1. 1
The Internet & Native Advertising
A Wall Street Perspective
Ron Josey
Sr. Analyst, Internet SectorSr. Analyst, Internet Sector
JMP Securities
212.906.3528
rjosey@jmpsecurities.com
But First -- What Gets Us Excited About The Internet?
6 Key Driversy
1. MOBILE Fundamentally changing Internet usage & monetization
2. ONLINE ADV Newer ad formats are accelerating growth
3 SOCIAL E i th h i th di
5. MOBILE PAYMENTS Smartphones replacing wallets
4. VERTICAL MARKETPLACES Win / Win / Win
3. SOCIAL Empowering the consumer; changing the paradigm
2
6. SAME DAY DELIVERY Expands a retailer’s reach
Native Advertising Outlook for 2014 and Beyond
2. 2
Mobile: Time Spent On Apps Now Exceeds Desktop!
3
Source: comScore
…Resulting In Incremental Internet Usage
381
112
970
800
1,000
1,200
nutes
Time Spent on Digital Media By Platform
99% growth in total
minutes online, led
by 360% growth
from Smartphones
405
477
83
381
488
200
400
600
BillionMin
4
0
June 2010 US June 2013 US
Desktop Smartphone TabletSource: comScore, JMP Securities
Native Advertising Outlook for 2014 and Beyond
3. 3
Consumers Are Adopting The Mobile Web
Company Select Mobile Stats / Commentary
Facebook Mobile Ad Revs: $1.3 billion (59% of total revenue); 1 billion mobile MAUs
Yelp 61 million mobile monthly unique visitors, +52% Y/Y, ~46% total; 60% of searches from mobile
Zillow 2/3 of traffic from mobile; Mobile visits +100% Y/Y; 460M homes viewed on mobile
AOL Mobile usage: +80% Y/Y; Mobile ad revs: 100+% Y/Y; 50% of clients req x-screen campaignsAOL Mobile usage: +80% Y/Y; Mobile ad revs: 100+% Y/Y; 50% of clients req. x-screen campaigns
Priceline.com $8B in gross mobile transactions on Booking.com in 2013, up from $1B in 2011
Google ~40% of YouTube's videos viewed from mobile
eBay 61.3% of total customer adds from mobile representing 6.5 million new customers
Amazon com 50+% of Amazon holiday shoppers used mobile
5
Amazon.com 50+% of Amazon holiday shoppers used mobile
Expedia 125M cumulative mobile app downloads; 20+% of transactions from mobile
Yahoo 430 million mobile monthly unique visitors, +30% Y/Y; Tumblr mobile monthly users +71% Y/Y
Source: Company reports
And We Are Living In An Increasingly Connected World
Tesla PayPal’sTesla
Model SAndroid Wear
PayPal s
Beacon
Nike Plus
FitBit
6
Disney’s MyMagic+
Source: Motorola, Tesla, eBay, FitBit, Disney, Nike
Native Advertising Outlook for 2014 and Beyond
4. 4
Creating Significant Advertising Opportunities
We Project U.S. Internet Ads To Reach ~$50B in 2014
7
Source: JMP Securities
…Driven by Mobile, Video, Social, & Native
Rich Media
Search
Digital Video
Mobile
Lead Generation/E-mail
Classifieds / Auctions
Banner Ads
Mobile and Video are the fastest growing advertising
areas and Native Ads (as well as Social) are
embedded in them throughout
8
-20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Sponsorship
U.S. Online Advertising Spend Three-Year CAGR (2013-2016)
Source: JMP Securities
Native Advertising Outlook for 2014 and Beyond
5. 5
Yet The Market Is Still Catching Up To Mobile
42.2%
38.4%
24.8%
25.0%
30.0%
35.0%
40.0%
45.0% 2013 Consumer Time Vs. Ad Spend
21.5% 20.9%
9.9%
5.4%4.5%
12.2%
20.0%
5.0%
10.0%
15.0%
20.0%
25.0%
9
0.0%
TV Digital (ex-mobile) Print Radio Mobile
Spend Time
Source: eMarketer
So what is Native Advertising?
• Native Ads are naturally embedded into a sites content
stream and while clearly marked as an advertisement, they
are found to be more impactful than traditional banner ads.
• Naturally embedded within content
• Are targeted and contextually relevant ads
Said another way -- Native Ads are:
10
• Deliver higher conversion rates
• And are perfectly suited for social and mobile environments
Native Advertising Outlook for 2014 and Beyond
6. 6
Mobile Native Ad examples
Facebook Twitter GoogleFacebook Twitter Google
11
Source: Facebook, Twitter, Google
Yahoo!’s New Splash Ads & Pinterest’s Promoted Pins
Pinterest Promoted PinsYahoo! Splash Adp
12
Source: Pinterest, Yahoo!
Native Advertising Outlook for 2014 and Beyond
7. 7
What Internet Leaders are Saying About Native Ads
“News Feed ads have significantly higher engagement… We want to get to a state
where the ad content is getting as good as the organic content”
- Facebook
“I firmly believe that native advertising can be every bit as good as the content
itself”
“Showing native ads on mobile can actually increase revenue per page view [vs.
traditional display ads]”
- Yahoo! CEO Marissa Mayer
“folks who engaged with promoted Tweets, brand favorability was 30% higher,
purchase intent was 50% higher”
“you can reply, favorite, retweet a promoted Tweet … ads perform better when they
are content first”
- Twitter
13
Source: Company reports
What Does The Data Say?
14
Native Advertising Outlook for 2014 and Beyond
8. 8
Native Ads Have Higher Conversion Rates
15
Source: Yahoo!
Native Ads are More Engaging...
16
Source: Sharethrough, IPG Media labs, 2013
Native Advertising Outlook for 2014 and Beyond
9. 9
…More Social…
17
Source: Sharethrough, IPG Media labs, 2013
…41% of Brands and 34% of Agencies are using
Native Ad formats
18
Source: Hexagram and Spada, 2014
Native Advertising Outlook for 2014 and Beyond
10. 10
…With Awareness The Top Objective for Native Ads
19
Source: Sharethrough and eMarketer, September 2013
Effective Ad Formats Impact On Results
20
Native Advertising Outlook for 2014 and Beyond
11. 11
2Q13: Facebook’s Inflection Point Thanks To Native &
Mobile…Stock followed suit 80.0
40 0
50.0
60.0
70.0
ckPrice
10.0
20.0
30.0
40.0
FBStoc
FB ad revenue
growth
significantly
reaccelerates
Creating an
inflection point
in the stock
21
Source: Thomson Reuters and JMP Securities
Mobile Adoption Rewarded With Growth
Company Data Current ValuationCompany Data Current Valuation
2014E Revenue ’13-’14 Growth Market Cap EV/Rev 2015 EV/EBITDA 2015 TTM Stock Return
Facebook $12.0B 52.7% $167.6B 9.6x 15.6x +154%
Twitter $1.3B 190.9% $23.7B 16.1x 70.0x +44%
Yahoo! $4.5B 2.7% $35.8B 0.6x 1.9x +35%
AOL $1.8B -0.4% $3.3B 1.1x 5.6x +8.6%
22
Source: Thomson Reuters and JMP Securities
S&P 500 +19.7%
Native Advertising Outlook for 2014 and Beyond