February 21, 2012
Internet Services & Digital Media NeedhamNeedham InsightsInsights Providing in-depth analysis of significant industry issues
Valuing Engagement
Kerry Rice Total global Internet revenue will reach $412 billion in 2012, Senior Analyst consisting of approximately $320 billion of Internet-access Internet Services & Digital Media fees paid by consumers plus $92 billion of advertising [email protected] revenue, according to PriceWaterhouseCoopers. With Internet (415) 262-4890 users representing over 70% of the total population in the Laura Martin, CFA U.S., Japan and much of Europe, we believe that elongating Senior Analyst and intensifying engagement will be the key driver of online Entertainment, Cable & Internet economics over the next five years. [email protected] (917) 373-3066 We calculate that, at maturity, each hour of engagement by a Sean McGowan single person could generate as much as $266 of revenue. Senior Analyst Interactive Entertainment Since unique visitors online are usually measured in millions [email protected] per month, getting them to stay longer should be a key goal. (212) 705-0466
Charles Wolf Not all forms of engagement are equally valuable. We believe Senior Analyst that two-way interactive conversations have the most Digital Lifestyle economic upside over time. [email protected] (212) 705-0447 This report discusses four of the most important drivers of Dan Medina Research Analyst engagement—social, mobile, personalization, and content— Entertainment, Cable & Internet and outlines the economic upside from each. [email protected] (212) 705-0295
Table of Contents
Executive Summary...... 1
Conversations Start on Social Media ...... 2
The Power of Fans ...... 2
The Economics of Social...... 3
Mobile Enables Conversations in Real Time...... 5
The Economics of Mobile...... 6
Personalization Makes the Conversation More Relevant...... 8
The Economics of Personalization ...... 9
Online Video and Games Elongate Engagement ...... 9
Online Games ...... 13
The Economics of Engagement ...... 15
Valuation Multiple ...... 16
Companies that Benefit from Rising Engagement ...... 16
Comp Table...... 22
Private Social Companies ...... 23
Disclosures...... 30
Cover photo credits (from left to right): ©iStockphoto.com/MariuszBlach, ©iStockphoto.com/basic, ©iStockphoto.com/pidjoe.
Executive Summary
We believe that elongating and intensifying engagement will be the key driver of online economics over the next five years. We also believe that certain forms of engagement are more valuable than others. We believe that conversations have the most economic upside. Social, mobile, personalization, and content each contribute to the conversation, and therefore represent the most promising sources of revenue upside. In this report, we discuss the recent trends, predict the future, and assess the economic impact of each of the four important engagement drivers summarized below:
¾ Social sites connect consumers with other consumers and marketers, encouraging dialog about new and existing topics. This digital “word of mouth” heightens engagement, which in turn attracts advertisers and online retailers to participate in conversations with consumers, creating a virtuous cycle of new conversations and higher engagement. Market Size: Social media revenue, whether generated by consumers or enterprises, could exceed $40 billion in 2015, according to Gartner.
¾ Mobile. We believe the billions of mobile devices serve to untether conversations from the desktop, providing consumers with a megaphone for broadcasting personal offline interactions online and initiating conversations in real-time with other users. Used as a social media tool, mobile devices should fuel the future use and engagement of social media. Market Size: Gartner estimates that mobile advertising revenue will reach $20 billion in 2015. In addition, we estimate that mobile commerce revenue could reach $36 billion by 2015.
¾ Personalization. We believe that, in the future, personalization will incorporate consumer intent. Understanding intent enables advertisers and online retailers to personalize offerings, which should further enhance engagement and improve return on investment. Market Size: Borrell estimates that personalization will enable targeted display advertising of $3 billion in 2012.
¾ Content. Content extends the conversation by adding topics and games. Music is widely shared by younger audiences while TV and movies represent vibrant conversation topics around a shared experience. News flow generates immediate commentary on any device. User-generated content maximizes the breadth of consumers who find the conversation intriguing. Market Size: Futuresource projects online video revenue to reach $7 billion across four countries by 2015. Gartner estimates that online gaming revenue will reach $9 billion by 2015.
