The Top Ten Internet Trends in 2013

20,971 views

Published on

Published in: Business, Economy & Finance
0 Comments
18 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
20,971
On SlideShare
0
From Embeds
0
Number of Embeds
16,215
Actions
Shares
0
Downloads
0
Comments
0
Likes
18
Embeds 0
No embeds

No notes for slide

The Top Ten Internet Trends in 2013

  1. 1. EQUITY I RESEARCHAd Age Digital Conference 2013The Top Ten Internet Trends in 2013RBC Capital Markets, LLCMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.comAndré Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.comBrian Peak (Associate) (212) 548-3183 brian.peak@rbccm.comKevin Potterton (Associate) (212) 428-6489 kevin.potterton@rbccm.comApril 16, 2013This report is priced as of market close April 9, 2013 EST.All values in U.S. dollars unless otherwise noted.For Required Conflicts Disclosures, please see page 34.
  2. 2. AgendaI. Internet Sector Coverage & CompsII. GOOG and FB Drill DownIII. 2013 U.S. Internet Sector OutlookIV. Top 10 Internet Trends in 2013V. RBC’s Top 3 Internet Stock Picks…GOOG, PCLN, AMZNMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 2André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  3. 3. Internet Sector Coverage & Comps
  4. 4. Internet Sector Coverage Company Name Ticker Price Rating Target Price Active Network ACTV $4.16 OP $8 Amazon AMZN $261.14 OP $330 Angies List ANGI $19.34 SP $18 AOL AOL $39.28 OP $45 Bankrate RATE $11.75 SP $11 Blue Nile NILE $32.28 OP $38 Demand Media DMD $8.23 OP $13 eBay EBAY $56.07 OP $64 Expedia EXPE $62.43 SP $73 Facebook FB $26.59 OP $32 Google GOOG $777.65 OP $950 Groupon GRPN $5.94 SP $5 IAC/InterActiveCorp IACI $44.50 OP $56 Liquidity Services LQDT $33.07 OP $46 LinkedIn LNKD $172.07 SP $190 Marchex MCHX $4.01 SP $4 Netflix NFLX $169.36 OP $210 Priceline PCLN $696.13 OP $900 Shutterstock SSTK $42.53 OP $35 TripAdvisor TRIP $48.29 SP $45 Trulia TRLA $31.80 OP $41 Velti VELT $1.92 SP $3 Web.com WWWW $16.55 OP $20 Yahoo! YHOO $23.83 OP $24 Yelp YELP $24.62 SP $26 Zillow Z $54.14 OP $60 Source: RBC Capital Markets *VELT, MCHX, and Z are rated Speculative RiskMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 4André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  5. 5. Sector Coverage Comps TableComparable Valuation Analysis(in millions, except per share amounts) Shares Market Adjusted P/E EV/EBITDA FCF/EV YieldCompany Ticker Price Outstanding Cap (USD) EV (USD) FY13E FY13E FY13EActive Network, Inc. ACTV $4.16 60.42 251.36 192.87 N/M 3.8x 8.4%Amazon.com, Inc. AMZN $261.14 461.00 120,385.54 112,021.54 89.5x 20.0x 3.9%Angies List Inc. ANGI $19.34 57.89 1,119.57 1,091.80 N/M N/M N/MAOL Inc. AOL $39.28 88.10 3,460.57 2,993.97 27.0x 7.1x 9.1%Bankrate, Inc. RATE $11.75 100.10 1,176.19 1,286.55 24.0x 11.5x 4.8%Blue Nile, Inc. NILE $32.28 12.76 411.80 324.78 29.5x 13.0x 8.3%Demand Media, Inc. DMD $8.23 88.44 727.89 624.96 21.2x 5.5x 6.9%eBay, Inc. EBAY $56.07 1,318.00 73,900.26 65,967.26 20.5x 12.4x 4.7%Expedia, Inc. EXPE $62.43 140.76 8,787.40 8,396.12 19.4x 9.3x 11.9%Facebook, Inc. FB $26.59 2,506.00 66,634.54 52,708.54 48.4x 14.4x 3.0%Google Inc. GOOG $777.65 334.98 260,494.86 220,931.86 17.0x 9.8x 6.6%Groupon, Inc. GRPN $5.94 655.68 3,894.73 2,685.44 56.5x 8.8x 1.1%IAC/InterActiveCorp IACI $44.50 94.27 4,194.88 4,020.14 11.8x 6.2x 11.7%Liquidity Services, Inc. LQDT $33.07 33.05 1,093.10 1,047.21 15.1x 8.1x 7.8%LinkedIn Corp. LNKD $172.07 114.10 19,632.33 18,882.78 134.3x 53.9x 0.7%Marchex, Inc. MCHX $4.01 40.37 161.90 31.37 25.0x 2.4x 18.9%Netflix, Inc. NFLX $169.36 62.38 10,564.51 10,113.22 75.7x 34.1x 1.4%priceline.com Inc. PCLN $696.13 51.47 35,829.81 31,701.09 17.8x 12.7x 6.1%Shutterstock, Inc. SSTK $42.53 32.68 1,389.95 1,287.85 57.9x 28.3x 2.7%TripAdvisor Inc. TRIP $48.29 144.15 6,960.91 6,854.32 27.3x 17.0x 4.4%Trulia, Inc. TRLA $31.80 27.33 869.04 775.47 196.7x 65.9x 0.8%Velti plc VELT $1.92 66.00 126.71 118.33 N/M 10.6x 9.7%Web.com WWWW $16.55 50.00 827.50 1,499.86 8.4x 9.7x 6.7%Yahoo! Inc. YHOO $23.83 1,130.00 26,927.90 10,052.28 20.8x 6.1x 7.4%Yelp Inc. YELP $24.62 63.02 1,551.43 1,456.31 242.8x 66.5x 0.2%Zillow Inc. Z $54.14 36.29 1,964.85 1,814.81 196.4x 51.8x 1.6%Source: Company reports and RBC Capital Markets estimatesMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 5André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  6. 6. GOOG and FB Drill Down
