ad:tech 2009
Feed Your Brain – An Update on the
Digital Economy

November 2009

Brian J. Pitz
Analyst
+1 212 713 9310
Bria...
Table of Contents


 1. General Global Internet User Snapshot                Pg 2

 2. Broadband / PC Penetration Driving ...
General Global Internet User Snapshot




                                        2
Internet User Growth – Plenty of Global Runway Remaining…

 ♦ We expect Internet penetration (desktop and mobile) to
     ...
Internet User Growth – Plenty of Global Runway Remaining…

 ♦ Internet Population Penetration across the Globe…




      ...
Global Internet Users
        Global Internet User Growth Forecasts: 2005-2010E
                                          ...
Broadband / PC Penetration Driving Global Internet Growth




                                                            6
U2: 10 Million Streams across 188 Countries…




                                               7
Search Becoming Even More Central to the User…

  ♦ Within the sea of information, users will need help
    finding inform...
GDP Per Capita ⇡≈ Broadband / PC Adoption ⇡
Increasing GDP per capita leads to higher broadband penetration rates, which w...
Broadband – An Indicator of PC-based Internet Growth
We view broadband penetration as a more useful indicator of PC Shipme...
Broadband Penetration Driving Secular Growth
500,000
450,000                                                              ...
Consumers Continue Shifting Time to the Internet…

    We all know by now that media consumption on the Internet is taking...
Our Time Online:
Social Connects / Entertainment & Leisure Increasing…

                 Share of Online Time (Global) ~ 2...
Some Facebook Stats from Oct 2009 – Web 2.0

  1) Over 1 MILLION developers on the platform;
  2) 250+ applications have o...
Online Advertising Update




                            15
11% Growth in US Online Ad Spend as Advertisers Follow Traffic
• Disconnect between ad dollars spent online and time spent...
Global Internet Advertising +13% ’09-11 CAGR vs. 5% for Industry

                                      Global Advertising...
UBS Global Advertising Model


Global Advertising Expenditure (USD Millions)                                              ...
Online Advertising by Vertical…


                       Pharma &               Other, 7%
                     Healthcare,...
US Online Ad Model: The Details

(US$ in Millions)               Q108A    Q208A    Q308A     Q408A    Q109A    Q209A    Q3...
Search, Rich Media, Video                        ⇡ / Classifieds, Sponsorships ⇣
                            U.S. Online A...
Premium CPMs Going to Vertical Inventory…




Source: Adify Q2 / 2009; Over 200 premium vertical ad networks are growing o...
Mobile Internet Update




                         23
The End of the “Walled Garden”…

     —   Over 2B downloads from the 85,000 apps in Apple’s store to
         50MM+ iPhone...
Phones vs. PCs…
 ♦ Among various demographics, mobile phone penetration is equal to or
    greater than Internet penetrati...
Text Nation…

                                                                                                 83%
     Te...
Mobile Internet Growth (with 4.1B TXT messages / day)




        Source: CTIA’s Semi-Annual Wireless Industry Survey 2009...
Consumerization of Digital Media Content
♦ We believe the next major milestone in the evolution of the mobile communicatio...
Global Handset Market – Phases of Differentiation
♦ Given the maturity of the mobile
   device market, the current debate
...
Two Areas of Handset Growth
Despite decelerating handset unit growth and weakness in 2009,
two segments are still expected...
Will Action / Acquisition (CPA) become the New Metrics
vs. Reach, Impressions or Clicks (CPM/CPC)???
         Time Horizon...
Mobile Banner Advertising – Mobile vs. Non-Mobile Categories




        Source: comScore Ad Metrix Mobile; Data: 3 month ...
A Quick Update on eCommerce…




                               33
eCommerce still an under-penetrated retail channel


     ♦ We expect eCommerce penetration of total retail to continue,
 ...
eCommerce still an under-penetrated retail channel
   ♦ Several categories are still in their nascent stages online
      ...
50% of Retailers Have Started ’09 Holiday Online Marketing

    Question: When Do You Plan to Start Your ONLINE Holiday Ma...
50%+ of Retailers Will Spend 11-30% of 2009 Budget on Holidays

        Question: What % of Your Total 2009 ONLINE Marketi...
Merchants Focusing on Leading Social Channels
    Question: Since last Holiday season, have you added or improved any of t...
Social, SEO and Email are Areas of Marketing Focus
 for the 2009 Holiday Season
      Question: For the 2009 Holiday seaso...
Appendix




           40
Mobile Handset Industry Summary
♦ Digital media content is becoming more pervasive in society
    —   Significant growth e...
Key Mobile Handset Industry Trends

♦ Focus on Data to Drive ARPU. With decreasing price per minute,
  roaming fees, etc, ...
Handsets a More Intimate / Compelling Forum?

                                 Mobile Scores for Branding Metrics
        ...
Contact Information – “Pitz & Fitz”
                 Brian J. Pitz
                 Analyst: Internet & Interactive Entert...
Coverage

♦ Internet
    —   AMZN – Buy Rating, $140 12-Month Price Target
    —   GSIC – Buy Rating, $26 12-Month Price T...
Internet / Interactive Entertainment – Estimates

($MMs, except EPS)                                                      ...
Internet / Interactive Entertainment – Valuation
                                                                         ...
Required Disclosures
This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries...
UBS Ad:Tech 2009
UBS Ad:Tech 2009
UBS Ad:Tech 2009
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UBS Ad:Tech 2009

