membership for unlimited same-day delivery with the following reputable brands and local retailers: American Eagle Outfitters, Blue Bottle Coffee, Office Depot, Palo Alto Sport Shop & Toy World, Raley’s Nob Hill, Staples, Target, Toys “R” Us / Babies “R” Us, and Walgreens. The company plans to add more merchants over the next six months. Reportedly, participating retailers do pay Google for the leads and, we believe, at rates that likely exceed traditional CPC given the transaction is immediately consummated. While it is expected that users would be paying for the service too, after the trial period, Google is still evaluating the economics and pricing is not available; the company is supposedly considering either an annual fee ($64 or $69) or a per-delivery per-store shipping charge ($4.99). Note, it is still early and both the implementation and pricing are likely to change. Technology Internet April 10, 2013 page 19 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  20. 20. Exhibit 13: Google Shopping Express Screenshot / Flash Source: Google, Jefferies Given the fact that Google remains a prime starting point for many product searches, it seems natural that the company would like to monetize these users as they progress all the way down the conversion funnel, rather than sending traffic to competing eCommerce sites to complete the transaction. Google has already taken steps in this direction by recently enhancing Product Listing Ads (PLA) with rich product information (image of product, size & color options, etc.), making Google Shopping appear more like Amazon. With Google Shopping Express, Google is furthering its commerce ambitions. If Google rolls out Google Shopping Express more broadly, we would expect deep integration with other Google services like Wallet, Maps, Zavers, and obviously the broader Google Shopping / Search product. Google Shopping recently started requiring retailers to upload additional inventory information. This is a step in the right direction as Google will now face the challenge of maintaining precise, up-to-the-minute inventory levels across all its Google Shopping Express partners. Delivery to Neighborhood Locker Following in Amazon’s footsteps, Google seems to be considering a local delivery service as well – one very similar to Amazon Locker. In November 2012, the company acquired BufferBox, a provider of temporary lockers for the delivery of packages. As a Google spokesperson put it, with the purchase of BufferBox the company is trying “to remove as much friction as possible from the shopping experience, while helping consumers save time and money.” We tend to agree that giving users a choice of delivery options that offer convenience and speed at reasonable / subsidized price should help minimize friction in online shopping. Google has not announced any services yet leveraging its BufferBox acquisition but we believe it’s a question of time. Technology Internet April 10, 2013 page 20 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  21. 21. Exhibit 14: BufferBox Locker Source: Google, Jefferies Currently, BufferBox operates in Canada only and particularly in the Greater Toronto Area. Pick-up stations are located at about 20 locations in GO Stations and 7-Eleven and Sobeys stores. Users can register on the BufferBox website and receive a BufferBox Shipping Address. At the check-out of any online retailer, they can enter that address for shipping and get the goods deliver to a nearby BufferBox location. Once delivered, the user receives a PIN that opens the door of the locker containing their package. Users have 72 hours (excluding Sundays and holidays) to pick up their packages. After that, packages are removed to a warehouse and, if not requested for re-delivery within seven days, shipped back to the sender. In cases when the BufferBox is full, the service holds the package until space opens for delivery. Deliveries requiring signature or tax / duty payment (COD) are accepted too. BufferBox signs for the parcel or covers any fees and bills the user (including a 9% processing fee for the latter) before sending the PIN email. Technology Internet April 10, 2013 page 21 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  22. 22. Walmart On the other end of the spectrum, Walmart already has the storage capacity and ships directly from its stores (just over 4,000 in the US). Its service, Walmart To Go, is available in San Jose / San Francisco, Northern Virginia (outside Washington D.C.), Philadelphia, Minneapolis, and Denver. The delivery fee varies by region and by day of the week / time of day as does the minimum order size. Currently, a Californian can get a delivery for $6-9 (two-hour delivery slot) or $5 (four-hour delivery slot) on a minimum order of $45. The categories eligible for this service include most grocery items, electronics & home office, home & furniture, sports & fitness, and toys & video games. Exhibit 15: Walmart To Go Source: Walmart, Jefferies Walmart To Go started in April 2010 in San Jose / San Francisco as a home delivery service for online grocery purchases. In October 2012, the company began a test of same-day delivery for the holiday season. Priced at $10 per order (regardless of number of items / no minimum requirement), it was available in Minneapolis, Northern Virginia (outside Washington D.C.), Philadelphia, and San Jose / San Francisco. Selection of goods was specific to a user’s location (likely limited to items available in local stores) and included approximately 5,000 items from the 1MM+ in Walmart’s online catalog. Customers could place an order until 12pm local time and then choose a four-hour window (i.e., 4-8pm, 5- 9pm, 6-10pm) for delivery the same day. The company had not specified a particular end date and currently it is not clear if the test is over or it has been extended into a permanent offering. Executives at Walmart have said that as it ramps digital online investments, it is serving both high-income consumers as well as its in-store shoppers ($30-60K average annual Technology Internet April 10, 2013 page 22 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  23. 