  7. 7. GOOG: Diminished Mobile Bear Thesis CPC Trends 20% 15% 12% 8% 10% 5% YoY Growth 5% 0% -5% Q1:11A Q2:11A Q3:11A Q4:11A Q1:12A Q2:12A Q3:12A Q4:12A -10% -6% -8% -15% -12% -20% -16% -15% CPC declines and Paid Clicks growth have moderated in recent quarters Paid Clicks Growth 50% 45% 42% 39% 40% 34% 33% 35% YoY Growth 28% 30% 24% 25% 18% 18% 20% 15% 10% 5% 0% Q1:11A Q2:11A Q3:11A Q4:11A Q1:12A Q2:12A Q3:12A Q4:12ASource: RBCCM Estimates, Company ReportsMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 7André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  8. 8. FB: Emerging Mobile Bull Thesis As Mobile Ad Revenue Has Grown… 1,400 1,200 $306 $45 $152 1,000 $ MM 800 600 $947 $1,023 $871 $934 400 200 0 Q1:12 Q2:12 Q3:12 Q4:12 Desktop Ad Revenue Mobile Ad Revenue … Engagement Trends Remain Steady 75% 70.5% 70.4% 70.5% 69.9% 69.8% 69.9% 70.0% 69.2% 70% 64.4% 65% 58.4% 58.5% 59.2% 57.8% 58.1% 60% 57.1% 57.2% 56.4% 54.5% 55% 50% Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 Q1:13E DAU/MAU Ratio Worldwide DAU/MAU Ratio US & CanadaSource: RBCCM Estimates, Company ReportsMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 8André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  9. 9. 2013 U.S. Internet Sector Outlook
  10. 10. U.S. Online Advertising – 15%+ Growth in ’13…Thanks to SoLoMoVo* ($ in MM) 2009 2010 2011 2012E 2013E 2014E Total U.S. Advertising $162,024 $166,600 $171,750 $178,620 $183,979 $189,498 Y/Y Change -15% 3% 3% 4% 3% 3% U.S. Online Advertising $22,661 $26,041 $31,735 $36,963 $42,508 $48,034 Y/Y Change -3% 15% 22% 16% 15% 13% Internet as % of Total 14% 16% 18% 21% 23% 25% Y/Y Incr. in Penetration (bps) 181 164 285 222 241 224 Source: RBCCM Estimates, Magna Global *Social, Local, Mobile, VideoMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 10André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  11. 11. U.S. Online Retail – 15%+ Growth in ’13…Upside Due to Mobile & SDD*($ in B) 2009 2010 2011 2012A 2013E 2014ETotal U.S. Retail* $1,743 $1,803 $1,916 $2,011 $2,091 $2,186Y/Y Change -5.4% 3.5% 6.3% 5.0% 4.0% 4.5%Total U.S. Online Retail Sales $143 $166 $194 $225 $258 $292Y/Y Change 0.8% 16.0% 16.6% 15.9% 15.0% 13.0%Online As % of Total U.S. Retail* 8% 9% 10% 11% 12% 13%Y/Y Incr. in Penetration (bps) 50 99 90 106 118 100 *Excludes Auto, Gas, Food, and Health & Personal Care Source: RBCCM Estimates, Department of Commerce *Same Day DeliveryMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 11André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  12. 12. U.S. Online Travel – High Single Digit Growth in 2013…Maturing ($ in MM) 2009 2010 2011 2012E 2013E 2014E U.S. Leisure Travel Sales $160,228 $172,217 $183,393 $192,562 $201,228 $211,289 Y/Y Change -10% 7% 6% 5% 4% 5% U.S. Online Travel Sales $89,343 $99,069 $108,540 $117,417 $125,828 $135,225 Y/Y Change -6% 11% 10% 8% 7% 7% Online as % of Total 56% 58% 59% 61% 63% 64% Y/Y Incr. in Penetration (bps) 239 177 166 179 155 147 Source: RBCCM Estimates, PhocusWrightMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 12André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  13. 13. What The “Almighty 2nd Derivative” Says About Online Penetration… Growth of Online Retail Sales as a Percent of Total Retail 14% 14% 175 175 12% 12% 150 150 Y/Y Incr. in Penetration (bps) Y/Y Incr. in Penetration (bps) Online As % of Retail Online As % of Retail 10% 10% 125 125 8% 8% 118 118 100 100 99 104 106 6% 99 75 6% 90 90 75 4% 4% 50 50 50 50 2% 2% 25 25 0% 0% 0 0 2009 2009 2010 2010 2011 2011 2012E 2012A 2013E Online As %%of Total U.S. Retail (Adj.)* Online As of Total U.S. Retail* Y/Y Incr. inin Penetration (bps) Y/Y Incr. Penetration (bps) *Excludes Auto, Gas, Food, and Health & Personal Care Source: RBCCM Estimates, Department of CommerceMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 13André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  14. 