  1. 1. ad:tech 2009 Feed Your Brain – An Update on the Digital Economy November 2009 Brian J. Pitz Analyst +1 212 713 9310 Brian.Pitz@ubs.com This report has been prepared by UBS Securities LLC. Brian P. Fitzgerald Analyst Certification and Required Disclosures Begin on Page 46 Analyst +1 212 713 2851 UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be Brian.Fitzgerald@ubs.com aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Kaizad Gotla Associate Analyst +1 212 713 2603 Kaizad.Gotla@ubs.com
  2. 2. Table of Contents 1. General Global Internet User Snapshot Pg 2 2. Broadband / PC Penetration Driving Internet Growth Pg 6 3. Online Advertising Update Pg 15 4. Mobile Update Pg 23 5. A Quick Update on eCommerce & Online Advertising Pg 33 6. Appendix Pg 40 1
  3. 3. General Global Internet User Snapshot 2
  4. 4. Internet User Growth – Plenty of Global Runway Remaining… ♦ We expect Internet penetration (desktop and mobile) to remain a growth driver for the industry Worldwide Internet Adoption (% of Total Population) 70% 62% 60% 59% 54% 56% 50% 46% 42% 40% 36% 30% 31% 24% 22% 20% 17% 18% 17% 14% 15% 12% 12% 10% 11% 7% 8% 10% 7% 9% 3% 5% 3% 4% 5% 2% 2% 0% 0% 1% 1% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Developed World Developing World Total Source: UBS, International Telecommunication Union 3
  5. 5. Internet User Growth – Plenty of Global Runway Remaining… ♦ Internet Population Penetration across the Globe… Source: UBS, Wikipedia 4
  6. 6. Global Internet Users Global Internet User Growth Forecasts: 2005-2010E 05-10E 2005 2006 2007 2008 2009 2010E CAGR Total Internet Users (MM) 1,039 1,148 1,266 1,432 1,669 1,835 12% North America 241 244 248 252 256 260 2% Europe 271 304 334 367 402 439 10% Asia/Pacific (including China, Japan 381 423 471 554 671 750 14% Rest of World 97 110 126 144 164 188 14% Latin America 50 67 86 115 176 198 32% 2005 2006E 2007E 2008E 2009E 2010E Total Internet Users Growth (Y/Y) 15% 11% 10% 13% 17% 10% North America 8% 2% 2% 2% 2% 2% Europe 15% 12% 10% 10% 9% 9% Asia/Pacific (including China, Japan 24% 11% 11% 17% 50% 12% Rest of World 12% 14% 14% 14% 14% 14% Latin America 6% 35% 28% 33% 54% 12% 2005 2006E 2007E 2008E 2009E 2010E Population (MM) 7,569 7,655 7,746 7,837 7,929 8,022 North America 321 324 327 330 333 336 Europe 585 586 586 587 587 588 Asia/Pacific (including China, Japan 4,381 4,422 4,467 4,511 4,556 4,601 Rest of World 1,841 1,877 1,913 1,950 1,988 2,027 Latin America 440 447 453 459 465 472 2005 2006E 2007E 2008E 2009E 2010E Internet User Penetration 14% 15% 16% 18% 21% 23% North America 75% 76% 76% 77% 77% 78% Europe 46% 52% 57% 63% 68% 75% Asia/Pacific (including China, Japan 9% 10% 11% 12% 18% 16% Rest of World 5% 6% 7% 7% 8% 9% Latin America 11% 15% 19% 25% 38% 42% 2005 2006E 2007E 2008E 2009E 2010E Share of Global Internet Users North America 23% 21% 20% 18% 15% 14% Europe 26% 26% 26% 26% 24% 24% Asia/Pacific (including China, Japan 37% 37% 37% 39% 40% 41% Rest of World 9% 10% 10% 10% 10% 10% Latin America 5% 6% 7% 8% 11% 11% Sources: UBS Investment Research; wikipedia; CNNIC; CIA Factbook; Computer Industry Almanac 5
  7. 7. Broadband / PC Penetration Driving Global Internet Growth 6
  8. 8. U2: 10 Million Streams across 188 Countries… 7
  9. 9. Search Becoming Even More Central to the User… ♦ Within the sea of information, users will need help finding information that’s important to them Source: Cisco 8
  10. 10. GDP Per Capita ⇡≈ Broadband / PC Adoption ⇡ Increasing GDP per capita leads to higher broadband penetration rates, which we view as a key indicator of PC adoption (both drivers of Internet growth). We note significant correlation between GDP per capita and Broadband Penetration rates in our sample, with an R2 of nearly 64%. While the R2 increases to 76% when South Korea is excluded. 100.0% 90.0% South Korea Hong Kong 80.0% 2 R = 0.6372 Broadband Penetration Taiwan 70.0% Singapore Australia Canada 60.0% Japan Western Europe United States 50.0% New Zealand 40.0% 30.0% Chile Argentina 20.0% China Malaysia Mexico Venezuela Peru Eastern Europe 10.0% Brazil Thailand India Philipines 0.0% $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 GDP Per Capita Source: UBS estimates, IMF, U.S. Census Bureau, IDC 9
  11. 11. Broadband – An Indicator of PC-based Internet Growth We view broadband penetration as a more useful indicator of PC Shipments (and therefore broadband / PC-based Internet growth) in emerging markets, given penetration is still low and it’s all about Internet access. Our sample of countries indicates a correlation between broadband penetration and PC shipments per capita, with an R2 of nearly 60%, and rising to 72% when South Korea is excluded. 25.0% R2 = 0.5974 United States 20.0% Singapore Australia PC Shipments Per Capita Canada New Zealand 15.0% Western Europe Hong Kong Taiwan Japan 10.0% Chile South Korea Malaysia Eastern Europe Brazil 5.0% Argentina Venezuela Mexico Thailand China Philipines Peru India 0.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Broadband Penetration Source: UBS estimates, IMF, U.S. Census Bureau, IDC 10
