October 8, 2012

PRISM

PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Making diffuse information about the Internet and Social Media crystal clear

IN THIS ISSUE:

. Urban Airship . Beachmint . Twitch . Rovio

Michael Pachter (213) 688-4474 [email protected]

Yoni Yadgaran THE INFORMATION HEREIN IS ONLY FOR (212) 938-9924 ACCREDITED INVESTORS AS DEFINED IN [email protected] RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933 OR INSTITUTIONAL INVESTORS.

Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their 1000 Wilshire Blvd, • Los Angeles, CA 90017 investment decision. Please see page 213.688.8000 • www.wedbush.com 18 of this report for analyst MEMBER NYSE/FINRA/SIPC certification and important disclosure information.

WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

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About Wedbush Securities Private Shares Group

The Private Shares Group of Wedbush Securities is a leader in providing research and trading to the rapidly growing industry of privately traded securities, with an emphasis on companies in the social media space. We assist companies in raising growth capital through traditional private placements and provide liquidity options for existing and former employees through tailored selling programs. We also work with venture capital, private equity and hedge fund investors to help them adjust their holdings in some of the most dynamic companies. We endeavor to understand the underlying industries of the private companies we trade, in order to help our clients make informed decisions about their investments. We provide discreet customized solutions for our institutional and accredited private clients through a team of professionals located in New York, Los Angeles and San Francisco.

About Michael Pachter

Michael Pachter is the Managing Director of Equity Research, providing coverage across the Digital Media sector, as well as the Head of Research for the Private Shares Group. He has been recognized as StarMine’s “Top Earnings Estimator” year after year and “Best on the Street” by the Wall Street Journal. Michael brings over 20 years of experience as a financial professional to the Private Shares Group, along with extensive knowledge across the social media sector in both public and private companies. Mr. Pachter holds an M.B.A. from the Anderson School at the University of California at Los Angeles, a juris doctor from Pepperdine University, an LL.M. in Taxation from the University of Florida, and a bachelor’s in Political Science from California State University, Northridge.

About Yoni Yadgaran

Yoni Yadgaran joined Wedbush from Bank of America Merrill Lynch. Originally covering Internet & E-commerce within Equity Research, he later moved on to help pioneer the Private Shares Group’s Research efforts. Yoni is a CFA level 3 candidate and received a B.B.A in Finance from Baruch College.

Contact Wedbush Securities Private Shares Group:

Michael Pachter Kevin Cohen Managing Director, Equity Research Director of Trading, Private Shares Group Head of Research, Private Shares Group (213) 688-8089 | [email protected] (213) 688-4474 | [email protected] Twitter: @michaelpachter

Yoni Yadgaran Olivia Jamgotchian Research Associate, Private Shares Group Sales & Trading Associate, Private Shares Group (212) 938-9924 | [email protected] (213) 688-6625 | [email protected]

Jim Edwards Cyrus P. Pirasteh Senior Research Associate, Private Shares Group Managing Director, Head of Private Shares Group (213) 688-4303 | [email protected] (213) 688-6661 | [email protected]

About Wedbush Securities Founded in 1955, Wedbush Securities is a leading investment firm that provides brokerage, clearing, investment banking, equity research, public finance, fixed income sales and trading, and asset management to individual, institutional and issuing clients. Wedbush currently ranks as a top liquidity provider for the NASDAQ, and was ranked as the #1 stock picker for 2010, 2011, and again for the 1st half of 2012 by Barron’s. Headquartered in Los Angeles, with over 100 offices nationwide, Wedbush focuses on relentless service, client financial safety, continuity, and advanced technology. (www.wedbush.com)

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Urban Airship

Urban Airship provides a variety of white-label content delivery and communication products for mobile app developers, allowing the integration of mobile apps with Urban Airship’s cross-platform API. Developers using the company’s service eliminate the need to code content themselves, instead using the company’s server infrastructure. This reduces the need to monitor protocol changes among supported mobile platforms, allowing a single API interface (as opposed to one for each mobile OS they support). As of April 2012, Urban Airship helped more than 65,000 active developers of over 65,000 apps that have been installed more than 750 million times. Urban Airship’s customers include Glu, Walgreens, Groupon, ESPN, Gannett, Future, Vevo, LivingSocial, Oracle, Macys, NBC, and ShowTime, with significant adoption of its services across entertainment, publishing, media, retail, social networking, and enterprise software verticals. Users of apps developed with Urban Airship’s suite of products have made over 19 million in-app purchases, and sent over 2.5 billion messages per month to over 100 million mobile devices, as of April 2012. The company’s services are available for developers building apps for iOS, Android, and Blackberry devices.

Source: Company Info

Urban Airship was launched in May 2009, is headquartered in Portland, with another office in San Francisco, and employs about 75 people. The company received $1.1 million in funding in February 2010, and another $5.4 million in November 2010, in two venture rounds that were both led by Foundry Group, True Ventures and Founders Co- op, according to a report published by The Oregonian. At the time of its second round, the company employed 17 people (up from four in February 2010), and had already signed Warner Bros., Newsweek, and The Atlantic as customers of its subscription and push notification services. In November 2011, the company received $15 million in funding in a Series C venture round led by Salesforce, Verizon, Intel Capital, Foundry Group, and True Ventures. At the time, the company had grown to over 20,000 customers, with revenue growing over 600% y-o-y, with over 6 billion push notifications sent through its platform to over 240 million app installs. The company also noted that app engagement levels were increasing by as much as 30% due to its push notification product, and that mobile sales increased by as much as 40% when customers used its product to push time-sensitive offers to mobile users.

In October 2011, Urban Airship announced that it had acquired SimpleGeo, a real-time service platform which offered location-targeting tools for developers, and shortly thereafter announced that it would shut down the acquired company at the end of March 2012. The company acquired SimpleGeo for about $3.5 million, according to a report published by TechCrunch. In February 2012, the company launched Segments, which leveraged the SimpleGeo acquisition to provide geo-spatial targeting for customers who wanted to send push notifications to select users. Last week, the company launched a new iteration of its Location Messaging Service, which includes 2.5 million geo-fences that advertisers can choose from when marketing to app users.