14. The Unit Growth Potential That Secular Growth Begets*** Unit Growth at a Sampling of Internet Companies in Q3:12 100% 90% 87% 82% 80% 80% 68% 70% YoY Growth 60% 54% 52% 50% 39% 40% 37% 36% 33% 30% 20% 10% 0% L NKD YEL P Z (P r A NGI P ( Li TR LA A MZN GR PN PC LN GO O (C or p (Bus i emie (P aid s tene (A ge (Unit (A ct i (Roo G (Pa orate ness r Ag e Mem r Hou nt Su s Shi ve C u m Ni id Cl C ust A cc o nt S u bers h rs) bs ) pped st om g hts ) i ck s) omer unt s) bs) ips) ) ers ) s) *** Assuming effective management, market share gains, successful product innovation, etc… Source: RBCCM, Company ReportsMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 14André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  15. 15. The Top 10 Internet Trends In 2013
  16. 16. 1. International Recovery…The Implications Of “Less Worse” Overseas Markets Growth in Core Euro Area Countries International Revenue Exposure 100% 8 90% 81% 6 80% 4 70% 2 56%YoY Growth 60% 53% 52% 0 49% 49% 50% 43% 43% -2 1 40% 32% -4 30% 30% -6 20% -8 10% 10% -10 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 PCLN GRPN GOOG EBAY FB TRIP AMZN EXPE YHOO IACI AOL GER EA FRA NED Source: RBC Europe Limited Jens Larsen, Haver Analytics, Company Reports Stock Plays: AMZN, EBAY, GOOG, and especially PCLN Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 16 André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  17. 17. 2. Mobile Materiality Company Mobile Data Point Active Network ~20% of Traffic Comes Via Mobile eBay $13B in mobile GMV and $14B in mobile TPV in 2012 Google 1/3 of Total Queries Come Via Mobile LinkedIn 25% of Traffic Comes Via Mobile OpenTable 32% of Seated Diners Come Via Mobile Pandora 77% of Listener Hours Come Via Mobile WebMD 25% of Traffic Comes Via Mobile Facebook 23% of Ad Revenue Comes Via Mobile Expedia 20% of Transactions Come Via Mobile TripAdvisor 70% of Mobile Traffic Comes Via Tablet Mobile surpassed 10% of Online Retail Sales for the 1st time in Q4:12 (per ComScore) Mobile Devices account for ~13% of Web-Based Page Views (per ComScore) Source: RBCCM, Company Reports, ComScore Stock Plays: AMZN, EBAY, TRIPMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 17André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  18. 18. 2. Mobile Materiality … Look 2 Percentage of Retail e-Commerce Dollars Spent via Mobile 14% 13% 12% 10% 10% 9% 9% 8% 8% 8% 6% 6% 6% 4% 2% 0% Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12E Source: ComScore Stock Plays: AMZN, EBAYMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 18André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  19. 19. 2. Mobile Materiality … Look 3 Growth of EBAY Mobile GMV and Mobile TPV 16 10% of TPV 14 17% of GMV 12 Billion USD 10 8 $14B 7% of GMV $13B 6 3% of TPV 4 3% of GMV 1% of TPV $5B 2 $4B $2.0B $0.75B 0 2010 2011 2012 Mobile GMV Mobile TPV Source: RBCCM, Company Reports Stock Plays: EBAYMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 19André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  20. 20. 3. Tablet Traction…Mobile, But Without The CPM/CPC Dilution… Share of Web Traffic by Smartphone, Tablet 14% 12% Share of Web-Based Page Views 4.5% 4.7% 10% 4.2% 4.3% 4.5% 4.0% 8% 3.6% 3.5% 3.0% 3.2% 2.8% 6% 2.4% 2.2% 1.5% 1.8% 1.9% 2.0% 2.1% 4% 7.9% 8.3% 8.1% 7.6% 7.6% 6.9% 5.6% 6.1% 4.8% 5.1% 5.3% 5.4% 2% 4.1% 3.8% 4.0% 3.9% 4.0% 4.3% 0% Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Smartphone Tablet Source: ComScore Stock Plays: AMZN, EBAY, GOOG, TRIPMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 20André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  21. 21. 4. Facebook Ubiquity…What 1B Served Means… Facebook Monthly Active User (MAU) Growth 1200 140% 1 billion users 120% 1000 100% 800 Million MAU 80% YoY Growth 600 60% 400 40% 200 20% 0 0% Q1:09 Q2:09 Q3:09 Q4:09 Q1:10 Q2:10 Q3:10 Q4:10 Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12 Q3:12 Q4:12 MAU Y/Y Growth Source: Company Reports Stock Plays: FB…With Negative Implications For AOL, YHOOMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 21André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  22. 