  12. 12. Broadband Penetration Driving Secular Growth 500,000 450,000 56,772 400,000 39,264 47,862 95,399 Broadband reaching 350,000 300,000 30,703 78,781 87,432 70% of households 250,000 23,309 68,421 FTTH within more mature 58,371 200,000 150,000 10,117 15,755 46,310 323,513 Cable markets (its been that 293,734 100,000 4,178 36,804 181,591 227,056 261,685 DSL way in Korea for 5+ 29,318 138,090 50,000 61,293 97,455 years…) 0 2003 2004 2005 2006 2007 2008 2009 2010 80.0% 69.9% 68.8% …while emerging 70.0% 2007 2010 markets driving 60.0% 53.9% 56.1% global growth of 50.0% broadband and 40.0% 32.4% 26.9% increased Internet 30.0% 24.6% 16.7% usage 20.0% 15.1% 13.8% 10.0% 0.0% Asia Pacific Europe N. America L. America EMEA Source: UBS estimates and company documents 11
  13. 13. Consumers Continue Shifting Time to the Internet… We all know by now that media consumption on the Internet is taking share from offline, particularly newspapers and magazines… …and we believe this trend will continue, if not accelerate, as waves of younger tech-savvy generations displace older generations… Average Time Spent with Media by US Consumers (hours per person per day) 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 07-'12 CAGR Television 4.17 4.22 4.25 4.37 4.42 4.42 4.39 4.38 4.38 4.38 4.37 -0.2% Broadcast & Satellite Radio 2.26 2.29 2.25 2.21 2.17 2.14 2.12 2.08 2.06 2.01 2.00 -1.4% Consumer Internet 0.39 0.42 0.45 0.47 0.50 0.52 0.54 0.56 0.59 0.61 0.64 4.5% Recorded Music 0.56 0.53 0.55 0.54 0.51 0.48 0.47 0.48 0.50 0.53 0.55 2.5% Daily Newspapers 0.52 0.53 0.53 0.51 0.49 0.47 0.45 0.44 0.42 0.42 0.41 -2.6% Out of Home 0.33 0.34 0.34 0.35 0.36 0.37 0.37 0.37 0.37 0.38 0.38 0.7% Consumer Magazines 0.33 0.33 0.34 0.34 0.34 0.34 0.35 0.34 0.34 0.33 0.33 -0.6% Consumer Books 0.29 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.29 -0.6% Video Games 0.19 0.21 0.22 0.20 0.21 0.23 0.28 0.31 0.34 0.36 0.38 10.0% Home Video 0.15 0.16 0.18 0.17 0.17 0.17 0.16 0.16 0.16 0.16 0.16 -0.7% Mobile 0.01 0.01 0.02 0.02 0.03 0.04 0.05 0.07 0.08 0.09 0.10 19.1% Yellow Pages 0.03 0.03 0.03 0.03 0.03 0.04 0.04 0.03 0.03 0.03 0.03 -4.2% Box Office 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.0% In-Flight Entertainment 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0% Total 9.3 9.4 9.5 9.6 9.6 9.6 9.6 9.6 9.6 9.6 9.7 0.3% Source: Veronis Suhler Stevenson, October 2008 12
  14. 14. Our Time Online: Social Connects / Entertainment & Leisure Increasing… Share of Online Time (Global) ~ 2009 All Other 36% Communications 21% Work, Business & Education 6% Social Connections 14% Entertainment & Leisure 17% Shopping & Travel 6% Definitions Social Connections: Social Netw orking Sites, Blogs, Discussion/Chat, Community Sites Shopping & Travel: Retail, Travel, Auctions, Automotive & Real Estate Entertainm ent & Leisure: Entertainment, including Multimedia & Streaming, Online Games and Gaming, Sports, Hobbies & Lifestyle Work, Business & Education: New s & Information, Business & Finance, Education, Career Services & Development, Government comScore Oct '09 13
  15. 15. Some Facebook Stats from Oct 2009 – Web 2.0 1) Over 1 MILLION developers on the platform; 2) 250+ applications have over 1 MILLION users each; 3) 45MM status updates daily from 30MM users; 4) Users spend 8 Billion minutes daily on the site; 5) 2 Billion pieces of content shared on the service (with 5 Billion API calls on a typical day); 6) 2 Billion photos uploaded a month (20 Billion in total); 7) During peaks – 1.2 MILLION photos a second are served; 8) 1.2 MILLION users for every engineer; 9) In a little over a year, growth from 100MM to 300MM daily active users 10) The fastest growing group is over 35 years old in the U.S. Source: Company reports 14
  16. 16. Online Advertising Update 15
  17. 17. 11% Growth in US Online Ad Spend as Advertisers Follow Traffic • Disconnect between ad dollars spent online and time spent online • Online ads are still just 9% of total advertising • Advertising dollars should follow audience (20-25% of media time spent online) • US Online ads should grow at an 11% compound rate from 2009 through 2011 • 1% ad budget shift online equals $2 billion more going to Internet US Online Advertising $30,000 12% $25,000 10% $20,000 8% $15,000 6% $10,000 4% $5,000 2% $0 0% 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E Ad Spend ($ MM) % of Total Adv ertising Source: UBS, IAB/PwC 16
  18. 18. Global Internet Advertising +13% ’09-11 CAGR vs. 5% for Industry Global Advertising Expenditure 100% Internet Outdoor 80% Cinema Newspapers 60% Magazine Radio 40% Television 20% 0% 1997 1999 2001 2003 2005 2007 2009E 2011E Source: UBS Investment Research 17