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Services provided by Urban Airship include:

In-App Purchases – Developers can offer virtual goods and other forms of monetization within their freemium apps by integrating their existing apps with Urban Airship’s API. All of the infrastructure and development necessary to facilitate in-app purchases are undertaken by Urban Airship, which significantly reduces costs and development times for smaller app developers. The company also offers developers tools to keep track of conversions so they can maximize revenue. Urban Airship hosts the content sold within an app, and facilitates single-click payments by directly integrating with the underlying OS’s app market (Google Play, Apple AppStore, BlackBerry AppWorld, Intel AppUp).

Subscription Services – Developers can set different access levels for content provided by their app, with the ability to use Urban Airship to set subscription tiers and auto-renewable payment schedules. Developers can automatically update content within the app (e.g., updating a news app with daily editions) using Urban Airship’s push notification technology. Newsstand Publisher is the company’s hybrid product for newsstand app developers, which facilitates both subscriptions and one-time purchases, allowing a user to subscribe to future issues with a single in-app purchase.

Push Notification – Developers can use Urban Airship’s Helium cloud service to incorporate push notification capabilities in their apps, which allows a developer to send alerts to a user through their data plan, even when the user has turned off the app. Notifications can be branded with rich media (video, photo, audio) and corporate logos. Examples of push notification use cases include updating a user when a friend has sent a message (e.g., using Facebook’s app), when there is breaking news (e.g., using CNN’s news app) and when another player challenges a user to a game (e.g., using Zynga’s Words with Friends). By enabling push notification, users benefit by receiving relevant updates in real time, while developers enhance their app’s engagement.

Users can set frequencies for push notifications, and developers can set predetermined schedules to target particular subsets of their user-base by selecting specific user elements, such as inactivity (how long since a user has opened an app) and phone type. The company recently launched a targeting tool (Segments) that allows developers to send messages to users in certain locations by choosing from 2.5 million predetermined geo-fences, which include segmenting users by country, city, zip code, and venue. A developer can also present app users with offers or coupons, polls, receipt verification options, and can suggest sharing the app with a user’s friends by using Urban Airship’s call-to-action tool.

Source: Company Info

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Reports – Developers can analyze usage in a graphical interface that allows developers to recognize trends in app opens, push notifications, and user engagement levels, which can be viewed by user platforms for granularity. Developers can use reports to determine the optimal time to send notifications to engage inactive users.

Source: Company Info

The company offers free or “basic” version of its product, which allows a developer to send 1 million free push notifications per month, and $1 for every 1,000 incremental regular push messages or $2.50 for every 1,000 incremental rich-media push messages. Basic users pay $0.10 for every download that has the company’s In-App Purchases product, and developers pay an incremental $0.10 for every new subscription.

Urban Airship’s Pro plan includes unlimited messages (both text and rich-media) using its Helium end-to-end messaging platform, reports, and tools to help developers compose new messages. The company charges a developer based on the number of active users their app acquires, with prices ranging between $199 – 1,999 per month. Developers with apps that have more than 100,000 users pay $1 per month for every ≈ 42 incremental active users. Basic members are given a 45 day trial of Urban Airship’s Pro version.

Urban Airship Pro Plan Users Price Per Month 0 - 10,000 $199 10,001 - 25,000 $499 25,001 - 50,000 $999 50,001 - 75,000 $1499 75,001 - 100,000 $1999 Source: Company Info

An example provided by the company is Airbnb, which used Urban Airship’s Push Notification product to expedite communication times between a potential renter and landlord. As opposed to emails, which a landlord would be forced to constantly check for new applicants, and SMS notifications, which can quickly add-up in carrier charges, Urban Airship’s technology allowed the company to send notifications in real time, which ultimately led to a 3x faster response rate and an 8x faster booking process.

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BeachMint

BeachMint is an e-commerce company that operates six verticals in the apparel, shoes, skincare, home décor, lingerie, and jewelry product categories. The company leverages celebrity branding and curation to offer customers monthly subscriptions to personalized product offerings and advice. New members fill out a quiz that attempts to customize a subscriber’s choices by asking for their favorite designer, celebrity, styling preferences, magazine subscriptions, and even nail polish shades. Each vertical charges a monthly fee ($30 – $80), in exchange for credit towards the purchase of a new item every month. Once subscribed, a member can choose to purchase additional items directly from a BeachMint vertical’s site. The company provides free shipping to U.S. customers and a $10 shipping charge for both Canadian subscribers and U.S. subscribers looking to expedite their order (three vs. seven business days).

Source: Company Info

Monthly personalized emails are sent to subscribers displaying a portion of new inventory, and subscribers can choose to view the rest of that month’s selection if they aren’t interested in what has been suggested in the email. If a subscriber is not interested in any of the pieces offered on the 1st day of a particular month, they can choose to skip that month within the first five days, and receive credit towards a future purchase. By requiring subscribers to visit a vertical’s site to skip a particular month, the company ensures that subscribers are engaged with the service and constantly exposed to new inventory. A subscriber can accumulate credit for as many as five items before BeachMint ceases charging the subscriber’s account until the accumulated credit is used. Account credits must be used within one year, or they expire.

In June 2010, the company’s two founders raised $5 million in funding in a venture round led by New Enterprise Associates (NEA) and Anthem Venture Partners, according to a report published by TechCrunch. In December 2010, the company raised $10 million in venture funding, in a round led by Trinity Ventures, with participation by Stanford University, NEA, and Anthem Partners. The new funding was expected to help the company double headcount from 20 employees at the time.