23. income). Interestingly, we note that the proportion of people who had shopped online in the previous three months rose steadily from 62% among households with annual household income <$25K to 84% among those with $100K+. And the company is quick to highlight that its shoppers also purchase from its website, often on smartphones rather than computers. Walmart expects its online sales to exceed $9B this year (<2% of total). Walmart believes its ability to combine digital assets with local points of presence give it a clear advantage as it could potentially use its 4,000+ US stores as warehouses to fulfill online orders quickly. Walmart also announced that later this year it would begin testing its own self-service lockers that customers can use to receive online orders (initial tests are scheduled in roughly a dozen stores). Jefferies Broadline & Hardline Retail Analyst Dan Binder believes that Walmart (and eventually Target) may use their stores as fulfillment centers at some point. However, he expects longer-term Walmart will have to charge a fee for same-day delivery, so the market opportunity will probably be small. After all, Walmart’s customers aren’t exactly Nordstrom’s customers where money is less of an issue. In addition to testing same-day delivery in 4 cities, Walmart is already offering in-store pick-up for online orders. Binder also believes that players like BestBuy are very unlikely to ever use Amazon for fulfillment. He thinks that scale matters and Amazon’s offerings may work for small businesses but for big businesses and especially for big competitors (such as BestBuy), it doesn’t seem very logical. We do not agree entirely here as we believe that using Amazon as a channel could work for branded products / retailers. While Amazon might compete with 3P merchants that sell commoditized products, we don’t think it does for branded ones. Thus brands / specialty retailers can benefit from being able to leverage Amazon’s platform by offering limited / exclusive SKUs. Perhaps over time this would enable these retailers to lower overhead and still maintain their brands. Jefferies Specialty Retail team think that while many of the mature specialty retailers are rationalizing square footage after being “over-stored” when the recession hit (and also probably in some part due to a shift to online sales), further acceleration of store closures is unlikely. Most of these retailers still view the store environment as a key marketing tool for the brand and an important aspect of the user experience (i.e. as a venue for shoppers to actually try on apparel and view apparel/accessories in person before buying). In addition, most specialty retailers have begun making significant investments to improve their in-house e-commerce platforms and make the brands more omni-channel. We largely agree but believe that costs may outweigh the value longer term – especially as the high value proposition of same-day delivery begins to take off among consumers (who did not realize they “needed” it until they had it). Further, since specialty retailers would not be able to provide such level of service, why wouldn’t they shift some percentage of inventory to Amazon or eBay if they don’t compete with them? Technology Internet April 10, 2013 page 23 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  24. 24. Nordstrom Nordstrom is another national retailer that offers same-day delivery in select markets. Launched in November 2011, the service is available every day of the week (including Saturday and Sunday) and costs $15 per order. Orders placed by 1pm Pacific time are delivered by 7pm the same day to addresses in over 100 zip codes in Seattle, WA, Bellevue, WA, and La Jolla, CA. Exhibit 16: Same-Day Delivery by Nordstrom Source: Nordstrom, Jefferies Technology Internet April 10, 2013 page 24 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  25. 25. Barnes & Noble A same-day delivery option in Manhattan, NY has been available to Barnes & Noble.com shoppers since May 2000. Currently, it is free for orders above $25 and for B&N Members. Orders with all Items marked "Usually ships within 24 hours – Same Day Delivery in Manhattan" are eligible for this service. Generally, this is merchandise in stock in New Jersey warehouses of the company and its affiliates. Orders must be placed by 11am, Monday through Friday, to qualify and are delivered by 7pm. Orders placed on New Year's Day, Good Friday, Thanksgiving, and Christmas are not eligible. Exhibit 17: Same-Day Delivery in Manhattan by Barnes & Noble Source: Barnes & Noble.com, Jefferies Other Independent Merchants In addition, some local brick-and-mortar retailers are reportedly testing paid deliveries within a 3-mile store radius to build competitive advantage, loyalty and market share. We believe, these retailers will ultimately decide to engage the services of some of the bigger players (Amazon, eBay, Google, even USPS) as scale does play a major role in the cost of such an offering. Technology Internet April 10, 2013 page 25 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  26. 26. USPS The US Postal Service began a 1-year experiment in December 2012 for same-day delivery of in-store and online purchases from participating retailers in San Francisco, CA. While in beta, the USPS will work with a maximum of 10 retailers with at least 10 physical locations nationally (one or more within defined major metro areas). Orders completed by 2pm get picked up after 3pm and delivered between 4pm and 8pm the same day. While pricing is up to the participating retailer, the regulatory filing for the service states that USPS will be charging in excess of $2.90 per delivery / package. Only residential addresses are covered in the test and there are some restrictions on weight and size but they are the same as for other USPS services. Users can check delivery status through USPS’ Track and Confirm tool. For returns, merchandise can be returned to the store or sent back with USPS (pick- up can be scheduled online). According to the USPS website, the service would be available eventually through its mobile app too. While the experiment started with a single retailer (1-800-FLOWERS.COM), new ones were in late-stage negotiations as of January 2013, according to a USPS spokesperson. If the test is successful, the service will be expanded to other big metro areas such as Boston, Chicago, Los Angeles, and New York. Exhibit 18: Metro Post by USPS Source: USPS, Jefferies Technology Internet April 10, 2013 page 26 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  27. 