  19. 19. UBS Global Advertising Model Global Advertising Expenditure (USD Millions) CAGR (%) 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E '01-'11E 09-'11E Global Market Share of Advertisement Expenditure Television 37.9% 39.0% 39.3% 40.3% 39.5% 39.4% 39.0% 39.1% 39.3% 39.6% 39.5% Radio 8.6% 8.9% 8.7% 8.4% 8.2% 7.9% 7.6% 7.4% 7.2% 7.1% 6.9% Magazine 12.7% 12.2% 11.9% 11.4% 11.4% 11.0% 10.8% 10.6% 10.1% 9.9% 9.6% Newspapers 32.2% 31.5% 31.0% 29.8% 28.7% 27.6% 26.2% 24.7% 23.5% 22.7% 22.0% Cinema 0.4% 0.4% 0.4% 0.4% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Outdoor 5.5% 5.5% 5.4% 5.4% 5.8% 5.9% 6.1% 6.2% 6.2% 6.2% 6.2% Internet 2.7% 2.5% 3.3% 4.2% 5.9% 7.8% 9.8% 11.5% 13.2% 14.0% 15.2% Total market 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Advertising Expenditure Television 134,273 137,877 143,637 159,252 166,498 177,234 184,216 183,046 166,163 173,916 185,439 3.3% 5.6% Radio 30,530 31,452 31,896 33,179 34,453 35,475 35,948 34,727 30,339 31,107 32,418 0.6% 3.4% Magazine 44,853 43,056 43,517 45,161 47,951 49,622 51,080 49,376 42,831 43,446 45,155 0.1% 2.7% Newspapers 114,029 111,148 113,178 117,886 121,170 124,083 123,704 115,664 99,302 99,632 103,378 -1.0% 2.0% Cinema 1,447 1,447 1,542 1,760 1,929 2,026 2,247 2,339 2,217 2,334 2,507 5.7% 6.3% Outdoor 19,493 19,379 19,880 21,173 24,634 26,466 28,615 28,859 26,362 27,157 29,187 4.1% 5.2% Internet 9,444 8,948 11,964 16,586 25,027 34,999 46,362 53,980 55,693 61,624 71,328 22.4% 13.2% Total market 354,068 353,306 365,615 394,996 421,662 449,904 472,172 467,991 422,907 439,215 469,411 2.9% 5.4% Advertising Growth Television -5.1% 2.7% 4.2% 10.9% 4.5% 6.4% 3.9% -0.6% -9.2% 4.7% 6.6% Radio -5.8% 3.0% 1.4% 4.0% 3.8% 3.0% 1.3% -3.4% -12.6% 2.5% 4.2% Magazine -6.4% -4.0% 1.1% 3.8% 6.2% 3.5% 2.9% -3.3% -13.3% 1.4% 3.9% Newspapers -6.1% -2.5% 1.8% 4.2% 2.8% 2.4% -0.3% -6.5% -14.1% 0.3% 3.8% Cinema 2.5% 0.0% 6.6% 14.1% 9.6% 5.0% 11.0% 4.1% -5.2% 5.3% 7.4% Outdoor 0.3% -0.6% 2.6% 6.5% 16.3% 7.4% 8.1% 0.9% -8.7% 3.0% 7.5% Internet -8.2% -5.3% 33.7% 38.6% 50.9% 39.8% 32.5% 16.4% 3.2% 10.6% 15.7% All Media -5.5% -0.2% 3.5% 8.0% 6.8% 6.7% 4.9% -0.9% -9.6% 3.9% 6.9% 18
  20. 20. Online Advertising by Vertical… Pharma & Other, 7% Healthcare, 4% Retail, 22% Entertainment, 4% CPG, 6% Media, 5% Leisure Travel, 6% Financial Services, 13% Telecom, 9% Computing, 12% Automotive, 12% Source: UBS Investment Research 19
  21. 21. US Online Ad Model: The Details (US$ in Millions) Q108A Q208A Q308A Q408A Q109A Q209A Q309E Q409E 2007 2008 2009E 2010E 2011E 09-11 CAGR Search 2,537 2,528 2,627 2,806 2,570 2,553 2,787 3,084 8,695 10,498 10,994 12,337 14,104 growth Y/Y 23.2% 24.1% 25.1% 12.4% 1.3% 1.0% 6.1% 9.9% 28.8% 20.7% 4.7% 12.2% 14.3% 13.3% % of Total Spend 44.0% 44.0% 45.0% 46.0% 47.0% 47.0% 47.5% 48.0% 41.0% 44.8% 47.4% 49.0% 49.8% Classified (& auctions) 807 804 817 793 601 598 616 643 3,393 3,222 2,458 2,392 2,407 growth Y/Y -3.1% -7.1% -5.1% -4.7% -25.5% -25.7% -24.6% -19.0% 11.3% -5.0% -23.7% -2.7% 0.6% -1.0% % of Total Spend 14.0% 14.0% 14.0% 13.0% 11.0% 11.0% 10.5% 10.0% 16.0% 13.7% 10.6% 9.5% 8.5% Sponsorship 115 115 117 61 109 109 117 129 636 408 464 504 595 growth Y/Y -21.5% -24.8% -26.1% -65.8% -5.2% -5.4% 0.5% 110.7% 22.6% -35.9% 13.7% 8.6% 18.1% 13.2% % of Total Spend 2.0% 2.0% 2.0% 1.0% 2.0% 2.0% 2.0% 2.0% 3.0% 1.7% 2.0% 2.0% 2.1% Banner 1,211 1,206 1,197 1,251 1,105 1,168 1,232 1,336 4,714 4,864 4,841 5,262 5,947 growth Y/Y 23.8% 7.7% 8.2% -17.1% -8.8% -3.2% 3.0% 6.9% 26.9% 3.2% -0.5% 8.7% 13.0% 10.8% % of Total Spend 21.0% 21.0% 20.5% 20.5% 20.2% 21.5% 21.0% 20.8% 22.2% 20.7% 20.9% 20.9% 21.0% Rich Media 404 402 409 427 383 380 411 450 1,696 1,641 1,624 1,813 2,096 growth Y/Y 17.8% 12.8% -11.4% -20.2% -5.2% -5.4% 0.5% 5.3% 43.5% -3.2% -1.1% 11.7% 15.6% 13.6% % of Total Spend 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 8.0% 7.0% 7.0% 7.2% 7.4% Video 173 172 175 171 219 217 235 257 424 691 928 1,133 1,359 growth Y/Y 253.5% 238.3% -14.7% 43.6% 26.5% 26.1% 34.0% 50.5% 63.0% 34.2% 22.1% 20.0% 21.1% % of Total Spend 3.0% 3.0% 3.0% 2.8% 4.0% 4.0% 4.0% 4.0% 2.0% 2.9% 4.0% 4.5% 4.8% Email 115 115 117 122 82 76 106 116 424 469 379 403 453 growth Y/Y 17.7% 12.8% 10.9% 2.6% -28.9% -33.8% -9.5% -5.2% 25.6% 10.6% -19.1% 6.2% 12.5% 9.3% % of Total Spend 2.0% 2.0% 2.0% 2.0% 1.5% 1.4% 1.8% 1.8% 2.0% 2.0% 1.6% 1.6% 1.6% Referrals/Lead Generation 404 402 409 427 399 331 364 411 1,484 1,641 1,506 1,334 1,359 growth Y/Y 3.2% -1.3% 51.5% 2.6% -1.1% -17.6% -11.0% -3.7% 11.9% 10.6% -8.3% -11.4% 1.9% -5.0% % of Total Spend 7.0% 7.0% 7.0% 7.0% 7.3% 6.1% 6.2% 6.4% 7.0% 7.0% 6.5% 5.3% 4.8% Total Online Spend ($MM) 5,765 5,745 5,838 6,100 5,468 5,432 5,868 6,425 21,206 23,448 23,193 25,177 28,321 growth Y/Y 17.7% 12.8% 10.8% 2.6% -5.2% -5.4% 0.5% 5.3% 25.6% 10.6% -1.1% 8.6% 12.5% 10.5% Source: UBS Investment Research 20
  22. 22. Search, Rich Media, Video ⇡ / Classifieds, Sponsorships ⇣ U.S. Online Advertising Composition $B Email 100% Sponsorship Referrals/Lead Generation Video Rich Media 80% Classified (& auctions) Banner 60% 40% Search 20% 0% 2007 2008 2009E 2010E 2011E Source: UBS Investment Research; IAB 21