22. 5. Online Video Rampup…And The Migration Of TV Ad Budgets… Time Spent Watching Video Online/Mobile (Monthly) 13:6 12:24Hours:Minutes Per Month 11:11 2012E Global Ad Spend 10:25 10:09 Out of Home, 9:23 9:15 $33 Radio, 8:43 8:51 $33B 8:33 Magazines, $34B Television, $198B 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Newspapers, Time Spent Watching Traditional TV (Monthly) $84B 158:47 156:24 154:5 153:19 155:46 145:28 146:20 146:45 148:03 144:54 Hours:Minutes Per Month Internet, $98B 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Source: RBCCM, Nielsen, Magna Global Stock Plays: AMZN, AOL, FB, YHOO, and especially GOOGMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 22André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  23. 23. 6. Same Day Delivery Surge…The ‘Net Coming To A Doorstep Near You Average Distance Between Nearest AMZN Fulfilment Top 50 US Cities by Population and AMZN Fulfilment Center and 50 Largest US Cities Center Locations 300 254 249 250 225 198 200(miles) 150 112 100 50 0 2009 2010 2011 2012 2013E Source: RBCCM, Company Reports Stock Plays: AMZN, With Negative Implications For EBAY Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 23 André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  24. 24. 7. Local Internet Adoption…The Final Frontier Annual Growth In Local Presence100% 35.5K Business 90% 26.7K Premier Accounts Agent Subscribers 80% 82% 80% 70% 33K Service 60% Providers 50% 52% 22.8K Agent 40% Subscribers 27.4MM Seated Diners 30% 22.1K Active 11.9MM Monthly 34% Advertisers Patch Visitors 20% 26% 18% 19% 10% 0% RLOC AOL OPEN TRLA ANGI Z YELP Source: RBCCM, Company Reports Stock Plays: AOL, GOOG, GRPN, TRIPMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 24André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  25. 25. 8. Cloud Computing Critical Mass Cloud Computing Market Growth Forecast $250 $207 $200 17.3% CAGR $150 Billion USD $109 $91 $100 $50 $0 2011 2012E 2013E 2014E 2015E 2016E Source: Gartner press release Stock Plays: AMZN, GOOG…But The Negative Implications of 19-Year-Old Risk…Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 25André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  26. 26. 9. Alternative Payments Rollout…What Will Be In Your Wallet? Global Mobile Payment Volume Forecast $450 $400 $352.7 $350 $300 69% CAGR $255.8 Billion USD $250 $200 $171.5 $150 $105.9 $100 $58.9 $50 $25.6 $0 2009 2010 2011 2012E 2013E 2014E Source: Gartner press release Stock Plays: AMZN, GOOG, GRPN…And Especially EBAYMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 26André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  27. 27. 10. The Cash Pileup…Implications For M&A And (Hopefully) Cash Returns… Company Acquisition Date Price 3Q Cash Balance 3Q Cash Balance Cash / Dividend ($MM) Market Cap (Current / Potential) Google Motorola Mobility 8/15/11 $12.5B $45.7B AMZN $5,248 4.3% Microsoft Skype 5/10/11 $8.5B $63.0B AOL $867 30.5% P eBay GSI Commerce 3/28/11 $2.4B $11.6B EBAY $11,635 16.8% P Priceline Kayak 11/8/12 $1.8B $4.7B EXPE $1,337 14.8% C Facebook Instagram 4/9/12 $1.0B $10.5B FB $10,452 13.2% GOOG $45,724 18.6% P Amazon Kiva Systems 3/19/12 $775M $5.2B GRPN $1,201 35.9% Expedia Trivago 12/21/12 $630M $1.3B IACI $561 12.9% C AOL HuffPo 2/7/11 $315M $867M PCLN $4,675 13.9% P IAC About.com 8/26/12 $300M $641M TRIP $548 8.6% P YHOO $6,927 30.0% P Apple Quattro 1/4/10 $275M $121.25B Zynga OMGPop 3/21/12 $210M $1.4B Average $8,107 18.1% Yahoo! -- -- -- $6.9B Median $4,675 14.8% Source: Company Reports, Bloomberg Stock Plays: EBAY, EXPE, GOOG, IACI, PCLN, YHOOMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 27André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  28. 28. Stock Plays Summary…The Beneficiaries Are…AMZN, EBAY, GOOG AMZN AOL EBAY EXPE FB GOOG GRPN IACI PCLN TRIP YHOOInternational RecoveryMobile MaterialityTablet TractionFacebook UbiquityOnline Video RampupSame Day Delivery SurgeLocal Internet AdoptionCloud Computing Critical MassAlternative Payments RolloutCash PileupBiggest Beneficiaries Source: RBCCM EstimatesMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 28André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  29. 29. RBC’s Top 3 Large/Mid Cap Internet Stock Picks