How Much Is an Hour of Engagement Worth? We calculate that an hour of engagement by a single person could represent as much as $266 of revenue, at maturity. By implication, every 10 million people that visit a site and stay for 60 minutes should represent revenue of $2.6 billion over time. Social, mobile, personalization, and content are four key drivers that elongate and intensify engagement.
Valuing Engagement 1 Conversations Start on Social Media
We believe that conversations are the most valuable form of engagement because people are paying close attention and they care about the content. Online social networks are the new water cooler. Social networks directly connect consumers with other consumers and marketers, encouraging conversations about new and existing topics. This digital “word of mouth” heightens engagement, which in turn attracts advertisers and online retailers to participate in conversations with consumers, creating a virtuous cycle of new conversations and higher engagement. While we believe marketers should and will continue to engage with consumers on social network sites, ultimately we expect marketers to redesign their online presence with a more social media focus in order to curate these highly engaging conversations to ensure consumers receive the intended message, as well as carry these conversations back to their own website in order to strengthen their relationship with consumers.
For consumers, social networking ranked as the most popular content category in worldwide engagement, accounting for 19% of total time spent online in October of 2011, up from just 6% in March of 2007, according to comScore.
For advertisers, the average brand surveyed reported a social media following of 224,472 Facebook fans, 11,780 Twitter followers, and 2,600 LinkedIn connections, according to the CMO Council. This is why brands are prioritizing their social media spending to better segment, target, and optimize experiences for customers. In a Webtrends’ survey, 82% of the Chief Marketing Officers indicated that they are increasing their use of social media.
The Power of Fans
We believe that creating, interacting with, and curating a fan base is critical for marketers given that 47% of global social network users comment about brands online, 61% of Internet users trust what their friends say about brands online, and 40% trust strangers’ comments1. A user becomes a fan when they “like” content and friends of fans are a users’ social graph. The top reasons to click the “Like” button include gaining access to exclusive offers and for users to share their experiences with others, as well as participate in games and contest.
The power of a fan is illustrated by the increase in traffic to a marketers’ website. Fans of Starbucks’, Southwest Airlines’, and Bing visited these websites 418%, 362%, and 55% more than non-fans, respectively2. Friends of fans create a multiplier effect, which is known as the “network” effect. The CMO Council’s report, The Variance in Social Brand Experience, concludes that when consumers “Like” a brand, 60% expect to interact with other customers and share their experiences. A Webtrends’ study revealed that the average click through on ads to fans and friends of fans were 7x and 4x the click through for non-fans, respectively. Armed with this insight, Facebook launched its Expanded Premium Ad, which highlights a friend’s “like” with an accompanied picture of the friend. Using this strategy, users were twice as likely to remember this ad and were more likely to share the ad compared to typical display ads. Additionally, the intent to purchase increased 4x.
As further evidence of the engagement of fans, a study by social media agency, SocialCode, revealed that fans generally perform desired actions at a 2-3x higher rate than non-fans, as illustrated in Figure 1.
1 TNS Digital Life Survey. 2 comScore, The Power of Like, July 2011.
2 An investment analysis by Needham & Company, LLC
Fans Engage Much More with Brands than Non-Fans Figure 1
Fan Non-Fan Conversion Conversion Conversion Type Rate Rate Appl Install 38% 12% Contest Submission 6% 1% Contest Voting 31% 5% Fan Acquisition 29% 19% Program Sign-up 2% 1% Purchase 7% 2% Sweepstakes Entry 39% 17%
Total 19% 7% Source: SocialCode study based on 5 million Facebook ads placed by 50 clients.
While not as engaged as fans, friends of fans visited Starbucks’, Southwest Airlines’, and Bing, 230%, 165%, and 33% more than non-fans, respectively. Given that 53% of social network users follow a brand, according to NM Incite and Nielsen’s State of Social: The Social Media Report, positive engagement with consumers should provide a significant lift in traffic and revenue.
The Economics of Social
How Big Is the Market? Social media revenue, whether generated by consumers or enterprises, could exceed $40 billion in 2015, according to Gartner (see Figure 2). Given our expectations for enterprises to invest heavily in social media over the next few years, we believe Gartner’s estimate may be conservative because it includes only $1.2 billion of enterprise revenue in 2015.