  23. 23. Premium CPMs Going to Vertical Inventory… Source: Adify Q2 / 2009; Over 200 premium vertical ad networks are growing on the Adify Network Builder Platform. Since Adify serves advertising directly to the 12,000 sites in those networks, Adify can track and analyze CPM trends across verticals. The data in this report reflects all campaigns that have been served by Adify’s IAB ad measurement audited and certified technology since October 1, 2008. The data is analyzed quarterly as part of the Adify Vertical Gauge (AVG) report. 22
  24. 24. Mobile Internet Update 23
  25. 25. The End of the “Walled Garden”… — Over 2B downloads from the 85,000 apps in Apple’s store to 50MM+ iPhone/iPod Touch customers; 125K developers in the iPhone program — Carriers/device makers developing their own platforms — Subscribers purchase service based on available apps (voice just one on the list), carriers risk disintermediation Downloads from the Apple App Store 2B on 9/28/09!!! 2000 1750 1500 Dow nloads (M) 1250 1000 750 500 250 0 10/11/08 11/11/08 12/11/08 7/11/08 8/11/08 9/11/08 1/11/09 2/11/09 3/11/09 4/11/09 5/11/09 6/11/09 7/11/09 8/11/09 9/11/09 Source: UBS estimates and company documents 24
  26. 26. Phones vs. PCs… ♦ Among various demographics, mobile phone penetration is equal to or greater than Internet penetration ♦ Certainly, in emerging markets, the first experience with the Internet will be over the mobile phone… 87% 18-24 year olds 83% ("Gen Y") Internet Penetration 65% 65% 25-44 year olds ("Gen X") 45-54 year olds ("Young Boomers") 85% Mobile 84% 55-64 year olds Phone 84% ("Old Boomers") Penetration 79% Source: InsightExpress Digital Consumer Portrait, Jun 2009 25
  27. 27. Text Nation… 83% Texting 65% 52% 33% 19% 23% Internet 12% 4% 20% Weekly Usage of Mobile 21% Video 8% 18-24 year olds 3% 14% 25-44 year olds 14% Applications 5% 45-54 year olds 4% 55-64 year olds 7% 10% Games 1% 1% Source: InsightExpress Digital Consumer Portrait, Jun 2009 26
  28. 28. Mobile Internet Growth (with 4.1B TXT messages / day) Source: CTIA’s Semi-Annual Wireless Industry Survey 2009 27
  29. 29. Consumerization of Digital Media Content ♦ We believe the next major milestone in the evolution of the mobile communications industry will be based on the extension of mobility to consumers’ digital media. ♦ This has been occurring, which has allowed more mobile device manufacturers the opportunity to drive higher levels of differentiation in their devices. ♦ Differentiation has largely been in terms of form factor, aesthetics, applications, and man-machine interfaces, which both impact the device’s ease of use and perceived utility. ♦ RIM & Apple have raised the bar in the industry and driven differentiation, but competition is increasing ♦ Operators are also getting into the content game and may compete against handset vendors Source: UBS estimates 28
  30. 30. Global Handset Market – Phases of Differentiation ♦ Given the maturity of the mobile device market, the current debate is whether the market has commoditized. ♦ Devices predominantly addressing industry secular growth (now primarily emerging markets) have become increasingly commoditized, with price now the key differentiator. ♦ We believe the replacement segment of the market experiences periods of different levels of differentiation, and, in turn, varying degrees of 1990 1995 2000 2007 2010 commoditization. ♦ Differentiation comes in three areas: 1) Industrial design 2) Technology 3) User experience (ease of use) ♦ New applications such as music, imaging, and navigation have helped to increase some differentiation in the market. 29
  31. 31. Two Areas of Handset Growth Despite decelerating handset unit growth and weakness in 2009, two segments are still expected to see growth: 400.0 3G handsets 350.0 CAGR of 62% ♦ 3G: expected CAGR of 62% driven 300.0 by upgrade sales in developed 250.0 200.0 markets. Qualcomm will benefit 150.0 from WCDMA chipset sales and 100.0 royalty income. 50.0 0.0 2005 2006 2007 2008 2009E 200.0 180.0 Converged devices ♦ Converged Devices: expected 160.0 CAGR of 36% CAGR of 36% driven by mobile 140.0 120.0 applications. This is a great 100.0 opportunity for RIMM given the 80.0 60.0 company’s unique operating model 40.0 and strong brand in the converged 20.0 0.0 devices market. 2005 2006 2007 2008E 2009E Sources: Company data, UBS estimates 30
  32. 32. Will Action / Acquisition (CPA) become the New Metrics vs. Reach, Impressions or Clicks (CPM/CPC)??? Time Horizon for Shifting from Impression-Based to Impact-Based Adverting 1 Year, 5% 93% say the Never, 7% shift will happen in the next 3 to Shift Already Started, 13% 5 years 3 Years, 48% 5 Years, 33% Source: Velti / IBM advertising industry executive interviews and panel discussions 31
  33. 33. Mobile Banner Advertising – Mobile vs. Non-Mobile Categories Source: comScore Ad Metrix Mobile; Data: 3 month average ending June 2009 (US) 32
  34. 34. A Quick Update on eCommerce… 33