27. Postmates Get It Now is a one-hour delivery service available in San Francisco since May 2012 and in Seattle since March 2013. Users, who have downloaded the iOS app, can place an order between 8am and midnight every day of the week. The order gets assigned to the best courier for the job seconds after being placed. Then the courier, called Postmate, purchases the ordered goods on behalf of the user and delivers them to a drop-off address. During this time, users can track their delivery from the app in real-time and can contact the Postmate if a change is needed (e.g. add or cancel an item, change delivery address, etc.). However, such changes get forwarded to HQ as they might require a fee adjustment. The delivery fee, currently starting at $4.99, is determined dynamically by an algorithm that accounts for the distance, time required and effort involved in the delivery. Exhibit 19: Screenshots of Postmates’ Get It Now App Source: App Annie, Jefferies While Postmates (the company) is still managing the inventory of items that users can order through the service (currently from ~4,000 different locations in San Francisco and 1,000+ in Seattle), it plans to offer a self-serve platform that will allow local businesses to take control of their venue’s listings and update inventory themselves. In addition, users can simply prepare a shopping list of items (if the merchant’s inventory is not listed in the app) and the Postmate will purchase them. Technically, users can order from any retail store or merchant in the city that accepts credit cards. Another feature in the app (a nearby tab) allows users to browse stores close to their current location. It updates dynamically and is powered by Foursquare. Postmates has been running on-demand same-day deliveries in San Francisco and vicinity since December 2011. It launched its one-hour delivery service Get It Now in closed beta in March 2012 and officially in May 2012. The Seattle beta launch happened in February 2013 with the official launch in March. We believe the next city in the company’s expansion plan is New York (based on its application form for prospective Postmates). The delivery fee has declined over time to the current $4.99+ but it was $6.99+ when the service first started. Postmates currently has nearly 200 couriers in San Francisco and just over 40 in Seattle. Technology Internet April 10, 2013 page 27 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  28. 28. Exec Exec is an errand-running service, similar to TaskRabbit, which provides companies and individuals access to on-demand personal assistants for delivery, furniture assembly, and other errands. Once users post what they need, an in-house trained Exec gets assigned on the task within 10 minutes. Users can track the progress of their errand and stay in touch with the Exec through messages. The service gets everything done for $25/hour and is available from 9am to 9pm. The company and its services are currently based in San Francisco. Exhibit 20: Exec Errands Source: Exec, Jefferies Technology Internet April 10, 2013 page 28 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  29. 29. Instacart Instacart is a unique same-day delivery service, which focuses solely on same-day grocery delivery from Trader Joe’s, Safeway and Whole Foods. Customers can shop directly from their iPhones from 10am to 9pm every day. The company has a one-hour or a three-hour promised delivery window for a flat $9.99 and $3.99, respectively. The service is currently live in San Francisco, Palo Alto and Mountain View. The company has plans to expand into other verticals. Exhibit 21: Screenshots of Instacart App Source: App Annie, Jefferies Shutl Shutl is another start-up that provides same-day delivery in the Bay Area, with ambitions to launch soon in New York City, Chicago, Miami, and several other metro areas in the US. The company’s technology integrates with online retailers and connects them with a network of local, same-day carriers, which purportedly provide faster, more flexible delivery options than the traditional delivery providers such as UPS and FedEx. Exhibit 22: Shutl Source: Shutl, Jefferies Technology Internet April 10, 2013 page 29 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  30. 30. TaskRabbit TaskRabbit, one of the original errand outsourcing services, recently launched a Deliver Now feature, where customers can have same-day delivery from any local business. Deliver Now costs $10 and is currently only available in San Francisco, while TaskRabbit itself is based in 9 metro areas. The feature allows regular users to solicit same-day deliveries for orders from local businesses such as restaurants and stores that do not themselves provide a delivery service. Exhibit 23: Screenshots of TaskRabbit App Source: App Annie, Jefferies WunWun WunWun is a product / service similar to TaskRabbit and Exec with a twist. WunWun has an on-demand network of Helpers. Once your request is received, a Helper is designated to see it through. When a request requires a specialized provider, WunWun acts as a personal concierge service. For deliveries, it’s a flat $15 fee and $2 for every 5 minutes of other services. Currently, WunWun is in beta in New York City. Exhibit 24: Screenshots of WunWun App Source: App Annie, Jefferies Technology Internet April 10, 2013 page 30 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  31. 