Social Media Growth Trajectory, 2010-2015E Figure 2
$45,000
$40,000 Social Business $35,000
$30,000 Mobile Social
$25,000
$20,000 Revenue ($M) $15,000
$10,000
Social Media $5,000
$0 2010 2011 2012 2013 2014 2015
Source: Gartner and Needham & Company, LLC estimates.
Valuing Engagement 3 Social and mobile social media consists primarily of advertising, gaming and subscription revenue. Gartner estimates that social media advertising revenue should increase 29% annually between 2010 and 2015, reaching $16 billion, which would account for nearly 40% of global display advertising (See Figure 3). Gaming revenue should increase from $2 billion in 2010 to approximately $9 billion in 2015, representing a CAGR of 38%. Gartner estimates subscription revenue, which includes revenue from companies such as LinkedIn, should increase from $170 million in 2010 to $490 million in 2015, a 24% annual growth rate.
Advertising Should Remain the Primary Growth Engine for Social Media, Figure 3 2010-2015E ($ in MM)
2010 2011 2012 2013 2014 2015 CAGR
Ad Revenue$ 4,452 $ 5,538 $ 8,201 $ 10,968 $ 13,752 $ 15,775 28.8% YoY Growth 24.4% 48.1% 33.7% 25.4% 14.7%
Gaming Revenue$ 1,776 $ 3,255 $ 4,473 $ 6,029 $ 7,609 $ 8,715 37.5% YoY Growth 83.3% 37.4% 34.8% 26.2% 14.5%
Subscription Re ve nue$ 17 0 $ 236 $ 313 $ 392 $ 453 $ 489 23.5% YoY Growth 38.8% 32.6% 25.2% 15.6% 7.9%
Other$ 858 $ 1,229 $ 1,952 $ 2,619 $ 3,574 $ 4,097 36.7% YoY Growth 43.2% 58.8% 34.2% 36.5% 14.6%
Total$ 7,256 $ 10 ,2 58 $ 14,939 $ 20,008 $ 25,388 $ 29,076 32.0% YoY Growth 41.4% 45.6% 33.9% 26.9% 14.5% Source: Gartner.
comScore recently highlighted that although 14% of our online time is spent on social networks, 67% of marketers spend 5% or less of their marketing budget targeting social media. Even by 2014, 45% of marketers’ budgets targeting social media could be less than 10% of their marketing budget3 (see Figure 4). This additional investment should translate into overall growth for social media advertising revenue, in our opinion.
Marketer’s Advertising Spending on Social Media, 2011 and 2014E Figure 4
80%
70%
60%
50%
40%
30% % of Companies %
20%
10%
0% <5% 5-10% 10-20% 20%+
2011 2014 Source: Booz & Co., Buddy Media, and Needham & Company, LLC.
3 Booz & Co. and Buddy Media, Campaigns to Capabilities: Social Media and Marketing, October 2011.
4 An investment analysis by Needham & Company, LLC Timing of Revenue Growth We expect advertising revenue to track conversations and engagement on social platforms. However, we expect the magnitude of dollars to lag the amount of time users spend on social networking sites. This is similar to the spending lag that occurred as traditional offline advertising spending, such as newspapers and magazines, shifted online (see Figure 5).
Gap Between Time Spent Online and Percent of Advertising Budget Allocated Figure 5 to Online Advertising Highlights the Online Growth Opportunity
45% 40% 40% 40% 36% 35%
30% 18% Gap 25%
20% 18% 15% 15% 11% 11%
10% 7%
% of Time% Advertising and Budget 5% 5% 3%
0% TV Internet Newspaper Magazines Radio
% of Time Spent % of Advertising Spending
Source: eMarketer, MagnaGlobal, and Needham & Company, LLC.
Mobile Enables Conversations in Real Time
How do you reach 7 billion people, 24 hours a day, regardless of location? The answer is through their mobile devices. According to ABI Research, global mobile subscriptions could reach 6 billion exiting 2011. Networking equipment manufacturer, Ericsson, estimates that these 6 billion subscriptions are likely to increase mobile traffic 10x over the next several years, primarily as a result of the 100% growth of connected mobile devices from 6 billion to 12 billion by 20204.