  35. 35. eCommerce still an under-penetrated retail channel ♦ We expect eCommerce penetration of total retail to continue, reaching 4-5% by 2011-2013. We conservatively expect this number to reach at least 15%+ over time ♦ As a comparison, catalog retail is currently roughly 4% of US retail, though the online channel has lower barriers to entry and offers a virtually unlimited selection and on-demand access F2008 F2009 Q1 08A Q2 08A Q3 08A Q4 08A Q1 09A Q2 09A Q3 09E Q4 09E F2007A F2008A F2009E F2010E Total US Retail Sales $1,012,727 $1,015,423 $998,689 $925,889 $909,867 $906,016 $985,706 $960,147 $3,997,706 $3,952,728 $3,761,736 $3,863,303 % Y/Y Growth 2.5% 2.3% 0.1% -9.1% -10.2% -10.8% -1.3% 3.7% 3.1% -1.1% -4.8% 2.7% Total US Retail eCommerce Sales $33,543 $33,889 $33,494 $31,482 $31,708 $32,404 $34,931 $34,471 $126,224 $132,408 $133,515 $145,212 % Y/Y Growth 12.9% 8.7% 4.7% -5.6% -5.5% -4.4% 4.3% 9.5% 18.4% 4.9% 0.8% 8.8% eCommerce Penetration - % of Retail 3.3% 3.3% 3.4% 3.4% 3.5% 3.6% 3.5% 3.6% 3.2% 3.3% 3.5% 3.8% Y/Y Penetration Increases 0.31% 0.20% 0.15% 0.13% 0.17% 0.24% 0.19% 0.19% 0.41% 0.19% 0.20% 0.21% Source: UBS; US Department of Commerce; Does not include auctions, travel, financial services, or event ticket sales -- http://www.census.gov/mrts/www/ecomm.html; eCommerce sales are goods and services where an order is placed by the buyer or price and terms of sale are negotiated over an Internet, extranet, EDI network, e-mail, or other online system. Payment may or may not be made online 34
  36. 36. eCommerce still an under-penetrated retail channel ♦ Several categories are still in their nascent stages online 30.9 30.1 $30.0 $25.0 2008 - $141 Billion (ex Travel) 22.5 2009E - $156 Billion (ex Travel) $20.0 2010E $177 Billion (ex Travel) 14.6 $15.0 10.3 $10.0 7.5 7.6 6.9 7.1 5.6 5.9 6 $5.0 4 4.2 3.2 2.3 2.7 2.1 2.2 1.2 $0.0 ts lry ts ts s s ts Pets Parts r ure eo ames onics ear erals re e ent ment Othe Book ctible verag Ticke Ticke & Gif uc al Ca Jewe & Vid m Furnit Footw Prod eriph prove Equip Electr eo G Auto Colle & Be ards son nt Movie Music Office r Eve &P ries & & Vid Im / Per & umer ers, C Art & Food oods ome SW) Othe o OTC Toys Cons ccess Flow s&H ting G (HW/ rel, A ance puter Spor Appa Appli Com Source: UBS, Shop.org – State of Retail Online 2009 35
  37. 37. 50% of Retailers Have Started ’09 Holiday Online Marketing Question: When Do You Plan to Start Your ONLINE Holiday Marketing & Promotion Campaigns? Week of Nov 23 or Later Oct 5 or Earlier Week of Nov 16 3% 10% 10% Week of Nov 9 Week of Oct 12 8% 15% Week of Oct 19 Week of Nov 2 16% 28% Week of Oct 26 10% Source: UBS, Shop.org – Pre-Holiday Consumer & Retailer Results – eHoliday 2009 36
  38. 38. 50%+ of Retailers Will Spend 11-30% of 2009 Budget on Holidays Question: What % of Your Total 2009 ONLINE Marketing Budget is Dedicated Specifically to the Holidays? 50%+ of Total 2009 1-5% of Total 2009 Online Marketing Online Marketing 41-50% of Total 2009 Budget, 5% Budget, 5% Online Marketing 6-10% of Total 2009 Budget, 11% Online Marketing Budget, 12% 31-40% of Total 2009 Online Marketing Budget, 11% 11-20% of Total 2009 Online 21-30% of Total Marketing Budget, 2009 Online 30% Marketing Budget, 26% Source: UBS, Shop.org – Pre-Holiday Consumer & Retailer Results – eHoliday 2009 37
  39. 39. Merchants Focusing on Leading Social Channels Question: Since last Holiday season, have you added or improved any of the following marketing and / or promotions that you feel will drive improved holiday sales this year?. Site Ev ent / Action-triggered Email Dy namic Customized / Personalized Email Tw itter Facebook Page 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Added New in 2009 Improved / Enhanced in 2009 Offered, but No Substantial Change in 2009 Do Not Offer / Use Source: UBS, Shop.org – Pre-Holiday Consumer & Retailer Results – eHoliday 2009 38
  40. 40. Social, SEO and Email are Areas of Marketing Focus for the 2009 Holiday Season Question: For the 2009 Holiday season, please indicate for each of the following ONLINE marketing options whether you plan to increase, decrease or keep at the same level that you have used to date (Jan to Oct) in 2009. Social Shopping websites Blogs / RSS Feeds Word of Mouth / Viral Affiliate & Loyalty SEM (paid) Email SEO (organic) Twitter Facebook, MySpace 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Increase Keep the Same Decrease Won't Use Source: UBS, Shop.org – Pre-Holiday Consumer & Retailer Results – eHoliday 2009 39
  41. 41. Appendix 40
  42. 42. Mobile Handset Industry Summary ♦ Digital media content is becoming more pervasive in society — Significant growth expected in new forms of digital media content — Music, digital TV (Personal Video Recorders and Video on Demand), radio, pictures, games ♦ Mobile communications will evolve to support access to consumer digital content — After 20 years of supporting voice, mobile networks now evolving to support broadband applications, WCDMA the first step in the process with HSDPA seen as the key enabler . . . — Vendor consolidation occurring through “natural selection”, not M&A — Continued growth in emerging markets as teledensity improves ♦ Mobile device market in a transition phase, waiting for new applications to take hold — New entrants raising the bar in the industry (RIM, Apple, etc.) — Higher differentiation is returning to the replacement market with the balance of power shifting to handset vendors. However, this cycle will likely fade in the coming year or two 41