In June 2011, the company raised $23.5 million in funding in a venture round led by Scale Venture Partners and Lightbank, with participation by NEA, Trinity Ventures, and Anthem Ventures. The round valued the company at $150 million, according to a report published by TechCrunch. At the time, JewelMint, which was the company’s only vertical, was generating $500,000 in revenue per month, according to the report, which would imply a 25x price-to- sales multiple, according to the report. Note that in March 2011, ShoeDazzle raised $40 million in funding at a $280 million post-money valuation, in a venture round led by Andreessen Horowitz, according to TechCrunch. ShoeDazzle was generating about $5 million in revenue per month according to TechCrunch, which valued the company at less than 5x sales.

In January 2012, the company raised $35 million in funding in a venture round led by Accel Partners, Goldman Sachs, New World Ventures, Millennium Technology, and NALA, with participation by NEA, Trinity Ventures, and Scale Ventures. The newly raised capital was expected to help BeachMint open new verticals, market its brand, and expand globally. As of July, the company had grown to over 150 employees and had separated its six verticals to increase autonomy as the company expands, according to a report published by Business Insider.

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New subscribers are offered an option to sign-up using Facebook’s connect feature, that allows individual products to be recommended to a Facebook friend directly from a vertical’s site. We believe that a significant portion of referrals to BeachMint verticals are facilitated through Facebook. JewelMint’s Facebook page is the most popular of BeachMint’s verticals with over one million followers.

BeachMint: Product Verticals Vertical Launched Product Offering Celebrity Fans (000) JewelMint October 2010 Luxury Jewelry Kate Bosworth & Cher Coulter 1,025 StyleMint July 2011 Apparel Mary-Kate Olsen & Ashley Olsen 246 BeautyMint October 2011 Skincare System Jessica Simpson & Nerida Joy 61 ShoeMint November 2011 Footwear Rachel Bilson, Nicole Chavez & Steve Madden 59 HomeMint May 2012 Home Design Justin Timberlake & Estee Stanley 16 IntiMint June 2012 Lingerie & Sleepwear Brooke Burke-Charvet 21 Source: Company Info, Wedbush Securities

According to a report published by Women’s Wear Daily in September 2011, BeachMint’s celebrity contracts last for about two years, and each vertical consists of a contract with both a celebrity and a manufacturer. At the time, BeachMint, which employed about 85 people, was planning to enter eight verticals (its currently operates six) by the end of 2012, according to the report, with pets, wine, and health contemplated as potential avenues for expansion.

JewelMint – BeachMint’s first vertical launched in October 2010, in partnership with actress Kate Bosworth and stylist Cher Coulter, offering luxury jewelry through its subscriber model. Every month, subscribers receive a single piece of jewelry, four weekly trend reports, and other fashion related editorial content. The vertical’s jewelry selection is typically made of a base metal (tin, zinc or brass) and then plated with silver or gold. Inventory typically appears with a suggested retail price that is significantly higher than the $30 charged by JewelMint (average of $110 MSRP for Jewelry), and retail prices appear crossed out next to an item to help subscribers feel like they are getting a bargain. Note that inventory on vertical sites are exclusive to BeachMint, and therefore the company is, in fact, the only retailer of its products. The company offers inventory from prior months if items haven’t sold out, and jewelry can be exchanged for another item or credit within one month, although returns are subject to a $5 restocking fee (slightly higher for other verticals).

StyleMint – The company’s second vertical was launched in July 2011, in partnership with former actresses and designers Mary-Kate and Ashley Olsen, who are responsible for designing the apparel offered to subscribers every month. Contrary to the supply constrained dynamics employed by JewelMint, best-sellers on StyleMint are sometimes offered for a second time. Similar to BeachMint’s other verticals, StyleMint subscribers pay $30 per month for an option to choose from most of the vertical’s available inventory, and discounted or more expensive items can be purchased by visiting StyleMint’s site. We observed 40 different styles displayed on the site, with a variety of different tops, dresses, skirts, leggings, and cardigans available, at prices that range from $15 for tops that are on sale, to $30 for the majority of inventory (tops and dresses), and $60 for cardigans and jeans.

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Source: Company Info

BeautyMint – The company’s third vertical, launched in October 2011 in partnership with actress Jessica Simpson and celebrity skincare specialist Neridia Joy, provides a monthly supply of skincare products. New subscribers undergo an online consultation that determines the subscriber’s skin-type and goals, allowing the company to customize the skincare system for each subscriber. Subscriber’s pay $45 or $50 per month for the company’s four or five piece system, respectively, which include cleansing, collagen replenishing, and moisturizing solutions. Subscribers can skip a month by visiting the site up to three days prior to the billing date, which is in contrast to the five-day window provided for other BeachMint verticals. The company provides a full refund, less shipping costs, within 30 days.

Source: Company Info

ShoeMint – The company’s fourth vertical launched in November 2011, in partnership with actress Rachel Bilson, celebrity stylist Nicole Chavez, and designer Steve Madden, offers a pair of shoes every month for an $80 per month subscription fee (shipping is free). The vertical also offers handbags and boots at varying price points ($50 – 120), and offers discounted shoes as well. New subscribers take a quiz that is very similar to what new subscribers of StyleMint and JewelMint would take, and similar to JewelMint, subscribers can skip a month within the first five days of the month and receive credit after that. A one-time courtesy refund is offered for subscribers who forget to skip a month within the first five days. The company does not permit one-off purchases without subscribing, although subscribers can choose to perpetually skip every month without repercussion. Shoes are manufactured by Steve Madden with high-quality leather and suede, and ShoeMint charges a $10 restocking fee for returns made within the first month after a purchase. We counted about 30 different styles of shoes priced at $80, with another 10 different styles of boots and handbags available as well. According to a report published by the LA Times, ShoeMint surpassed 500,000 visitors within 24 hours of launching, and by the end of its first month in operation there were over 10,000 people on waiting lists for shoes. Moreover, according to the same source, 80,000 customers had registered in the four days prior to the vertical’s official launch, half of whom were referrals made through Facebook and Twitter.

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Source: Company Info

HomeMint – The company’s fifth vertical launched in May 2012, in partnership with Justin Timberlake and interior designer Estee Stanley, offering a monthly collection of curated home décor and art products. Subscribers pay a $10 monthly fee, in exchange for a 90-day $10 credit towards inventory that is discounted by 10% – 35% for members. The vertical consists of four collections, with prices ranging from $10 – $500.