We believe the billions of mobile devices could serve as consumers’ megaphone for broadcasting personal content and initiating conversations in real-time with other users. Used as a social media tool, mobile devices should fuel engagement. While today nearly 33% of the total U.S. mobile users and 24% of the five leading European markets access social networking sites at least once a month, according to comScore, we believe significant growth opportunities remain as the remaining mobile users begin to access social network sites.
Social networking sites have benefited from the rapid increase in smartphones. eMarketer estimates that 44% of the mobile phone shipments in the U.S. in 2012 should be smart devices, an increase from just 18% in 2009. According to comScore, 64% of U.S. smartphone users accessed social networking sites in the past month and 40% accessed social networking sites daily. While the adoption of smartphones and devices served as an engine of growth for social networking, we expect smartphones and devices to also be the engine of growth for mobile advertising and e-commerce (m-commerce) given that they provide the primary gateway to these activities.
4 GSMA, GSMA Announces That the Proliferation of Connected Devices Will Create a US$1.2 Trillion Revenue Opportunity for Mobile Operators by 2020, October 10, 2011.
Valuing Engagement 5 The Economics of Mobile
Mobile Advertising We believe mobile advertising revenue should become a significant revenue stream for all the social networking sites. According to comScore, an analysis of mobile social networking activity in the U.S. and five leading European markets revealed high levels of engagement on social networking sites via mobile devices. The top three mobile activities on social networking sites were: 1) reading posts from people they know; 2); posting status updates; and 3) reading posts from organizations, brands and events (see Figure 6).
The Top Three Mobile Social Networking Activities Figure 6
90% 80% 70% 60% 50% 40% 30% 20% % of Smartphone Users Smartphone of % 10% 0% Post Status Updates Read Posts from People Read Posts from They Know Organizations, Brands and Events
U.S. 5 Leading European Markets
Source: comScore and Needham & Company, LLC.
Looking into the future, we believe the ubiquity of the mobile platform coupled with the ability to provide more precise consumer targeting enables marketers to make advertising more relevant and effective. While mobile advertising today is driven primarily by mobile search and relatively simple banner ads, we expect ads to become more targeted and interactive over the next several years as mobile analytics improve and rich-media ads become more available. Mobile advertising campaigns delivering rich media ad units have proven to lift click through rates, according to mobile advertising network, Jumptap. In a comparison of over 300 million campaign impressions, click through rates with rich media ad units were substantially higher than those with standard banner ads. On average, Jumptap reported a 344% increase in rich media ad units across retail, auto, entertainment, restaurant, sporting goods, and consumer electronic verticals. A study by Dynamic Logic even demonstrated that mobile display advertising could be more effective than online display advertising. Specifically, mobile advertising benefits from being the primary display item on a mobile screen, having a focused message, and more open consumer acceptance. We would also highlight that higher acceptance may be driven by better targeting. With the success of Google’s (GOOG, Buy) Android platform, the company has become the largest mobile advertiser with in search or display advertising. We also believe ValueClick (VCLK, Buy) should benefit from the uptick in mobile advertising given its recent acquisition of Greystripe, a brand focused mobile advertising network.
6 An investment analysis by Needham & Company, LLC In order to take advantage of benefits of mobile advertising, marketers are beginning to invest heavily in mobile advertising. In research from Chief Marketer, 50% of marketers are running mobile campaigns in 2011, up from 33% in 2010. While still a small portion of the overall digital advertising, Gartner predicts that mobile advertising revenue should reach $3.3 billion in 2011, and could increase to nearly $20.6 billion in 2015 (see Figure 7).
Mobile Advertising Revenue Poised to Explode with the Proliferation of Figure 7 Smartphone Adoption, 2011-2015E
25.0
20.6 20.0
58 % C AG R
15.0
10.0 Advertising S ($B) pending
5. 0 3.3
- 2011 2015
Source: Gartner.
Mobile Commerce Mobile commerce is embryonic, but is growing rapidly as marketers reach out to the large and growing mobile audience. Currently, shoppers prefer to use their mobile device for research, but purchases are also increasing. According to comScore, 67% of U.S. smartphone owners performed shopping related activities in September 2011, including comparing products and prices, searching for deals, taking product photos, or locating a retail store.