  43. 43. Key Mobile Handset Industry Trends ♦ Focus on Data to Drive ARPU. With decreasing price per minute, roaming fees, etc, operators focus on data to help offset declines in voice ARPU. ♦ Higher Subsidies for Handsets that Drive ARPU. Apple changed the game for smartphone pricing. RIM is already competitively priced. Other vendors must prove they can drive ARPU to get similar subsidies to be competitive or risk either market share losses or margin contraction. ♦ At the Expense of Older Handsets. We believe operators are less aggressively pushing older handsets to focus on newer, differentiated products. 42
  44. 44. Handsets a More Intimate / Compelling Forum? Mobile Scores for Branding Metrics Limited Advertising Real Estate / Lack of Clutter is a Benefit 20 16.5 16 Mobile Norms Online Norms 10.7 10.5 12 9.1 8.6 8 4.9 4 2.7 2.2 2.7 2 0 Unaided Aided Awareness Ad Awareness Brand Favorability Purchase Intent Awareness Source: Source: InsightExpress: InsightNorms; Respondent: Mobile N = 47,658; Online N = 51,3973 43
  45. 45. Contact Information – “Pitz & Fitz” Brian J. Pitz Analyst: Internet & Interactive Entertainment +1-212-713 9310 (w) +1-917-696 9977 (m) brian.pitz@ubs.com Brian J. Pitz is an Executive Director and a senior analyst in the Communications Group of UBS Investment Research, where he covers the Internet and Interactive Entertainment. Previously, he was a Principal and senior research analyst covering the Internet at Banc of America Securities LLC. Prior to that, Brian was a Vice President at Morgan Stanley co-covering the Internet & PC Applications Software, while lead covering Interactive Entertainment. Early in his career at Morgan Stanley, Brian was part of the number one ranked Broadcasting research team in Institutional Investor’s All-America rankings in 1998, 1999, 2000 and 2001. Later, he was a co-leader of the top ranked Internet research team in Institutional Investor and Greenwich in 2004 and 2005. Brian commenced his professional career in the Business Consulting practice of Arthur Andersen LLP in New York. Brian received a Bachelor of Science degree in Accountancy from Villanova University. Brian P. Fitzgerald Analyst: Internet & Interactive Entertainment +1-212-713 2851 (w) +1-917-749 1103 (m) brian.fitzgerald@ubs.com Brian P. Fitzgerald is a Director and an analyst in the Communications Group at UBS Investment Research, where he covers the Internet and Interactive Entertainment. Previously, he was a Vice President and research analyst covering the Internet at Banc of America Securities LLC. Prior to that, Brian was a Vice President at Morgan Stanley co-covering the Internet & PC Applications Software and Interactive Entertainment sectors since 2000. There, he was a member of the top ranked Internet research team in the annual Institutional Investor poll and Greenwich Survey. Before his move into equity research, Brian was a manager in the Client Technology group of Morgan Stanley's Information Technology division. Before starting his corporate career, he was a helicopter pilot and officer in the US Army. Fitzgerald received a Bachelor of Science degree in Mathematical Economics and Computer Science from the United States Military Academy at West Point and an MBA with a concentration in Finance from New York University's Stern School of Business. UBS Securities LLC 1285 Avenue of the Americas New York, NY 10019 Tel: +1-212-713-2000 www.ubs.com 44 UBS Securities LLC is a subsidiary of UBS AG.
  46. 46. Coverage ♦ Internet — AMZN – Buy Rating, $140 12-Month Price Target — GSIC – Buy Rating, $26 12-Month Price Target — GOOG – Buy Rating, $635 12-Month Price Target — EBAY – Buy Rating, $30 12-Month Price Target — IACI – Buy Rating, $24 12-Month Price Target — YHOO – Neutral Rating, $18 12-Month Price Target — NFLX – Neutral Rating, $50 12-Month Price Target — VCLK – Neutral Rating, $11 12-Month Price Target ♦ Interactive Entertainment — ATVI – Buy Rating, $15 12-Month Price Target — ERTS – Buy Rating, $28 12-Month Price Target 45
  47. 47. Internet / Interactive Entertainment – Estimates ($MMs, except EPS) 1 2 Revenue EBITDA EPS FCF 09E Margin Ticker Rating Market Cap UBS Estimate Consensus UBS Estimate Consensus UBS Estimate Consensus Gross Operating Company 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E 2009E 2010E Interactive Entertainment Activision ATVI Buy $13,767 $4,576 $5,478 $4,560 $5,123 $1,132 $1,427 $1,382 $1,578 $0.64 $0.84 $0.64 $0.77 $1,584 $1,355 53.1% 23.2% Electronic Arts ERTS Buy 5,727 4,322 4,768 4,276 4,446 410 706 590 725 1.06 1.33 0.90 1.20 (871) 339 51.6 6.7 GameStop GME NR 3,949 - - 9,042 9,536 - - 866 960 - - 2.52 2.87 374 479 - - TakeTwo TTWO NR 875 - - 993 1,246 - - (38) 79 - - (0.84) 0.66 (50) 84 - - THQ Interactive THQI NR 337 - - 855 902 - - 30 47 - - 0.15 0.34 (11) 20 - - Advertising & Related Services Google GOOG Buy 172,441 17,466 20,541 17,376 20,293 