 HomeMint Private Collection – Product line designed by Justin Timberlake and Estee Stanley.  Collaborator Collection – Product line designed by contracted designers.  Unique Finds – Products found and resold by Justin Timberlake and Estee Stanley.  Art Collection – Art pieces by established and up-and-coming artists that are curated by Justin Timberlake and Estee Stanley.

Source: Company Info

IntiMint – The company’s latest vertical, launched in June 2012 in partnership with actress Brooke Burke-Charvet, offers lingerie, loungewear and sleepwear at prices ranging between $20 –$80. Subscribers pay $20 per month in return for credit of the same amount towards future purchases. The vertical utilizes a model that is nearly identical to the company’s StyleMint vertical, with an initial customer preference quiz and a 30-day return policy.

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BeachMint’s business model is dependent on a number of variables that contribute to long-term profitability:

 Monthly Churn Rates – Percentage of subscribers that opt-out of their monthly subscription in a particular month. We believe churn is significant for vertical specific e-commerce subscriptions, as consumers tire of receiving items from the same product category after a couple months.  Revenue Per Subscriber – The amount of revenue a subscriber generates through both subscription fees and additional purchases. We estimate revenue per average subscriber falls between $40 – $50 for BeachMint, based on an assumption that JewelMint and StyleMint’s lower subscriber fees and subscribers consistently skipping months, acts as a drag on the base of ShoeMint subscribers paying $80 per month.  Average Gross Margin – We believe the company operates at gross margins that are higher than Steve Madden’s 37% gross margin in 2011, due to its higher-margin jewelry and skincare verticals, and the company’s increased ability to anticipate demand by assessing its subscriber base.  Cost of Customer Acquisition (CPA) - Because of the dependence on celebrity branding as a source of traffic, BeachMint likely spends a significant amount in TV and online marketing to acquire new subscribers. While we acknowledge that over time, BeachMint’s brands will grow large enough to attract new customers without significant marketing spend, we don’t believe the company has reached that point.  Subscriber Lifetime Value (LTV) – A function ((revenue*margin)/churn) of average revenue, gross margins, and churn rates. BeachMint must ensure that its customer acquisition costs are not exceeding its subscriber’s LTV or gross profit over the period that an average customer remains subscribed.

According to a report published last month by Business Insider, ShoeDazzle and BeachMint were in talks of merging in Q2:12, due to high levels of negative cash flow (burn rate) generated by the two companies and executive turnover at ShoeDazzle, although since then, talks appear to have been shelved. ShoeDazzle competes with BeachMint’s ShoeMint vertical; although at a significantly lower price point ($40 vs. $80). Bill Strauss, ShoeDazzle’s former CEO, joined the company last fall and was replaced last week by ShoeDazzle’s co-founder Brian Lee. Brian previously left ShoeDazzle to focus on The Honest Company, an eco-friendly subscription service for family necessities (household cleaning products and children’s toiletries) where he remains CEO. According to the same report, BeachMint is raising a new round of venture funding, experienced three consecutive months of record revenue in Q3:12, and has reined in cash burn. Last week, ShoeDazzle raised an additional $6 million in debt and equity funding, according to a filing with the SEC. The company conducted lay-offs that were in the “low double-digit percentages”, according to a report published by All Things Digital.

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Twitch

Twitch (formerly Twitch.tv) is the world’s largest video game broadcasting platform and chat community. Its platform features top video gaming personalities, players, tournaments, leagues, and commentary, in addition to the most active discussions around video games. Over the last five years, Twitch has become the largest platform for streaming and watching live matchups of video games, with over 20 million unique viewers per month, according to the company. Additionally, the company indicated that it has partnered with more than 2,000 top gamers and has integrated its product with leading game publishers. Moreover, Twitch is the streaming partner for the Penny Arcade Expo (PAX), one of the largest conventions in gaming, and the company plans to unveil a host of new content from publishers like 2K Games.

Twitch offers live streams of gamers playing newer hits like Minecraft, and classics like World of Warcraft, allowing reporters and viewers to provide feedback in real time and chat with each other. The majority of streams are from PC games, since they are the easiest to capture and broadcast, according to Wired. Nevertheless, Twitch indicated that it is in talks with game developers and console manufacturers to add live-streaming technology across gaming platforms.

Source: Company Info

Justin.tv was launched in 2007 by Justin Kan and Emmett Shear, who noted that its video game section, where people broadcasted their gameplay, grew faster than any other genre, according to a report published by Wired. In March 2011, The Justin.tv team began devoting resources to gaming broadcasters, content, and the gaming community, and just three months later, Justin.tv launched Twitch.tv. Twitch continues to be the world's largest video game broadcasting community, and at the time it had about 8 million unique users, according to a report published by Venture Beat. By January 2012, Twitch.tv had grown to 12 million unique viewers per month and had over 1,000 premium partners, according to the company. Today, the company has over 20 million unique viewers each month and over 2,000 premium partners, highlighting the company’s accelerating rate of growth. While Justin.tv remains active, Twitch generates most of the revenue for the company, according to TechCrunch.

Twitch generates revenue from partnerships that the company maintains with multiple game publishers and e-sports leagues, as well as a deal with CBS Interactive to sell Twitch’s video ad inventory. In addition to ads, Twitch also has a growing pay-per-view business for live events, as well as a subscription model that is also available for streaming partners. In August 2012, Twitch indicated it is working on integrating streaming directly into games that would allow a user playing games on a PC to click a broadcast button, allowing the gameplay to stream to their Twitch channel. While the company doesn’t disclose financials, Twitch is growing revenue about 10% month-over-month, according to Business Insider.