While the number of smartphone users making purchases is small, the increase from the previous year is substantial, and we expect significant growth in 2012. However, this holiday season, mobile commerce may have reached a tipping point as evidenced by the increase in mobile purchases. According to comScore, 9% of the total e-commerce spending in 4Q11 was via mobile devices, triple the mobile commerce spending in 4Q10. We believe Amazon (AMZN, Hold) was a significant beneficiary of the surge in mobile shopping during this holiday season, particularly with its mobile price comparison/shopping application. We also are positive on Zipcar (ZIP, Buy), which through its mobile app easily enables consumers to reserve vehicles.
Just as consumers have been conditioned over the past few years to go online to search for low prices and deals, we believe mobile purchases should increase as consumers gain additional comfort with purchasing goods and services through their mobile devices. comScore indicated that mobile retail commerce sales reached $11.5 billion in 2011, over a 200% increase from 2010 (see Figure 8).
Valuing Engagement 7 Mobile-Commerce Growth Should Remain Solid Through 2015 (2010-2015E) Figure 8
$40 250%
$35 219.4% 200% $30
$25 150%
$20
100% Growth YoY $15 Spending ($ Billions) ($ Spending
$10 57.7% 33.2% 28.3% 50% $5 16.8%
$0 0% 2010 2011 2012 2013 2014 2015
Source: comScore and Needham & Company, LLC.
In our m-commerce estimate, we expect continued solid industry growth through 2015. We believe the shift from researching purchases on mobile devices to actual purchase could accelerate as a result of the continued robust demand for mobile devices, increasing mobile purchases through social networks, and more frictionless one-click purchasing options.
Personalization Makes the Conversation More Relevant
We believe social networking sites should excel at personalization given their vast amount of personal data revealed by consumers, social context, and relevance. Historically, we believe personalization was achieved in two ways. First, the prioritization of content served as a tool for each consumer to discover and consume content specific to their interests. Second, social networks provided a platform for the creation of new products that enable customized user experiences, such as Radio, which enables customized radio stations. In the future, we believe personalization will incorporate consumer intent. Understanding intent enables advertisers and online retailers to personalize offerings, which should further enhance engagement and improve return on investment.
On the advertising front, consumer targeting has evolved significantly from the basic run of network advertising in the web 1.0 era to include behavior and audience targeting in the web 2.0 era. The advertising Holy Grail of serving the right ad to the right person at exactly the right time is a complex process. Online advertising is leading the way in leveraging analytics in order to target appropriate audiences. The Internet enables advertisers to tailor campaigns precisely targeting specific audiences through portals, search engines, verticals and, more recently, through social networking and mobile devices. Online advertising also provides critical details, such as where consumers “come from” and “depart to” from their website or which website pages are viewed, enabling advertisers to refine their campaigns to better target consumers. Additional geographic, demographic, time of day, behavioral, and location-based data can provide advertisers insight into their audiences. As one of the largest online advertising networks, we believe ValueClick is a leader in audience targeting. We believe the next step in targeted advertising is to glean contextual data and intent from websites and conversations in order to deliver ads based on the understanding of what consumers want. The conversations, sharing and user connections make social networking target rich environments for contextual and intent based advertising.
8 An investment analysis by Needham & Company, LLC The Economics of Personalization
Advertising According to Borrell, targeted display is expected to increase by 105% year over year from $1.5 billion in 2011 to $3.1 billion in 2012. While only a sliver of the total global online advertising, targeted advertising should continue to outpace the overall market growth of an 11.7% CAGR from 2010 to 2016, according to MagnaGlobal.
Commerce Personalization is also gaining ground with online retailers. Similar to advertising, retailers are able to track consumer interests by clicks. However, online retailers are also able to gather more insightful information from consumer purchases, including gender, location, purchase price and, most importantly, products or services purchased. Using this data, retailers are able to curate the products and services to individuals based on their tastes, which should heighten engagement and improve revenue growth. Another way for retailers to gather information is through a social sign-on, which enables retailers to glean personal data from social networking sites, such as Facebook. Some online retailers have enabled consumers to identify the products or services that interest them by tagging them in some manner. Amazon offers consumers the ability to “like” products and offers “wish lists” for consumers. The ability to harness a direct dialogue and engage the customer could secure a long- term repeat customer. Another recent trend in personalization is to deliver a curated selection of goods and services that has a clear, identifiable voice that resonates with consumers. We have seen this on television for years as celebrity endorsements. We have now seen retailers, such as Gilt Groupe and One Kings Lane, offer curated clothing or home furnishings selected by known fashion designers and decorators. With the ability to mine consumer data, online retailers’ products and services will begin to make consumers feel like VIPs with a bespoke experience.