  30. 30. Google (GOOG) OP, $950 Price TargetThe GOOG Long Thesis:1. Still Significant Secular Growth for Online Advertising – 20%ish global growth thanks to SoLoMoVo2. Very Strong Market Share in Core Search – 70%+ of global Search ad revenue3. Strong Market Share in Other Ad Segments – Display with YouTube & GDN, Mobile4. Significant Competitive Moats – $17B in capex and $13B in R&D over past 5 years5. One of the Best Management Teams on the Internet – excellent record of innovation & acquisition6. Reasonable Valuation – trades in line with growth rateGOOG Investment Risks Exposure to European macro slowdown Integrating MMI and moving into the hardware business (Nexus devices) Regulatory Concerns – though U.S. risks have recently abated Social Media sites gaining ad traction Price Target: Our $950 price target is based on a 18x P/E multiple on our 2014 estimatesMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 30André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  31. 31. Priceline (PCLN) OP, $900 Price TargetThe PCLN Long Thesis:1. Still Significant Secular Growth for Online Travel – double-digit global bookings growth market2. Still Significant Hotel Market Share Potential – PCLN accounts for approx 5% of global hotel sales3. Sustainable Competitive Advantages in Europe – largest base of hotel partners and lowest commission rates4. Significant Growth opportunity in Asia and LatAm – via Agoda & Booking.com properties5. One of the Best Management Teams on the Internet6. High Growth and High Quality EPS – high conversion into FCF7. Very Reasonable Valuation – discount to growth rate (18x 2013E P/E vs. 20%+ EPS CAGR through 2015)PCLN Investment Risks Significant Exposure to International Markets – 80% of revenue, with Europe 60% of revenue Inventory Access Challenges of Domestic Opaque Segment – Air and Rental Car Potential for Marketing Deleverage – given increased competition for Search keywords Risk of Google Disintermediation in Online Travel Price Target: Our $900 price target is based on a blended average of a 18x P/E Multiple, and a 13x EV/EBITDA multiple on our 2014 estimatesMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 31André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  32. 32. Amazon (AMZN) OP, $330 Price TargetThe AMZN Long Thesis:1. Significant Secular Growth for Online Retail – 10% addressable market penetration rising 1% per year…2. Clear Amazon Market Share Gains and a Path for More of the Same – Mobile, SDD Surge…the Double- Double Thesis3. New Revenue Growth Opportunities – Consumer Staples, Amazon Web Services, International Expansion, Digital Media, Office/Industrial Supplies, Advertising Revenue…4. Material Margin Expansion Potential – from 3% level to historical average 6%...3rd party sales, AWS, scale5. One of the Best Management Teams on the Internet6. High Growth and High Quality EPS – high conversion into FCFAMZN Investment Risks: Intrinsically High Valuation “Media Hole” – transition to digital media could hurt market share Sales Tax Overhang – imposition of sales tax across the U.S. Omnipresent Competitive Risk – from Offline retailers, Online competitors, new business models Price Target: Our $330 price target is based on a blended average of a 33x Price/FCF Multiple, and a 1.8x Price/Sales multiple on our 2014 estimates.Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 32André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  33. 