While Twitch is the largest platform for videogame broadcasting we believe its closest competitors are Machinima and YouTube. The video game broadcasting market is of particular interest for marketers because its core audience is the highly sought after 18 – 34 year old male demographic. It’s such a popular genre that YouTube has dedicated an entire category to gaming. While there are millions of videos, trailers, promos, and game-play videos on YouTube, Twitch has a developed a more robust platform for gamers to interact with fans and monetize gameplay. We believe that Twitch has a large first-mover advantage in live-streaming gaming content and a user-base that will prove difficult for competitors to lure away, especially when we consider the large established fan base and partnerships with gamers and developers. Moreover, Twitch averages 75 minutes of viewing time per person per day, according to Emmett Shear (co-founder), who notes that compared to other video-type platforms “it's just off the charts”. 11 | P a g e

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Source: Company Info

Twitch makes it easy for gamers to partner with the company, helps them build communities, offers promoted placements, mobile apps, and chat functionality with both viewers and broadcasters. There are three requirements to become a partner: average concurrent viewership of more than 400 gamers (not just a one-time peak), a regular broadcast schedule of at least three times a week, and content that conforms to use terms and service and DMCA guidelines. Partnering with Twitch allows gamers to stream at the highest quality (1080p) and allows slower Internet connections and mobile devices to watch content without lags. Twitch partners make a share of the revenue generated from the video broadcasts, while Twitch handles all of the logistics, allowing hassle-free monthly compensation for gamers via check, Paypal, or wire transfer. Gamers have the ability to control when commercials run on their channels, which gives them the ability to place ads at opportune times (for example, between games), and it allows them to customize the frequency of ads. Additionally, Twitch allows archiving and automatic uploading to YouTube allowing a gamer to expand their following beyond the Twitch platform. Moreover, Twitch allows a user’s community to create highlight reels themselves, and even upload them to YouTube for crowd-sourced promotion. Twitch notes that its partners include the North American Star League, Azubu, Destruction, IGN Proleague, OneMore Game.tv, Electronic Sports League (ESL), Wizards of the Coast, Dreamhack, Day9, Towellie, Honcast, Team Liquid and Total Biscuit.

Source: Company Info

Earlier this month, the company raised $15 million in a round led by Bessemer Venture Partners, with Alsop Louie Partners and Draper Associates. Twitch previous raised a Series B round of $8 million when it was a part of Justin.tv, according to a report published by Techcruch. The new funding will be used to expand Twitch’s engineering team to meet demand for live streaming on a growing number of devices and game consoles. According to the company, Twitch wants to make it easier for gamers to stream their e-sports matchups to viewers, with the one-click access that it’s adding to certain games in partnership with game publishers. As a result of the raise, Twitch’s VP of marketing, Matt DiPietro, indicated that the company will significantly increase headcount from its current 60 employees. Jusin.tv has been in a transitional phase over the last year with its CEO Michael Seibel selling the company’s on-demand mobile video app Socialcam to Autodesk for $60 million, and Justin Kan leaving to create his own startup, Exec.

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Rovio

On September 27th, Rovio released Bad Piggies, a sequel to its Angry Birds franchise, for iOS, Android, PC, and Mac devices, with a Windows phone version slated to be released in the near future. The title reverses gameplay dynamics of earlier titles by placing gamers in the role of the pigs as opposed to the angry birds in slingshots. As pigs, players attempt to navigate machines through obstacles with the goal of destroying the angry bird’s eggs, with 60 levels of game play included with downloads, and another 30 levels available for unlocking.

The new title is available for free, $0.99, and $2.99 on Android devices, iPhones, and iPads, respectively, while the PC version costs $5 per download. The android version of title has already been downloaded between 1 – 5 million times, and has an average rating of 4.7 out of five on Google’s Play Store, based on nearly 30,000 reviews. Within four hours of launching, Bad Piggies had reached the top position on the iPhone app rankings in the U.S., where it continues to rank first, in addition to 22 other countries. The iOS version of the game currently ranks within the top five gaming apps in 95 out of 123 markets, according to data published by AppAnnie.

Source: Company Data

In a report published in May (available here: http://goo.gl/8tXQn), we noted that Rovio generated $106 million in revenue with an operating margin of 64% in 2011. At that time about 70% of the game developer’s revenue came from paid downloads, in-app purchases and advertising, with the balance generated by the sale of branded products. Additionally, at the time Rovio had announced that its Angry Birds franchise had been downloaded over 1 billion times across platforms, having reached about 650 million downloads at the beginning of the year. Rovio’s franchise now reaches over 30 million daily active players who play over 300 million minutes per day in aggregate.

On Facebook, Angry Birds Friends (released in February 2012) has experienced a 48% decline in MAUs from peak usage of 24 million in April to about 12.5 million MAUs and 1.7 million DAUs at present, according to AppData.

Angry Birds Friends: MAUs 30 (Millions) 20%

19% 25 18% MAU DAU/MAU 17% 20 16%

15 15%

14% 10 13%

12% 5 11%

0 10%

Feb. '12 Mar. '12 Apr. '12 May. '12 Jun. '12 Jul. '12 Aug. '12 Sep. '12

Source: Wedbush Securities, Appdata

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The company monetizes its free-to-play games on Android devices and Facebook by serving banner ads within its games. Rovio’s self-serve ad platform allows developers to use in-game advertising to drive traffic to their own apps, with geo-targeting options and an average suggested cost per thousand impressions (CPM) of $8 globally, which varies by geography (U.S. CPM is $8.80). According to a report published last week by VentureBeat, Rovio generates about $1 million per month from in-app advertising.

Source: Company Data

In July, Rovio released a new game that was separate from its Angry Birds franchise, titled Amazing Alex, which offers 100 levels of physics-based gameplay for iOS and Android devices, and is based on IP from Casey’s Contraptions, which Rovio acquired from game developers Snappy Touch and Mystery Coconut. Amazing Alex’s iPhone version sells for $0.99, and reached the top app ranking in 35 markets, while the iPad version ($2.99) reached the top position in 50 markets, according to a report published by All Things Digital. Later the same month, Activision announced that it would release Angry Birds Trilogy, a compilation of Rovio’s first three Angry Birds titles (Classic, Rio, and Seasons) on Xbox 360, PlayStation 3, and Nintendo 3DS consoles for $30 – $40 ahead of the 2012 holiday season, according to a report published by VentureBeat. Last week, Rovio posted a graphic of a Star Wars-themed Angry Birds, with an official announcement slated for this week, which may be foreshadowing the franchise’s next installation, according to VentureBeat.