Online Video and Games Elongate Engagement
We believe that content elongates engagement and adds conversation topics. Breaking news, a hit TV show, a new movie, a competitive “words with friends” game are all good examples of content that create new topics of conversation. New topics and longer conversations add value to the participants and give advertisers more opportunities to reach them.
Online Video Another driver of longer engagement times is rapid consumer adoption of online video viewing. The average Internet user in the U.S. spent 36 hours online in January of 2012, according to comScore. Users who watch video online report double and triple these engagement levels.
Recent Trends Online video viewing grew 33% between 2009 and 2011, according to a recent Yahoo! (YHOO, Buy) study. Although “short clips” still represent 74% of total video views, consumer demand for this format fell 10% between 2009 and 2011. By contrast, full-length TV shows rose 7% and full-length movies grew 3% between 2009 and 2011. One of the most interesting shifts in online video viewing over the past 24 months is the increase in viewing between 9pm and 11pm (TV primetime) each night. According to the Yahoo! study, in 2009, videos consumed in this time slot represented only 10% of the total. In 2011, this time slot hit 45%, owing largely to the convenience of tablets coupled with access to premium content through Netflix (NFLX, Underperform) and Hulu, according to the Yahoo! study. iPads are the most important mobile device for online video viewing, and this device has its own viewing dayparts distinct from other devices. According to FreeWheel data, iPads exhibit primetime viewing patterns during both the 7am to 10am time slot and again between 9pm to 11pm.
Valuing Engagement 9 2011 Approximately 100 million Americans watched online video daily in 2011, representing a 43% year- over-year increase over 2010, according to comScore. The average viewing length rose from 5 minutes in 2010 to 5.8 minutes in 2011, attributable to higher premium content viewing on VEVO, Hulu and Netflix.
2012 In January 2012, in terms of engagement, Google Sites including YouTube served 150 million unique viewers for an average of 449 minutes, according to comScore. Hulu was next at 189 minutes per viewer per month, followed by VEVO at 62 minutes, Viacom at 58 minutes, and Yahoo! at 57 minutes. Figure 9 includes a summary of video engagement per viewer in January of 2012.
Engagement of Top Online Video Sites, January 2012 Figure 9
Source: comScore January 2012 U.S. Online Video Rankings.
Cord Cutting & Slicing Are Driving Online Video Growth Cutting or slicing the cable/satellite/telco TV cord is a structural trend that drives higher online video viewing. Homes that did not pay for cable TV grew 23% in 2011, according to Nielsen. These households often use “rabbit ears” to get the over-the-air broadcast channels such as ABC, CBS, NBC, Fox and PBS for free. Nielsen calls these homes “broadband + broadcast-only homes.” Broadband + broadcast-only homes spend about half as much time watching TV (122.6 minutes vs. 256.5 minutes per day) as cable subscription households and twice as much time streaming online video (11.2 minutes vs. 5.0 minutes per day), as illustrated in Figure 10.
10 An investment analysis by Needham & Company, LLC Cord Cutting Elongates Engagement Online Figure 10
Source: Nielsen.
Online Video Outlook Mobile adoption is growing more rapidly than in-home.
IN-HOME The growth of online video viewing is expected to be 32% annually in each year between 2010 and 2015, according to Cisco. Drivers of online video growth in the household are IPTV, OTT, video conferencing, game consoles, and connected TVs.
MOBILE On mobile devices, tablets, smartphones and eReaders are driving consumer adoption of mobile online entertainment and leisure. Mobile devices open “new windows of time” for video consumption. We expect viewers to spend more time with video formats as they take their devices with them and use the cloud to access their content anywhere. Cisco VNI Global Mobile Data forecast projects that two- third of the world’s mobile traffic will be video by 2015, representing a 100% per year annual growth rate between 2011 and 2015.