33. Required DisclosuresConflicts DisclosuresThis product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to providespecific disclosures for the subject companies by reference. To access current disclosures for the subject companies, clients should refer tohttps://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing,P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including totalrevenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investmentbanking activities of the member companies of RBC Capital Markets and its affiliates.Distribution of RatingsFor the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy,Hold/Neutral, or Sell - regardless of a firms own rating categories. Although RBC Capital Markets ratings of Top Pick/Outperform, SectorPerform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because ourratings are determined on a relative basis (as described above). Distribution of Ratings RBC Capital Markets, Equity Research Investment Banking Serv./Past 12 Mos.Rating Count Percent Count PercentBUY[TP/O] 791 50.64 281 35.52HOLD[SP] 701 44.88 180 25.68SELL[U] 70 4.48 8 11.43Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 33André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  34. 34. Required DisclosuresConflicts PolicyRBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To accessour current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC CM Research Publishing,P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend orsupplement this policy at any time.Dissemination of Research and Short-Term Trade IdeasRBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to localtime zones in overseas jurisdictions. RBC Capital Markets research is posted to our proprietary websites to ensure eligible clients receivecoverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the salespersonnel via email, fax or regular mail. Clients may also receive our research via third-party vendors. Please contact your investmentadvisor or institutional salesperson for more information regarding RBC Capital Markets research. RBC Capital Markets also provideseligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color and commentary, and may alsocontain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or other research reports. SPARC may beaccessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflects the research analysts directional viewregarding the price of the security of a subject company in the coming days or weeks, based on market and trading events. A Short-TermTrade Idea may differ from the price targets and/or recommendations in our published research reports reflecting the research analystsviews of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or otherfactors. Thus, it is possible that the security of a subject company that is considered a long-term Sector Perform or even an Underperformmight be a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, the security of a subjectcompany that is rated a long-term Outperform could be considered susceptible to a short-term downward price correction. Short-Term TradeIdeas are not ratings, nor are they part of any ratings system, and RBC Capital Markets generally does not intend, nor undertakes anyobligation, to maintain or update Short-Term Trade Ideas. Short-Term Trade Ideas discussed in SPARC may not be suitable for all investorsand have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisionsregarding any Short-Term Trade Ideas discussed therein.Analyst CertificationAll of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subjectsecurities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to thespecific recommendations or views expressed by the responsible analyst(s) in this report.The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”) and is licensed for useby RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard orclassification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose withrespect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICSclassifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.Mark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 34André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com