10,974 13,232 10,884 12,626 22.74 27.08 22.77 26.31 7,565 8,768 85.1 54.0 Yahoo! YHOO Neutral 22,562 4,685 4,903 4,654 4,841 1,709 1,886 1,145 1,338 0.61 0.65 0.42 0.46 1,047 1,140 76.9 20.7 IAC / InterActiveCorp IACI Buy 2,680 1,362 1,437 1,348 1,419 168 215 158 191 0.31 0.79 0.50 0.72 304 143 66.4 7.6 WebMD WBMD NR 1,571 - - 429 485 - - 88 111 - - 0.61 0.81 40 48 - - ValueClick VCLK Neutral 1,633 541 569 529 534 138 155 126 126 0.63 0.56 0.74 0.64 154 94 66.7 23.9 comScore SCOR NR 450 - - 128 145 - - -- -- - - 0.12 0.27 -- -- - - Marchex MCHX NR 161 - - 89 89 - - 11 11 - - 0.09 0.10 -- -- - - eCommerce Amazon.com AMZN Buy 52,232 24,110 30,640 23,760 29,581 1,868 2,549 1,484 1,841 1.91 2.82 1.87 2.50 2,225 3,265 22.4 4.8 eBay EBAY Buy 30,646 8,650 9,141 8,644 9,044 3,069 3,361 3,015 3,244 1.53 1.73 1.54 1.62 2,452 2,847 72.6 29.7 Digital River DRIV NR 861 - - 395 357 - - 108 93 - - 1.81 1.49 54 54 - - Mercado Libre MELI NR 1,677 - - 171 234 - - 53 77 - - 0.66 0.91 25 38 - - GSI Commerce GSIC Buy 935 974 1,296 980 1,262 102 133 79 119 ($0.13) 0.17 (0.14) 0.21 54 85 60.0 2.8 Drugstore.com DSCM NR 268 - - 404 450 - - 5 15 - - (0.02) 0.01 -- -- - - Online Entertainment Netflix NFLX Neutral 3,221 1,673 2,090 1,672 2,048 237 283 224 262 1.90 2.12 1.89 2.23 158 233 34.4 7.2 Blockbuster BBI NR 159 - - 4,354 4,205 - - 274 276 - - (0.03) 0.10 113 135 - - (1) All figures represent "Operating EPS", defined to excludes SBC and 1x items as per Mgmt, except the following companies which are GAAP: VCLK, AMZN, GSIC, NFLX, YHOO (2) FCF for non-covered companies are FirstCall means (3) ERTS 2009E = Fiscal year ending 05/2010; 2010E = Fiscal Year ending 05/2011 Source: UBS, FirstCall, and FactSet 46
  48. 48. Internet / Interactive Entertainment – Valuation Firm Firm Value / 09-12E 09-12E 2010E 09-12E 2010E Price Upside to 1 Price YTD Value EBITDA EBITDA Price / Earnings EPS P/E to Price / FCF / share FCF FCF Target Target Company Ticker Rating 11/04/09 Performance ($MMs) 2009E 2010E CAGR 2009E 2010E CAGR Growth 2009E 2010E CAGR Yield (%) Interactive Entertainment Activision ATVI Buy $10.68 $15 45% 23% $10,921 10x 8x 17% 17x 13x 19.5% 0.6 9x 10x (7%) 9.7% Electronic Arts ERTS Buy $17.73 28 56 11% 3,928 10 6 33 17 13 15 0.9 -- 17 (163) 5.8% GameStop GME NR $23.74 - - 11% 4,247 5 4 - 9 8 -- -- 10 8 -- 12.3% TakeTwo TTWO NR $11.09 - - 45% 839 -- 11 - -- 17 -- -- -- 11 -- 9.5% THQ Interactive THQI NR $5.02 - - 19% 179 6 4 - 34 15 -- -- -- 17 -- 5.8% weighted average 19% 8 7 15 12 13 0.5 7 11 -36 9.5% mean 22% 8 6 19 13 17 0.8 10 13 -85 8.6% Advertising & Related Services Google GOOG Buy $540.33 635 17 75% 150,336 14 11 20 24 20 20 1.0 23 20 18 5.1% Yahoo! YHOO Neutral $15.69 18 12 29% 10,194 6 5 9 26 24 15 1.6 21 20 5 5.1% IAC / InterActiveCorp IACI Buy $18.98 24 29 21% 768 5 4 19 60 24 47 0.5 9 18 (10) 5.6% WebMD WBMD NR $35.60 - - 45% 1,654 19 15 - 58 44 -- -- 41 34 -- 2.9% ValueClick VCLK Neutral $9.84 13 28 42% 1,474 11 9 6 16 17 12 1.4 6 9 (14) 10.7% comScore SCOR NR $15.39 - - 19% 367 -- -- - 124 57 -- -- -- -- -- -- Marchex MCHX NR $4.52 - - -24% 132 12 12 - 53 43 -- -- -- -- -- -- weighted average 79% 15 12 27 22 18 0.9 26 21 15 4.8% mean 48% 15 12 47 31 24 1.1 26 23 0 5.4% eCommerce Amazon.com AMZN Buy $117.10 140 20 131% 48,347 26 19 29 61 41 38 1.1 23 16 30 6.3% eBay EBAY Buy $22.55 30 31 61% 24,372 8 7 9 15 13 11 1.2 12 10 9 9.5% Digital River DRIV NR $24.75 - - -10% 458 4 5 - 14 17 -- -- 18 18 -- 5.7% Mercado Libre MELI NR $38.36 - - 132% 1,645 31 21 - 59 42 -- -- 69 44 -- 2.3% GSI Commerce GSIC Buy $18.37 26 39 78% 975 10 7 17 -- 105 -- -- -- 19 21 5.3% Drugstore.com DSCM NR $2.70 - - 116% 234 45 16 - -- 540 -- -- -- -- -- -- weighted average 107% 20 15 45 35 27 1.1 20 15 22 7.1% mean 85% 23 15 44 105 25 1.1 30 21 20 5.8% Online Entertainment Netflix NFLX Neutral $54.16 50 -8 80% 3,103 13 11 21 28 26 17 1.5 20 14 14 7.0% Blockbuster BBI NR $0.88 - - -35% 994 4 4 - -- 9 -- -- weighted average 52% 11 9 22 21 13 1.2 15 11 10 5.3% mean 22% 8 7 28 17 17 1.5 20 14 14 7.0% (1) Firm Value equal to Equity Value plus straight and convertible debt, straight and convertible preferred stock, and minority interest less cash and cash equivalents, marketable securities, and equity in unconsolidated affiliates. Yahoo! Firm Value adju Valuation metrics of non-covered companies are based on FirstCall mean estimates (3) ERTS 2009E = Fiscal year ending 05/2010; 2010E = Fiscal Year ending 05/2011 Source: UBS, FirstCall and FactSet 47
  49. 49. Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Investment Research: Global Equity Rating Allocations 1 2 UBS 12-Month Rating Rating Category Coverage IB Services Buy Buy 44% 38% Neutral Hold/Neutral 39% 36% Sell Sell 17% 25% 3 4 UBS Short-Term Rating Rating Category Coverage IB Services Buy Buy less than 1% 33% Sell Sell less than 1% 33% 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. Source: UBS. Rating allocations are as of 30 June 2009. UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. 48

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