Source: Company Data

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Key News Items

 2012 Digital Music Sales on Pace to Break Record - http://bit.ly/PsvpDA  Airbnb Gets Into Recommendations With “Local Lists” Of Users’ Favorite Neighborhood Hangouts - http://tcrn.ch/O5qcFy  Airbnb Hires the Team Behind Fondu Review App - http://dthin.gs/SF9gTg  Amazon Quietly Jumps Into Another Business: Lending Money to Sellers - http://dthin.gs/OusiAm  AMAZON-OWNED ZAPPOS TEAMS UP WITH CHICISIMO FOR SOCIAL FASHION - http://bit.ly/SyqWDU  Box Adds Two-Step Login Verification, More Advanced Security Features To Cloud Storage Platform - http://tcrn.ch/SwehRZ  Boxee: Mayor Bloomberg chats about NYC’s tech initiatives at Boxee HQ - http://bit.ly/V7SQsu  Color: The CEO Of $41 Million Startup Color Seems To Have Jumped Ship - http://read.bi/NX46VV  CrowdStar Co-Founder and GM Jeffrey Tseng promoted to CEO - http://bit.ly/T2uH60  Dropbox: Salesforce worried more about Dropbox than its direct competitors, says COO - http://bit.ly/PbvqBg  Dyn Raises $38 Million From North Bridge; Jason Calacanis Joins Its Board - http://dthin.gs/VaXiH8  Eventbrite: Online Ticket Seller Eventbrite Grows U.K. Ticket Sales By 115% A Year On From Launch - http://tcrn.ch/Swbb0f  Facebook : Testing Promoted Posts for People in the U.S. - http://bit.ly/T1dXXt  Facebook acqui-hires Carsabi, more for the sabi than the car - http://bit.ly/U2WyV1  Facebook creates first major ad campaign with Wieden & Kennedy - http://bit.ly/UiwkOx  Facebook Exec Confesses: '99% Of Sales Come From People Who Don't Interact With Ads' - http://read.bi/Rv2T85  FACEBOOK EXPLAINS HOW APP CENTER RECOMMENDATION WORKS. A BLUEPRINT FOR SEARCH? - http://bit.ly/PUeg75  Facebook exploring opportunities to sell premium services for businesses - http://bit.ly/U2Eomh  Facebook Gets a Little Less “Free” for Members - http://on.wsj.com/WkLgcj  Facebook Hires Carsabi Co-Founders; Site For Sale - http://bit.ly/SyreX2  Facebook IPO Suits to Be Handled in New York - http://on.wsj.com/PCKiDn  FACEBOOK IS RIGGED: WHY PERSONAL PROMOTED POSTS ARE BAD FOR USERS - http://bit.ly/SFYpIe  Facebook lets U.S. users pay to boost visibility of postings - http://reut.rs/QYp5VI  Facebook Likes The Sound Of Mixcloud - http://bit.ly/Rv7uqP  Facebook Says A New Ad Product Will 'Unlock Significant Spending Around The Globe' - http://read.bi/QXqD2d  Facebook Says It Has Powerful New Data That Will Convince Advertisers To Spend Billions More - http://read.bi/R74lLS  Facebook says small businesses ‘just as important’ as big brands - http://bit.ly/QsYKQs  Facebook Sells More Access to Members - http://on.wsj.com/V8Pl5f  Facebook Tailoring Ad Offerings By Industry - http://bit.ly/PvE4Fb  Facebook, YouTube Blocked In Kashmir? - http://bit.ly/PnQsai  Facebook: AFTER INVESTIGATION, FRENCH DATA PROTECTION AGENCY CNIL CONCLUDES NO FACEBOOK MESSAGE BUG - http://bit.ly/RgcT2W  Facebook: App Center recommendation engine drives more repeat app users than previous Facebook games dashboard - http://bit.ly/T22JXW  Facebook: Don’t Worry About Ad Clicks, Optimal Reach & Frequency Are Just As Important - http://bit.ly/STKV19  Facebook: Facebook Stories: Virality - http://bit.ly/QGkjz3  Facebook: FACEBOOK TO FTC: LET US ADVERTISE TO CHILDREN - http://bit.ly/O0GQ9j  Facebook: FACEBOOK WILL USE DATALOGIX OFFLINE PURCHASE RECORDS TO SHOW ADS THE PERFECT NUMBER OF TIMES - http://bit.ly/QGj7LQ  Facebook: Forget Saying Happy Birthday To Your Friends On Facebook, It’s All About Gifts Now - http://tcrn.ch/SAQVWV  Facebook: GREAT NEWS: Facebook Has Finally Decided To Just Go Ahead And Be Yahoo 2.0 - http://read.bi/PZvwsI  Facebook: Here's What Sheryl Sandberg Says Is Facebook's No. 1 Problem Right Now - http://read.bi/U8qIGu  Facebook: High-Profile Facebook Comms VP Joe Lockhart Departs - http://dthin.gs/VoO3TK  Facebook: Is Facebook Meddling With Your News Feed Exposure? - http://bit.ly/UFVoto  Facebook: One Billion People on Facebook - http://bit.ly/PckFi9  Facebook: Sheryl Sandberg Has A Stat That Explodes The Biggest Myth Of Internet Advertising - http://read.bi/QPaRth 15 | P a g e