31. Potential Winners Whether same-day delivery will become prevalent over time or remain a high-touch add- on service is not clear yet. Some recent studies reveal that free delivery and lower prices are much more important to shoppers. According to a BCG survey, conducted in November 2012, only 9% of participants cited same-day delivery as a top factor that would improve their online shopping experience. Overwhelmingly more, 74% and 50% cited free delivery and lower prices, respectively, as top factors. However, that same survey showed that affluent millennials (18 to 34-year olds with household income in excess of $150K) were willing to pay up to $10 for same-day delivery vs. up to $6 by other consumers. The affluent millennial cohort is also spending online about 2 times more than the average US consumer. Only time will show if millennials again will drive a change in eCommerce fulfillment as they did with other aspects of everyday life already. While it is not clear yet if consumers are actually ready to pay (and how much) for such services, the competition in fulfillment is already on and major players are investing. Which aspects of fulfillment (e.g. speed, flexibility, cost) will prove more important to consumers could determine which of the existing offerings will survive and thrive. We believe that the most compelling offerings, for now, come from Amazon, eBay and Walmart as each dwells on a competitive strength. However, Amazon is currently the undisputed leader as it appears to have perfected the logistics function and is likely to start building new fulfillment centers closer to customers, now that it has signed tax agreements with a host of states. We also think that the proceeds of its November 2012 debt offering of $3B will be used for fulfillment center build-out, to a large extent. eBay seems to have solved the inventory / warehousing problem and built scale by partnering with top national retailers while maintaining neutrality. It also has the most compelling offering that helps retailers leverage their own brands and assets to evolve their multi- channel strategies to seamlessly meet the increasing demands of the omni-channel consumer. Its products enable retailers to address the full opportunity of the converging online and offline markets. And finally, Walmart has already established a presence in all key markets and needs only to master the “last mile” or partner with / acquire someone with the logistics acumen. We believe Google is another one to keep an eye on as it remains a prime starting point for many product searches. The company has already taken steps to monetize these better by enhancing its Product Listing Ads with rich product information (product image, size & color options, etc.). If Google rolls out Google Shopping Express more broadly, we would expect deep integration with its other services like Wallet, Maps, Zavers, and obviously the broader Google Shopping / Search product. Among the other players, we believe the ones that manage to remain retailer-neutral, to offer the highest flexibility (accepting orders 24/7 at the extreme), and to remain competitive on pricing without going bust, are the most likely to succeed. And we do believe it is not a winner-take-all game. Smaller / local / niche players should be able to find a place on the table among the bigger players too. Technology Internet April 10, 2013 page 31 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  32. 32. Appendix A. Jefferies US eCommerce Model B. Amazon Model C. eBay Model D.Google Model Technology Internet April 10, 2013 page 32 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  33. 33. A. Jefferies US eCommerce Model Exhibit 25: Jefferies US eCommerce Model ($ in Millions) Source: US Department of Commerce, comScore, Jefferies F2012 F2013 Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E 2011A 2012A 2013E Total US Retail Sales* $1,080,064 $1,076,950 $1,091,897 $1,106,823 $1,121,106 $1,118,951 $1,137,757 $1,152,147 $4,157,173 $4,355,734 $4,529,962 % Y/Y Growth 6.2% 4.3% 4.6% 4.0% 3.8% 3.9% 4.2% 4.1% 8.3% 4.8% 4.0% Total US Retail eCommerce Sales* $53,091 $54,936 $57,034 $59,545 $60,490 $61,554 $63,753 $65,913 $193,722 $224,606 $251,710 % Y/Y Growth 15.3% 15.5% 17.4% 15.6% 13.9% 12.0% 11.8% 10.7% 15.1% 15.9% 12.1% eCommerce Penetration - % of Retail 4.9% 5.1% 5.2% 5.4% 5.4% 5.5% 5.6% 5.7% 4.7% 5.2% 5.6% Y/Y Penetration Increases (bps) 0.38% 0.49% 0.57% 0.54% 0.48% 0.40% 0.38% 0.34% 0.28% 0.50% 0.40% Online Travel** $25,614 $28,023 $26,292 $23,021 $27,893 $30,630 $28,659 $25,035 $94,485 $102,951 $112,216 % Y/Y Growth 10.3% 8.7% 8.9% 7.8% 8.9% 9.3% 9.0% 8.7% 11.0% 9.0% 9.0% eBay US Auctions GMV $2,968 $2,883 $2,809 $2,890 $3,043 $3,048 $3,114 $3,295 $11,556 $11,524 $12,497 % Fixed Price vs. Auction Format 61.0% 62.0% 64.0% 66.0% 65.0% 65.5% 66.0% 67.4% 59.3% 63.4% 66.0% % Y/Y Growth -1.4% -1.8% 0.2% 2.8% 2.5% 5.7% 10.8% 14.0% 1.2% -0.3% 8.4% US eCommerce Sales (Adjusted) $81,673 $85,842 $86,136 $85,456 $91,426 $95,232 $95,526 $94,242 $299,763 $339,081 $376,423 % Y/Y Growth 13.0% 12.5% 14.0% 12.9% 11.9% 10.9% 10.9% 10.3% 13.1% 13.1% 11.0% eCommerce Penetration (Adj) - % of Retail 7.4% 7.7% 7.7% 7.5% 7.9% 8.3% 8.2% 8.0% 7.0% 7.6% 8.1% Y/Y Penetration Increase 0.43% 0.56% 0.63% 0.59% 0.57% 0.51% 0.48% 0.44% 0.30% 0.55% 0.50% *US Department of Commerce; Does not include auctions, travel, financial services, or event ticket sales -- http://www.census.gov/mrts/www/ecomm.html **comScore Technology Internet April 10, 2013 page 33 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  34. 