  35. 35. DisclaimerRBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBCEurope Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report hasbeen compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, itsaffiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets’ judgment as of the date of thisreport, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailoredinvestment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receiveit. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about thesuitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returnsare not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includesprofits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities andother investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in somejurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/or internal compliance policies. If this is the case, thelatest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reportsare current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in anyjurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC CapitalMarkets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. Nomatter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets. Additional information is available on request.To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility forthis report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes furtherinformation regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC.To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc. (member of IIROC, CIPF). Any Canadian recipient of this report that is not a Designated Institutionin Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further informationregarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting theforegoing, accepts responsibility for this report and its dissemination in Canada.To U.K. Residents: This publication has been approved by RBC Europe Limited (RBCEL) which is authorized and regulated by Financial Services Authority (FSA), in connection with itsdistribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. However, targeted distribution may bemade to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom.To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). Thismaterial has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on thismaterial, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particularfinancial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whetherto acquire the product.To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited and RBC Capital Markets (HongKong) Limited, licensed corporations under the Securities and Futures Ordinance or, by the Royal Bank of Canada, Hong Kong Branch, a registered institution under the Securities and FuturesOrdinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. Hong Kong persons wishing to obtainfurther information on any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited, RBC Capital Markets(Hong Kong) Limited or Royal Bank of Canada, Hong Kong Branch at 17/Floor, Cheung Kong Center, 2 Queens Road Central, Hong Kong (telephone number is 2848-1388).To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch and Royal Bank of Canada (Asia) Limited, registered entities grantedoffshore bank and merchant bank status by the Monetary Authority of Singapore, respectively. This material has been prepared for general circulation and does not take into account the objectives,financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, youshould consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the RoyalBank of Canada, Singapore Branch or Royal Bank of Canada (Asia) Limited.To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financialinstruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank. ® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright © RBC Capital Markets, LLC 2013 - Member SIPC Copyright © RBC Dominion Securities Inc. 2013 - Member CIPF Copyright © RBC Europe Limited 2013 Copyright © Royal Bank of Canada 2013 All rights reservedMark S. Mahaney (Analyst) (415) 633-8608 mark.mahaney@rbccm.com 35André Séquin (Analyst) (212) 618-7688 andre.sequin@rbccm.com

×