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 Facebook: SHERYL SANDBERG: WE’RE MORE AFRAID OF LOSING BY STANDING STILL - http://bit.ly/SyrUzU  Facebook: SORRY, LENO: MARK ZUCKERBERG MAKES FIRST LATE-NIGHT TALK SHOW APPEARANCE — ON RUSSIAN TV - http://bit.ly/Ryvb1B  Facebook: The Things That Connect Us - http://bit.ly/R04qjV  Facebook: Three Big Obstacles For Facebook's Gift Shop - http://read.bi/O0nBwC  Facebook: WANT TO HIGHLIGHT YOUR NEW FACEBOOK PICTURES? PAY TO PROMOTE THEM - http://bit.ly/QsEbnm  Facebook: Watch Out, Yelp: Facebook Is Thinking About Restaurant Reviews - http://read.bi/PTWAsd  Facebook: Why Facebook Suddenly Likes Russia - http://read.bi/Rvu3f3  Facebook: Why You Don't Have To Worry About Facebook's Latest Privacy Scare - http://read.bi/R0wYKi  Facebook: ZUCKERBERG: We're Going To Make A Lot Of Money On Mobile Ads - http://read.bi/SF9eKJ  Facebook’s Sean Ryan Discusses The Diversity Of Games And Latest Trends - http://bit.ly/QLcbdB  Facebook's new pitch to brand advertisers: forget about clicks - http://reut.rs/Sh5PYk  FLIPBOARD BEGINS SOURCING CONTENT FROM KICKSTARTER, PICKS PROJECTS FOCUSED ON FUTURE OF PUBLISHING - http://bit.ly/O8jsqA  Foursquare Partners With OpenTable To Make Dinner Reservations Simple - http://tcrn.ch/QkZJk3  Foursquare: DENNIS CROWLEY TO ADVERTISERS: FOURSQUARE IS ‘PRETTY MUCH OPEN FOR BUSINESS’ - http://bit.ly/W8U3xW  FTC Chairman: Advertisers Backing Away from ‘Do Not Track’ Pledge - http://on.wsj.com/SYnfZK  GOOD TECHNOLOGY ACQUIRES APPCENTRAL TO BOLSTER IOS, ANDROID AND WP APP SECURITY, MANAGEABILITY AND DISTRIBUTION IN BYOD ERA - http://bit.ly/U739hm  HootSuite Announces Integration With Webtrends - http://bit.ly/OBjNn5  Instagram: CLONING INSTAGRAM FOR VIDEO WILL NOT REVOLUTIONIZE MOBILE VIDEO - http://bit.ly/SuvpaD  Jelli: CROWDSOURCED MUSIC STREAMING SERVICE JELLI RAISES $9 MILLION, PLANS TO GO INTERNATIONAL - http://bit.ly/Ryuo0t  Kixeye fires four after investigation into allegations of racism - http://bit.ly/R0zCQj  Kixeye to launch synchronous “Live Battles” in War Commander this week - http://bit.ly/O1h6cU  Klout Adds Facebook Pages Into Its Scoring Mix - http://bit.ly/UyIRb4  KLOUT WOULD LIKE POTENTIAL EMPLOYERS TO CONSIDER YOUR SCORE BEFORE HIRING YOU. AND THAT’S STUPID. - http://bit.ly/U1R3WC  LINKEDIN INTRODUCES FOLLOW FEATURE FOR INFLUENCERS - http://bit.ly/R9PQXs  LinkedIn: REDESIGNED LINKEDIN BRAND PAGES ARE NOW AVAILABLE TO ALL COMPANIES - http://bit.ly/UHAcmI  Millennial CEO Paul Palmieri Describes How Mobile Advertising Will Grow To $13 Billion - http://read.bi/SALyYq  mPowa: SQUARE COMPETITOR MPOWA INKS MULTI-MILLION-DOLLAR WHITE LABEL DEAL WITH FIRST NATIONAL BANK, SOUTH AFRICA - http://bit.ly/O0FPy5  Netflix Brings “Just For Kids” UI To The iPad - http://tcrn.ch/ST41og  Netflix: David Fincher & Kevin Spacey’s ‘House of Cards’ hits Netflix exclusively on Feb. 1 - http://bit.ly/R0wTWV  Netflix: Dish says Blockbuster is definitely not a Netflix killer (to the surprise of no one) - http://bit.ly/Oap4Rd  Nexon: ONLINE GAMES GIANT NEXON ACQUIRES JAPANESE MOBILE GAMES DEVELOPER GLOOPS FOR $468.4M CASH - http://bit.ly/Vk0fng  Oracle: Larry Ellison Just Took On Amazon With A New Cloud Service - http://read.bi/Stv5Jc  Quora: The Sudden, Mysterious Exit Of A Quora Cofounder Has Silicon Valley Baffled - http://read.bi/VaZheu  RDIO LAUNCHES PROGRAM FOR ARTISTS TO EARN CASH BY ATTRACTING NEW USERS, BUT STOPS SHORT OF YOUTUBE’S MODEL - http://bit.ly/VbESWE  Redbox to begin selling concert and event tickets at movie rental kiosks - http://vrge.co/OFbPt3  ROKU’S NEW PROJECTOR LETS YOU STREAM MOVIES ON A WALL - http://bit.ly/SPXVjB  Rovio Flies Into Frankfurt To Unveil Its First Book App: Expect Lots Of Pigs, Maybe An Angry Bird Or Two - http://tcrn.ch/Qu9aPY  Rovio: Angry Birds Should Have Sold For $2 Billion When It Had The Chance - http://read.bi/RuEyze  Rovio: Comparing 'Angry Birds' pigs to the 'Bad Piggies' - http://vrge.co/OAoM7C  Rovio: THE FORCE IS STRONG WITH ROVIO IN NEW ANGRY BIRDS/STAR WARS MASHUP TEASER - http://bit.ly/UoG8Xb 16 | P a g e