34. B. Amazon Model Exhibit 26: Amazon - Income Statement ($000s) Source: Company data, Jefferies estimates Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Net Revenue $13,185,000 $12,834,000 $13,806,000 $21,268,000 $16,271,675 $16,006,550 $17,351,585 $27,103,649 $61,093,000 $76,733,459 $96,334,698 North America Net Revenue 7,427,000 7,326,000 7,884,000 12,175,000 9,171,631 9,166,226 9,959,790 15,704,269 34,812,000 44,001,916 55,616,677 International Net Revenue 5,758,000 5,508,000 5,922,000 9,093,000 7,100,044 6,840,324 7,391,795 11,399,380 26,281,000 32,731,543 40,718,021 % Y/Y Growth 34% 29% 27% 22% 23% 25% 26% 27% 27% 26% 26% % Q/Q Growth (24) (3) 8 54 (23) (2) 8 56 -- -- -- Cost of Net Revenue 10,027,000 9,488,000 10,319,000 16,136,000 12,182,149 11,671,457 12,786,070 20,316,006 45,970,000 56,955,683 71,037,101 Total Gross Profit $3,158,000 $3,346,000 $3,487,000 $5,132,000 $4,089,526 $4,335,093 $4,565,514 $6,787,643 $15,123,000 $19,777,776 $25,297,597 % Margin 24.0% 26.1% 25.3% 24.1% 25.1% 27.1% 26.3% 25.0% 24.8% 25.8% 26.3% Fulfillment 1,258,000 1,298,000 1,454,000 2,196,000 1,643,626 1,674,887 1,830,879 2,803,973 6,206,000 7,953,365 10,033,186 Marketing 468,000 521,000 524,000 833,000 678,446 701,012 672,452 1,075,116 2,346,000 3,127,025 3,973,978 Technology & Content 860,000 970,000 1,080,000 1,221,000 1,128,000 1,278,000 1,413,000 1,578,000 4,131,000 5,397,000 6,297,000 General & Administrative 174,000 197,000 197,000 204,000 222,000 254,000 260,000 268,000 772,000 1,004,000 1,224,000 GAAP Operating Income / (Loss) incl Stock Comp & Amort. of Intangibles192,000 107,000 (28,000) 405,000 142,255 77,374 56,233 716,054 676,000 991,917 2,183,096 % Margin 1.5% 0.8% (0.2%) 1.9% 0.9% 0.5% 0.3% 2.6% 1.1% 1.3% 2.3% % Y/Y Growth (40) (47) (135) 56 (26) (28) -- 77 (22) 47 120 % Q/Q Growth (26) (44) (126) -- (65) (46) (27) 1,173 -- -- -- EBITDA $855,000 $845,000 $786,000 $1,340,000 $1,079,217 $1,067,880 $1,024,144 $1,694,852 $3,826,000 $4,866,092 $6,582,224 % Margin 6.5% 6.6% 5.7% 6.3% 6.6% 6.7% 5.9% 6.3% 6.3% 6.3% 6.8% % Y/Y Growth 28 34 46 63 26 26 30 26 44 27 35 % Q/Q Growth 4 (1) (7) 70 (19) (1) (4) 65 -- -- -- Net Interest (Income) and Other (Income) 108,000 (39,000) (6,000) 68,000 60,477 (26,644) (8,005) 49,226 131,000 75,055 36,887 Adjusted Pre-Tax Profit / (Loss) $290,000 $399,000 $238,000 $610,000 $356,978 $453,838 $397,188 $1,013,328 $1,537,000 $2,221,332 $3,732,546 % Effective Tax Rate 33% 43% 62% 43% 30.7% 36.5% 30.7% 44.7% 44% 38% 36% Provision / (Benefit) for Income Taxes 43,000 109,000 83,000 194,000 40,889 78,013 38,543 366,755 429,000 524,201 944,332 Tax Adjustments for Non-GAAP Items 51,500 63,250 65,000 68,250 68,800 87,455 83,238 86,625 248,000 326,118 396,584 Minority Interest (89,000) 30,000 169,000 46,000 35,000 35,000 35,000 35,000 156,000 140,000 126,000 Operating Net Income / (Loss) $284,500 $196,750 ($79,000) $301,750 $212,289 $253,369 $240,408 $524,947 $704,000 $1,231,014 $2,265,630 % Margin 2.2% 1.5% (0.6%) 1.4% 1.3% 1.6% 1.4% 1.9% 1.2% 1.6% 2.4% % Y/Y Growth (8) (40) (140) (8) (25) 29 -- 74 (40) 75 84 % Q/Q Growth (13) (31) (140) -- (30) 19 (5) 118 -- -- -- Other Operating Expense/Amortization of Intangibles 46,000 32,000 43,000 38,000 40,000 36,000 40,000 41,000 159,000 157,000 152,000 Stock-Based Compensation 160,000 221,000 217,000 235,000 235,200 313,820 292,950 305,500 833,000 1,147,470 1,434,338 Tax Effect of Non-GAAP Entries (51,500) (63,250) (65,000) (68,250) (68,800) (87,455) (83,238) (86,625) (248,000) (326,118) (396,584) Reported GAAP Net Income / (Loss) $130,000 $7,000 ($274,000) $97,000 $5,889 ($8,996) ($9,305) $265,072 ($40,000) $252,661 $1,075,877 % Margin 1.0% 0.1% (2.0%) 0.5% 0.0% (0.1%) (0.1%) 1.0% (0.1%) 0.3% 1.1% % Y/Y Growth (35) (96) (535) (45) (95) (229) -- 173 (106) -- 326 % Q/Q Growth (27) (95) (4,014) -- (94) (253) -- -- -- -- -- Weighted Avg. Diluted Shares Outstanding 460,000 458,000 460,000 461,000 462,613 462,659 462,781 463,092 453,000 462,786 462,344 Operating EPS $0.62 $0.43 ($0.17) $0.65 $0.46 $0.55 $0.52 $1.13 $1.55 $2.66 $4.90 % Y/Y Growth (8%) (40%) (140%) (8%) (26%) 27% -- 73% (39%) 71% 84% % Q/Q Growth (13) (31) (140) -- (30) 19 (5) 118 -- -- -- Reported GAAP EPS $0.28 $0.02 ($0.60) $0.21 $0.01 ($0.02) ($0.02) $0.57 ($0.09) $0.55 $2.33 % Y/Y Growth (35%) (96%) (536%) (45%) (95%) (227%) -- 172% (106%) -- 326% % Q/Q Growth (26) (95) (3,997) -- (94) (253) -- -- -- -- -- F2012 F2013 Technology Internet April 10, 2013 page 34 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  35. 35. Exhibit 27: Amazon - Revenue Build ($000s) Source: Company data, Jefferies estimates Exhibit 28: Amazon - Balance Sheet ($000s) Source: Company data, Jefferies estimates Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Total Revenue $13,185,000 $12,834,000 $13,806,000 $21,268,000 $16,271,675 $16,006,550 $17,351,585 $27,103,649 $61,093,000 $76,733,459 $96,334,698 % Y/Y Growth 34% 29% 27% 22% 23% 25% 26% 27% 27% 26% 26% % Q/Q Growth (24) (3) 8 54 (23) (2) 8 56 -- -- -- Ex-FX Total Revenue 13,224,440 13,094,960 14,162,880 21,435,670 16,394,167 16,061,613 17,340,984 27,246,540 61,917,950 77,043,304 55,616,677 % Y/Y Growth ex-FX 34% 32% 30% 23% 24% 25% 26% 28% 29% 26% -28% Media $4,710,000 $4,119,000 $4,600,000 $6,514,000 $5,275,772 $4,628,738 $5,201,930 $7,519,706 $19,943,000 $22,626,146 $25,769,254 % Y/Y Growth 19% 13% 11% 8% 12% 12% 13% 15% 12% 13% 14% % of Total Revenue 36 32 33 31 32 29 30 28 33 29 27 Electronics and Other General Merchandise $7,975,000 $8,161,000 $8,558,000 $13,934,000 $10,272,073 $10,560,805 $11,201,815 $18,378,863 $38,628,000 $50,413,556 $65,586,143 % Y/Y Growth 43% 38% 35% 28% 29% 29% 31% 32% 35% 31% 30% % of Total Revenue 60 64 62 66 63 66 65 68 63 66 68 Other $500,000 $554,000 $648,000 $820,000 $723,830 $817,007 $947,840 $1,205,080 $2,522,000 $3,693,757 $4,979,302 % Y/Y Growth 61% 54% 59% 61% 45% 47% 46% 47% 59% 46% 35% % of Total Revenue 4 4 5 4 4 5 5 4 4 5 5 Total North America Revenue $7,427,000 $7,326,000 $7,884,000 $12,175,000 $9,171,631 $9,166,226 $9,959,790 $15,704,269 $34,812,000 $44,001,916 $55,616,677 % Y/Y Growth 36% 36% 33% 23% 23% 25% 26% 29% 30% 26% 26% % Q/Q Growth (25) (1) 8 54 (25) (0) 9 58 -- -- -- % of Total Revenue 56 57 57 57 56 57 57 58 57 57 58 Media $2,197,000 $1,874,000 $2,215,000 $2,903,000 $2,526,550 $2,168,218 $2,576,045 $3,428,443 $9,189,000 $10,699,256 $12,411,137 % Y/Y Growth 16.6% 18.2% 14.9% 13.3% 15.0% 15.7% 16.3% 18.1% 15% 16% 16% % of North America Revenue 30 26 28 24 28 24 26 22 26 24 22 Electronics and Other General Merchandise $4,772,000 $4,937,000 $5,061,000 $8,503,000 $5,967,241 $6,224,525 $6,480,865 $11,128,478 $23,273,000 $29,801,109 $38,443,431 % Y/Y Growth 44.5% 41.2% 39.2% 23.6% 25.0% 26.1% 28.1% 30.9% 34% 28% 29% % Y/Y Growth (Organic) 35.1% 31.1% 27.9% 15.8% 17.1% 17.4% 18.2% 23.3% 25% 20% 29% % of North America Revenue 64 67 64 70 65 68 65 71 67 68 69 Zappos contribution $308,316 $354,121 $412,201 $535,116 $379,229 $428,487 $498,763 $644,279 $1,609,754 $1,950,758 % Y/Y Growth 25% 25% 25% 23% 23% 21% 21% 20% 24% 21% Other $458,000 $515,000 $608,000 $769,000 $677,840 $773,483 $902,880 $1,147,348 $2,350,000 $3,501,551 $4,762,109 % Y/Y Growth 65.3% 58.5% 64.3% 67.5% 48.0% 50.2% 48.5% 49.2% 64% 49% 36% % of North America Revenue 6 7 8 6 7 8 9 7 7 8 9 AWS $412,200 $463,500 $547,200 $692,100 $610,056 $696,135 $812,592 $1,032,613 $2,115,000 $3,151,396 $4,285,898 % Y/Y Growth 65% 58% 64% 68% 48% 50% 49% 49% 64% 49% 36% % Q/Q Growth (0) 12 18 26 (12) 14 17 27 -- -- -- Total International Revenue $5,758,000 $5,508,000 $5,922,000 $9,093,000 $7,100,044 $6,840,324 $7,391,795 $11,399,380 $26,281,000 $32,731,543 $40,718,021 % Y/Y Growth 31.1% 22.2% 19.8% 20.8% 23.3% 24.2% 24.8% 25.4% 23% 25% 24% % of Total Revenue 44 43 43 43 44 43 43 42 43 43 42 Ex-FX International Revenue $5,797,440 $5,768,960 $6,278,880 $9,260,670 $7,222,536 $6,895,387 $7,381,194 $11,542,271 $27,105,950 $33,041,388 % Y/Y Growth ex-FX 32% 28% 27% 23% 25% 25% 25% 27% 27% 26% FX Growth -1% -5% -6% -2% -2% -1% 0% -1% -3% -1% Media $2,513,000 $2,245,000 $2,385,000 $3,611,000 $2,749,222 $2,460,520 $2,625,885 $4,091,263 $10,754,000 $11,926,890 $13,358,117 % Y/Y Growth 21.2% 8.2% 7.1% 4.8% 7.5% 8.7% 10.3% 11.9% 10% 11% 12% % Y/Y Growth ex-FX 22% 12% 12% 7% 9% 10% 10% 13% 13% 12% % of International Revenue 44 41 40 40 39 36 36 36 41 36 33 Electronics and Other General Merchandise $3,203,000 $3,224,000 $3,497,000 $5,431,000 $4,304,832 $4,336,280 $4,720,950 $7,250,385 $15,355,000 $20,612,447 $27,142,712 % Y/Y Growth 40.2% 34.4% 30.4% 34.7% 32.1% 33.4% 35.2% 31.8% 35% 34% 32% % Y/Y Growth ex-FX 42% 42% 42% 37% 34% 35% 35% 34% 39% 36% % of International Revenue 56 59 59 60 61 63 64 64 58 63 67 Other $42,000 $39,000 $40,000 $51,000 $45,990 $43,524 $44,960 $57,732 $172,000 $192,206 $217,193 % Y/Y Growth 24% 15% 8% 2% 10% 12% 12% 13% 11% 12% 13% % of International Revenue 1 1 1 1 1 1 1 1 1 1 1 F2012 F2013 Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Cash & Cash Equivalents $2,288,000 $2,335,000 $2,980,000 $8,084,000 $4,214,493 $4,116,288 $4,792,110 $9,506,579 $8,084,000 $9,506,579 $13,927,426 Short-Term Marketable Securities 3,427,000 2,635,000 2,268,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 Accounts Receivable 1,813,000 2,035,000 2,392,000 3,364,000 2,142,512 2,380,371 2,652,653 3,847,326 3,364,000 3,847,326 4,830,109 Inventories 4,255,000 4,380,000 5,065,000 6,031,000 5,239,993 5,608,695 6,550,672 8,419,601 6,031,000 8,419,601 10,501,219 Other Current Assets 371,000 408,000 413,000 453,000 418,616 468,948 501,160 550,567 453,000 550,567 678,019 Current Assets $12,154,000 $11,793,000 $13,118,000 $21,296,000 $15,379,614 $15,938,302 $17,860,595 $25,688,074 $21,296,000 $25,688,074 $33,300,772 Property and Equipment 4,653,000 5,097,000 5,662,000 7,060,000 6,829,518 6,869,612 7,017,652 7,104,374 7,060,000 7,104,374 7,193,213 Goodwill 1,970,000 2,521,000 2,540,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 Deferred Tax Assets 27,000 26,000 38,000 123,000 123,000 123,000 123,000 123,000 123,000 123,000 123,000 Other Assets 1,535,000 1,585,000 1,476,000 1,524,000 2,452,943 2,563,581 2,338,745 3,553,407 1,524,000 3,553,407 4,375,987 Total Assets $20,339,000 $21,022,000 $22,834,000 $32,555,000 $27,337,076 $28,046,496 $29,891,992 $39,020,855 $32,555,000 $39,020,855 $47,544,971 Accounts Payable $6,886,000 $7,072,000 $8,369,000 $13,318,000 $8,397,339 $8,620,890 $10,088,735 $15,509,792 $13,318,000 $15,509,792 $19,344,350 Accrued Expenses & Other Liabilities 3,498,000 3,813,000 4,182,000 5,684,000 4,259,602 4,486,268 4,644,080 6,519,730 5,684,000 6,519,730 8,028,985 Unearned Revenue 0 0 0 0 114,814 178,965 261,720 504,647 0 504,647 1,301,197 Short-Term Debt 104,000 79,000 54,000 0 0 0 0 0 0 0 771,000 Total Current Liabilities $10,488,000 $10,964,000 $12,605,000 $19,002,000 $12,771,756 $13,286,122 $14,994,535 $22,534,169 $19,002,000 $22,534,169 $29,445,532 0.65% Unsecured Notes due Nov 2015 0 0 0 771,000 771,000 771,000 771,000 771,000 771,000 771,000 0 1.20% Unsecured Notes due Nov 2017 0 0 0 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 2.50% Unsecured Notes due Nov 2022 255,000 255,000 255,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 Other LT Liabilities 2,325,000 2,298,000 2,421,000 2,277,000 3,275,487 3,470,214 3,608,350 4,920,972 2,277,000 4,920,972 6,060,130 Total Liabilities $13,068,000 $13,517,000 $15,281,000 $24,363,000 $19,131,243 $19,840,336 $21,686,885 $30,539,141 $24,363,000 $30,539,141 $37,944,661 Additional Paid-In Capital 7,197,000 7,578,000 7,868,000 8,352,000 8,359,943 8,369,266 8,377,518 8,389,053 8,352,000 8,389,053 8,431,772 Retained Earnings (Accumulated Deficit) 2,085,000 2,092,000 1,818,000 1,916,000 1,921,889 1,912,894 1,903,589 2,168,661 1,916,000 2,168,661 3,244,538 Treasury Stock (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) Accumulated Other Comprehensive Income (174,000) (328,000) (296,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000) Shareholders' Equity $7,271,000 $7,505,000 $7,553,000 $8,192,000 $8,205,832 $8,206,160 $8,205,107 $8,481,714 $8,192,000 $8,481,714 $9,600,310 Liabilities & Shareholders' Equity $20,339,000 $21,022,000 $22,834,000 $32,555,000 $27,337,076 $28,046,496 $29,891,992 $39,020,855 $32,555,000 $39,020,855 $47,544,971 F2012 F2013 Technology Internet April 10, 2013 page 35 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  36. 