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 Rovio: WILL BAD PIGGIES GIVE ROVIO THE BOOST IT NEEDS? - http://bit.ly/UCkZn2  Ruckus Wireless files for IPO of up to $100 million - http://reut.rs/QQ3heD  ShoeDazzle Picks Up Another $6M As Founder Brian Lee Gets Back To Work As CEO - http://tcrn.ch/SEgya7  Shoedazzle: NEW SHOEDAZZLE CEO CONDUCTS LAYOFFS, SECURES MORE FUNDING - http://bit.ly/SIi3TX  Spotify Is Piling Up Losses, And Its Business Model May Not Work - http://read.bi/SIaAnT  SPOTIFY POSTED NET LOSS OF $59 MILLION IN 2011 [REPORT] - http://bit.ly/Q1TljF  Square Creates Yelp-Like Directory for Places That Accept Square - http://dthin.gs/WlTReB  Square Launches A Merchant Directory To Help Customers Discover New Places - http://tcrn.ch/PP6VFZ  Square: Payments Company Square Makes Its Second Acquisition; Buys Design Firm 80/20, Opens New York Office - http://tcrn.ch/PGRYFH  Square: STARBUCKS’ SQUARE ROLLOUT GETS A LAUNCH DATE; NO LOYALTY CARD INTEGRATION (YET) - http://bit.ly/SIjUrR  Starbucks integration adds mobile pay to Apple’s Passbook - http://bit.ly/QU4AfV  Starbucks: U.S. Starbucks stores get Square mobile pay in November - http://reut.rs/PU6b2a  THE DIGITAL 100: The World's Most Valuable Private Tech Companies - http://read.bi/O5Brhm  Tumblr assembles a team to create live animated GIFs from the 2012 presidential debates - http://vrge.co/QjSaMb  Tumblr Has Its First Analytics Platform Via Partnership With Union Metrics - http://bit.ly/R17PPs  Twitter Partners With Nielsen For @TwitterSurveys To Measure Ad Effectiveness - http://tcrn.ch/QXIQfV  TWITTER SAYS MORE THAN HALF ITS USERS FOLLOW SIX OR MORE BRANDS - http://bit.ly/OBOit6  Twitter: Former Twitter Product VP Takes Spredfast Board Seat - http://dthin.gs/PreBwt  Twitter’s Comings and Goings: Beefing Up Big Apple Engineering While Shuffling Cali Design Talent - http://dthin.gs/V7tARQ  Twitter’s new solution for measuring brand campaigns: in-tweet surveys - http://bit.ly/PQ0KBx  Uber Sued By Taxi And Livery Companies In Chicago For Consumer Fraud And More - http://tcrn.ch/QL1IBF  Urban Airship: Push + place: Urban Airship unveils Location Messaging Service - http://bit.ly/PF1nO6  Urban Airship: Urban Airship Brings New Geo-Precision To Targeting In-App Notifications - http://bit.ly/V6peMj  Venture-Backed IPOs Flat in Q3 - http://bit.ly/P8YQ2L  Warner Music Group: Music Fan Sites to Pay Privacy Fine - http://on.wsj.com/PY3M7E  Waze: Start-Up Waze Gets A Boost From Apple’s Maps Fiasco - http://on.wsj.com/VWFvkQ  Workday Valued at $3.6 Billion in Latest IPO Filing - http://dthin.gs/O0iH2Q  World of Warcraft: Chinese World of Warcraft Players Protest CCTV Misrepresentation - http://bit.ly/SYDkOS  Xbox Music to launch on October 26th with free ad-supported streaming - http://vrge.co/T0ZUkQ  YANDEX GIVES GOOGLE A ONE-TWO PUNCH IN RUSSIA: A NEW BROWSER AND APP STORE FOR THE LOCAL SEARCH GIANT - http://bit.ly/STSW6j  YouTube Partners With ABC News To Offer Its First-Ever Live Stream Of The U.S. Presidential Debates - http://tcrn.ch/SYo2nZ  Youtube: AOL Will Distribute Video Content on YouTube - http://on.wsj.com/WfVqL3  ZocDoc Check-In lets you deal with medical paperwork before the waiting room - http://bit.ly/QTmSxI  ZocDoc: No more clipboards: ZocDoc lets patients check in online - http://bit.ly/OF5Pk3  Zynga slashes 2012 outlook again, shares hit record low - http://reut.rs/R2ahFC  Zynga turns on the viral charm with FarmVille 2 - http://bit.ly/RuJ80c  Zynga: Amazon Needs To Buy Zynga - http://read.bi/TakLre  Zynga: Analysts slash targets after Zynga warns of loss - http://reut.rs/SPRzAz  Zynga: HASBRO REMAKES HUNGRY HIPPOS, MONOPOLY AND SCRABBLE WITH A ZYNGA TWIST - http://bit.ly/SXBj5C  Zynga: Here Are The Zynga Insiders Who Cashed Out Just Before The Stock Crashed... - http://read.bi/Oa80e7  Zynga: Online brands move to real world as Hasbro launches line of Zynga-branded board games - http://bit.ly/SeWmku  Zynga: The Only Reason Marissa Mayer Shouldn't Buy Zynga Today Is That It Will Be Cheaper Tomorrow - http://read.bi/UJ2jSv  Zynga: Words With Friends co-creators leave Zynga - http://bit.ly/QLhOeq

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Covered Companies Mentioned in this Report (priced at market close October 5, 2012)

COMPANY TICKER RATING PRICE PRICE TARGET FACEBOOK FB OUTPERFORM $20.91 $35.00 GOOGLE GOOG NEUTRAL $767.65 $640.00 ACTIVISION ATVI OUTPERFORM $11.30 $19.00 ZYNGA ZNGA OUTPERFORM $2.46 $4.00

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INVESTMENT RATING SYSTEM

Outperform: Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months.

The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).*

Rating Distribution Investment Banking Relationships (as of June 30, 2012) (as of June 30, 2012) Outperform:58% Outperform:14% Neutral: 36% Neutral: 0% Underperform: 6% Underperform: 0%

The Distribution of Ratings is required by FINRA rules; however, WS’ stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS’ stock ratings are on a relative basis.

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The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities.

Capital Markets Disclosures as of October 8, 2012

Company Disclosure FACEBOOK 2 GOOGLE 1 ACTIVISION 1 ZYNGA 1

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