36. Exhibit 29: Amazon - Cash Flow Statement ($000s) Source: Company data, Jefferies estimates Exhibit 30: Amazon - DCF Analysis ($MM) Source: Company data, Jefferies estimates Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Net Income $130,000 $7,000 ($274,000) $97,000 $5,889 ($8,996) ($9,305) $265,072 ($40,000) $252,661 $1,075,877 Depreciation 457,000 485,000 554,000 662,000 661,762 640,686 634,961 632,297 2,158,000 2,569,706 2,812,790 Tax Benefit from Stock Options (40,000) (85,000) (66,000) (239,000) 6,380 7,759 6,688 9,975 (430,000) 30,801 34,786 Stock-Based Compensation 160,000 221,000 217,000 235,000 235,200 313,820 292,950 305,500 833,000 1,147,470 1,434,338 Deferred Taxes (38,000) (43,000) (36,000) (148,000) 0 0 0 0 (265,000) 0 0 (Gain) / Loss on Sale of Securities (2,000) (2,000) (4,000) (1,000) 0 0 0 0 (9,000) 0 0 Other Non-Cash Charges 61,000 13,000 197,000 136,000 0 0 0 0 407,000 0 0 Funds From Operations $728,000 $596,000 $588,000 $742,000 $909,231 $953,270 $925,293 $1,212,845 $2,654,000 $4,000,638 $5,483,791 (Inc.) Dec. in Accounts Receivable and Other 746,000 (166,000) (416,000) (1,024,000) 326,929 (398,829) (79,658) (2,458,742) (860,000) (2,610,301) (1,932,814) (Inc.) Dec. in Inventories 747,000 (124,000) (647,000) (974,000) 791,007 (368,702) (941,977) (1,868,930) (998,000) (2,388,601) (2,081,617) Inc. (Dec.) in Accounts Payable (4,258,000) 180,000 1,223,000 4,926,000 (4,920,661) 223,551 1,467,845 5,421,057 2,071,000 2,191,792 3,834,558 Inc. (Dec.) in Accrued Expenses and Other (529,000) 59,000 96,000 1,412,000 (425,910) 421,392 295,949 3,188,271 1,038,000 3,479,702 2,648,412 Addition to Unearned Revenue 397,000 382,000 472,000 545,000 509,788 487,998 544,833 754,577 1,796,000 2,297,196 3,241,913 Amortization of Unearned Revenue (269,000) (333,000) (373,000) (546,000) (394,973) (423,848) (462,077) (511,650) (1,521,000) (1,792,549) (2,445,363) Change in Net Working Capital ($3,166,000) ($2,000) $355,000 $4,339,000 ($4,113,821) ($58,439) $824,915 $4,524,584 $1,526,000 $1,177,239 $3,265,089 Cash Flow from Operations ($2,438,000) $594,000 $943,000 $5,081,000 ($3,204,590) $894,831 $1,750,208 $5,737,429 $4,180,000 $5,177,877 $8,748,880 Capital Expenditures (386,000) (657,000) (716,000) (2,025,000) (431,280) (680,780) (783,000) (719,020) (3,784,000) (2,614,080) (2,901,629) Acquisitions, Net of Cash Acquired (50,000) (624,000) (37,000) (35,000) 0 0 0 0 (746,000) 0 0 Purchases of Securities and Investments (852,000) (565,000) (358,000) (1,528,000) 0 0 0 0 (3,303,000) 0 0 Proceeds from Sales of Securities and Investments 1,738,000 1,251,000 742,000 506,000 0 0 0 0 4,237,000 0 0 Net Cash Used in Investing Activities $450,000 ($595,000) ($369,000) ($3,082,000) ($431,280) ($680,780) ($783,000) ($719,020) ($3,596,000) ($2,614,080) ($2,901,629) Debt Issuance / (Repayment) (85,000) (18,000) (144,000) 2,927,000 0 0 0 0 2,680,000 0 0 Proceeds from / (Repurchase of) Common Stock (960,000) 0 109,000 0 (233,636) (312,256) (291,386) (303,940) (851,000) (1,141,218) (1,426,404) Excess Tax Benefit from Stock Options 40,000 85,000 66,000 239,000 0 0 0 0 430,000 0 0 Net Cash Provided by Financing Activities ($1,005,000) $67,000 $31,000 $3,166,000 ($233,636) ($312,256) ($291,386) ($303,940) $2,259,000 ($1,141,218) ($1,426,404) Effect of Exchange Rate Changes 12,000 (19,000) 40,000 (61,000) 0 0 0 0 (28,000) 0 0 Inc. (Dec.) in Cash and Cash Equivalents ($2,981,000) $47,000 $645,000 $5,104,000 ($3,869,507) ($98,205) $675,822 $4,714,469 $2,815,000 $1,422,579 $4,420,847 Beginning Cash and Cash Equivalents 5,269,000 2,288,000 2,335,000 2,980,000 8,084,000 4,214,493 4,116,288 4,792,110 5,269,000 8,084,000 9,506,579 Ending Cash and Cash Equivalents $2,288,000 $2,335,000 $2,980,000 $8,084,000 $4,214,493 $4,116,288 $4,792,110 $9,506,579 $8,084,000 $9,506,579 $13,927,426 F2012 F2013 2013 2012A Q1 13E Q2 13E Q3 13E Q4 13E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue $61,093 $16,272 $16,007 $17,352 $27,104 $96,335 $118,214 $141,503 $165,423 $189,981 $214,453 $238,738 $261,865 $287,156 % Y/Y Growth 27% 23% 25% 26% 27% 26% 23% 20% 17% 15% 13% 11% 10% 10% EBITDA $3,826 $1,079 $1,068 $1,024 $1,695 $6,582 $7,878 $9,724 $11,747 $14,126 $16,460 $18,864 $21,336 $24,118 % Margin 6% 7% 7% 6% 6% 7% 7% 7% 7% 7% 8% 8% 8% 8% % Y/Y Growth 44 26 26 30 26 35 20 23 21 20 17 15 13 13 Implied Taxes on Operations ($1,685) ($332) ($389) ($314) ($758) ($2,365) ($2,617) ($3,240) ($3,931) ($4,782) ($5,615) ($6,472) ($7,352) ($8,342) % Effective Tax Rate 44% 31% 36% 31% 45% 36% 33% 33% 33% 34% 34% 34% 34% 35% Capital Expenditures ($3,784) ($431) ($681) ($783) ($719) ($2,902) ($3,192) ($3,511) ($3,862) ($4,248) ($4,461) ($4,684) ($4,918) ($5,164) % Y/Y Growth 109% 12% 4% 9% (64%) 11% 10% 10% 10% 10% 5% 5% 5% 5% Change in Net Working Capital $1,526 ($4,114) ($58) $825 $4,525 $3,265 $4,618 $5,402 $6,306 $7,262 $8,098 $8,758 $9,047 $9,649 Tax Benefit from NOL Carryforwards 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Acquisitions Not Yet Reflected on Balance Sheet -- 0 0 0 0 0 0 0 0 0 0 0 0 0 Unlevered Free Cash Flow ($117) ($3,797) ($61) $752 $4,742 $4,581 $6,688 $8,374 $10,260 $12,357 $14,481 $16,466 $18,113 $20,260 NPV at 12/31/12 Valuation Date and 12.0% WACC ($3,693) ($57) $691 $4,234 $3,865 $5,038 $5,631 $6,159 $6,624 $6,930 $7,034 $6,908 $6,899 Perpetuity Growth Rate / Terminal Value at 12.0% WACC Implied Terminal Value / Terminal EBITDA Multiple 3.0% 3.5% 4.0% 4.5% 5.0% 10.3x 11.0x 11.7x 12.6x 13.5x $248,663 $264,568 $282,462 $302,741 $325,917 $248,663 $264,568 $282,462 $302,741 $325,917 Median DCF Valuation at 12/31/12 Valuation Date WACC Equity Value per Share NPV of Cash Flows and Terminal Value $142,144 10% $355 $368 $382 $398 $416 Plus: Net Cash 10,677 11% 331 342 355 369 386 Implied Equity Value $152,821 12% 308 318 330 343 358 Implied Fully Diluted Shares Outstanding (MM) 463 13% 287 297 307 320 333 Implied Equity Value per Share $330 14% 268 277 287 298 310 Technology Internet April 10, 2013 page 36 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.
  37. 37. C. eBay Model Exhibit 31: eBay - Income Statement ($000s) Source: Company data, Jefferies estimates Exhibit 32: eBay - Revenue Build ($000s) Source: Company data, Jefferies estimates Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Net Revenues $3,277,000 $3,398,000 $3,404,000 $3,992,000 $3,749,989 $3,956,527 $4,012,053 $4,768,613 $14,071,000 $16,487,182 $19,523,884 % Y/Y Growth 29% 23% 15% 18% 14% 16% 18% 19% 21% 17% 18% Cost of Net Revenues 948,000 954,000 989,000 1,192,000 1,090,455 1,118,722 1,173,688 1,426,054 4,083,000 4,808,919 5,694,653 Total Gross Profit $2,329,000 $2,444,000 $2,415,000 $2,800,000 $2,659,534 $2,837,806 $2,838,365 $3,342,559 $9,988,000 $11,678,263 $13,829,231 % Margin 71.1% 71.9% 70.9% 70.1% 70.9% 71.7% 70.7% 70.1% 71.0% 70.8% 70.8% Sales and Marketing 647,000 683,000 691,000 757,000 723,510 789,330 806,409 897,046 2,778,000 3,216,294 3,759,879 Product Development 344,000 357,000 355,000 379,000 386,000 411,000 429,000 447,000 1,435,000 1,673,000 1,973,000 General and Administrative 321,000 346,000 326,000 391,000 369,000 382,000 390,000 405,000 1,384,000 1,546,000 1,726,000 Provision for Transaction & Loan Losses 134,000 131,000 148,000 168,000 144,375 147,183 169,435 190,745 581,000 651,736 757,527 Adjusted Operating Income / (Loss) $883,000 $927,000 $895,000 $1,105,000 $1,036,649 $1,108,294 $1,043,522 $1,402,769 $3,810,000 $4,591,232 $5,612,825 % Margin 26.9% 27.3% 26.3% 27.7% 27.6% 28.0% 26.0% 29.4% 27.1% 27.8% 28.7% % Y/Y Growth (9) 5 (3) 23 (6) 7 (6) 34 20 21 22 EBITDA $1,059,000 $1,114,000 $1,103,000 $1,323,000 $1,254,367 $1,321,475 $1,256,780 $1,618,235 $4,599,000 $5,450,857 $6,713,098 % Margin 32.3% 32.8% 32.4% 33.1% 33.4% 33.4% 31.3% 33.9% 32.7% 33.1% 34.4% % Y/Y Growth (7) 5 (1) 20 (5) 5 (5) 29 21 19 23 Net Interest (Income) and Other (Income) (25,000) (33,000) 1,000 (29,000) 4,513 3,084 2,152 (91,091) (86,000) (81,341) (90,544) Adjusted Pre-Tax Profit / (Loss) $908,000 $960,000 $894,000 $1,134,000 $1,032,135 $1,105,209 $1,041,370 $1,493,859 $3,896,000 $4,672,574 $5,703,368 % Effective Tax Rate 20% 24% 20% 18% 21% 22% 22% 21% 20% 22% 22% Provision / (Benefit) for Income Taxes 114,000 159,000 75,000 126,000 168,325 199,254 185,583 266,797 474,000 819,960 1,083,927 Tax Adjustments for Non-GAAP Items 69,000 71,000 101,000 81,000 47,020 48,394 47,328 48,556 322,000 191,298 180,020 Operating Net Income / (Loss) $725,000 $730,000 $718,000 $927,000 $816,790 $857,561 $808,459 $1,178,506 $3,100,000 $3,661,316 $4,439,422 % Margin 22% 21% 21% 23% 22% 22% 20% 25% 22% 22% 23% % Y/Y Growth (8) 1 (2) 29 (12) 5 (6) 46 16 18 21 Amortization of Acquired Intagible Assets 105,000 103,000 103,000 101,000 100,000 98,000 97,000 95,000 412,000 390,000 300,000 Stock-Based Compensation 111,000 127,000 122,000 127,000 121,101 140,970 136,640 144,780 487,000 543,491 576,100 Employer Payroll Taxes on Stock Options Gains 14,000 2,000 3,000 3,000 14,000 3,000 3,000 3,000 22,000 23,000 24,000 1x Charges 0 (5,000) (2,000) 30,000 0 0 0 0 23,000 0 0 (Gain) / Loss on Sale of Investments (6,000) (118,000) (4,000) (4,000) (35,000) (35,000) (35,000) (35,000) (132,000) (140,000) (120,000) Tax Effect of Non-GAAP Entries (69,000) (71,000) (101,000) (81,000) (47,020) (48,394) (47,328) (48,556) (322,000) (191,298) (180,020)$0 Reported GAAP Net Income / (Loss) $570,000 $692,000 $597,000 $751,000 $663,709 $698,985 $654,147 $1,019,282 $2,610,000 $3,036,123 $3,839,341 % Margin 17% 20% 18% 19% 18% 18% 16% 21% 19% 18% 20% % Y/Y Growth (71) 21 (14) 26 (12) 5 (6) 56 (19) 16 26 Weighted Avg. Diluted Shares Outstanding 1,308,000 1,309,000 1,314,000 1,318,000 1,327,162 1,328,233 1,329,681 1,332,031 1,312,250 1,329,277 1,337,219 Operating EPS $0.55 $0.56 $0.55 $0.70 $0.62 $0.65 $0.61 $0.88 $2.36 $2.75 $3.32 % Q/Q Growth (8%) 1% (2%) 29% (12%) 5% (6%) 46% 16% 17% 21% Reported GAAP EPS $0.44 $0.53 $0.45 $0.57 $0.50 $0.53 $0.49 $0.77 $1.99 $2.28 $2.87 % Q/Q Growth (71%) 21% (14%) 25% (12%) 5% (7%) 56% (19%) 15% 26% F2012 F2013 Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E Total Net Revenues $3,277,000 $3,398,000 $3,404,000 $3,992,000 $3,749,989 $3,956,527 $4,012,053 $4,768,613 $14,071,000 $16,487,182 $19,523,884 % Y/Y Growth 28.7% 23.1% 14.8% 18.1% 14.4% 16.4% 17.9% 19.5% 20.8% 17.2% 18.4% Marketplaces 1,728,000 1,814,000 1,806,000 2,050,000 1,909,221 2,023,710 2,026,036 2,337,864 7,398,000 8,296,831 9,539,188 % Y/Y Growth 11.2% 9.1% 9.3% 15.7% 10.5% 11.6% 12.2% 14.0% 11.4% 12.1% 15.0% % of Total Net Revenues 52.7% 53.4% 53.1% 51.4% 50.9% 51.1% 50.5% 49.0% 52.6% 50.3% 48.9% Transaction Revenues 1,425,000 1,491,000 1,490,000 1,672,000 1,588,950 1,667,118 1,674,960 1,916,016 6,078,000 6,847,044 7,935,724 % Y/Y Growth 10.9% 10.5% 10.1% 15.8% 11.5% 11.8% 12.4% 14.6% 11.9% 12.7% 15.9% Marketing Services & Other Revenues 303,000 323,000 316,000 378,000 320,271 356,592 351,076 421,848 1,320,000 1,449,787 1,603,464 % Y/Y Growth 12.8% 2.9% 5.6% 14.9% 5.7% 10.4% 11.1% 11.6% 9.0% 9.8% 10.6% Payments 1,309,000 1,357,000 1,366,600 1,541,000 1,593,768 1,689,817 1,736,017 1,963,749 5,573,600 6,983,351 8,592,211 % Y/Y Growth 31.9% 26.5% 23.4% 24.3% 21.8% 24.5% 27.0% 27.4% 26.3% 25.3% 23.0% % of Total Net Revenues 39.9% 39.9% 40.1% 38.6% 42.5% 42.7% 43.3% 41.2% 39.6% 42.4% 44.0% Transaction Revenues 1,216,000 1,234,000 1,264,400 1,432,000 1,482,912 1,538,798 1,603,259 1,821,504 5,146,400 6,446,473 7,935,609 % Y/Y Growth 29.0% 24.5% 22.4% 23.8% 22.0% 24.7% 26.8% 27.2% 24.8% 25.3% 23.1% Marketing Services & Other Revenues 93,000 123,000 102,200 109,000 110,856 151,019 132,758 142,245 427,200 536,878 656,602 % Y/Y Growth 87.4% 50.2% 37.4% 31.4% 19.2% 22.8% 29.9% 30.5% 47.9% 25.7% 22.3% Other Revenue 3,000 6,000 5,400 3,000 5,000 5,000 5,000 5,000 17,400 20,000 21,500 % Y/Y Growth 77.9% -35.5% 66.7% -16.7% -7.4% 66.7% 126.4% 14.9% 7.5% GSI Commerce 237,000 221,000 226,000 398,000 242,000 238,000 245,000 462,000 1,082,000 1,187,000 1,370,985 % Y/Y Growth 15.0% 9.0% 11.5% 9.5% 2.1% 7.7% 8.4% 16.1% 83.4% 9.7% 15.5% % of Total Net Revenues 7.2% 6.5% 6.6% 10.0% 6.5% 6.0% 6.1% 9.7% 7.7% 7.2% 7.0% F2012 F2013 Technology Internet April 10, 2013 page 37 of 49 , Jefferies Equity Research, pitz-fitz@jefferies.comJefferies US Internet Team Please see important disclosure information on pages 45 - 49 of this report.

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