Economics of Online Video Advertising revenue grows with engagement. Advertising revenue grew 49% year over year in 2011, which was slightly faster than the 47% year-over-year growth in video views (see Figure 11). This growth took place in an environment in which ad loads doubled to 7 video ads per long-form online video stream (defined as >20 minutes) in 2011. FreeWheel data shows that video completion rates for video ads were stable at 94% during 4Q11 and 88% for the full year 2011, despite the doubling of advertising loads in long-form content over the course of 2011. That is, consumers do not turn off the content because ads appear. By 4Q11, 75% of all digital video content had an advertisement in it, up from 50% in 1Q12.
Valuing Engagement 11 Trends in Online Video Economics Figure 11
Source: FreeWheel Video Monetization Report, Full-Year 2011. The data in this report comprises over 45 billion video views and nearly 28 billion video ad views throughout 2011, primarily in the U.S. market.
Longer viewing times (i.e., elongating engagement) is a key revenue driver because longer attention spans create additional monetization opportunities. As illustrated by Figure 12, long-form content (>20 minutes) consistently has significantly higher monetization potential compared with shorter forms of online video. This is in part owing to length and in part owing to the premium nature of long-form content.
The Economics of Video Length Figure 12
Source: FreeWheel Video Monetization Report, Full-Year 2011. This report includes data from ESPN (DIS, Hold), Discovery (DISCA, Hold), Turner (TWX, Hold), Fox (NWSA, Hold), A+E Networks, AOL (AOL, Buy), Vevo, and many other sites.
12 An investment analysis by Needham & Company, LLC Economic Projections Online video advertising budgets should rise 27% in 2012, according to a survey published by Adap.tv and Digiday. Branded advertisers that purchased online video ads in 2011 said they would increase their spending by 47% year over year in 2012 and 84% of advertisers that purchased no video ads in 2011 say they will add video to their advertising budget in 2012. According to a recent Futuresource study, online video revenues are on track to hit $7 billion in 2015, driven by online purchases, rental transactions, and streaming subscriptions revenue paid to Netflix. By 2015, Futuresource expects online video revenue to hit $7 billion across four countries.
Online Games
Playing games is a nearly universal human endeavor that transcends language and cultural barriers. Interactive gaming has been a major industry in the U.S. for over 35 years. For most of the first 30 of those years, growth came from the expansion of the installed base of console video game players, as well as the fact that as the initial generation of gamers (teenagers and tweens) aged, they remained gamers. In addition, expansion of ownership of video game consoles and PCs outside the U.S., Japan and Europe has contributed to growth. More recently, however, the growth has come from other sources. While sales of hardware and software for video game consoles have always been cyclical (rising and falling with each new “generation” of increasingly powerful graphics chips), console sales have stalled, and a fundamental shift is underway in the industry.
Until gaming networks developed in recent years, most interactive gaming for the past 30 years has been either essentially solitary, or limited to whoever was in the room at the time. The spread of connected gaming has broadened the demographic appeal of games to include women.
In terms of game genres, there have been three areas of growth in interactive gaming in recent years:
1. Blockbuster, sequel-driven console titles such as Call of Duty: Modern Warfare, Battlefield, Assassin’s Creed, etc., which garner a growing share of a shrinking pie, leaving little (if any) profitable revenue for lesser console titles. 2. Massively Multiplayer On-Line Games (MMOGs) akin to World of Warcraft (which is actually not growing). Examples include Star Wars: The Old Republic, Dungeons and Dragons, Forsaken World, Runes of Magi and many others. These games require countless hours, but are increasingly accessible as publishers adopt the “freemium” business model (discussed below). 3. Casual Games, which include puzzles, “-ville” simulations, hidden objects, solitaire or poker, and other games that can be learned easily and enjoyed in “snack” size portions.
Two of these genres (MMOGs and Casual games) are benefitting from the spread of social networks, and the popularity of these genres is helping propel that spread. A growing number of game publishers (led by Kabam, Kixeye and others) are releasing “hard-core” MMOG-type games for Facebook players. Casual games, which are playable in a consumer’s browser, and, therefore, require almost no time to download, are perfectly suited to the “quick-stop” nature of how the average Facebook user spends time. Furthermore, the easy, broad appeal of these games, and the fact that increasingly players are encouraged to share results and enroll new players make these games powerful marketing tools to get new users signed up to the social networks, and to get existing users to spend more time on the sites.
Even more important than genre or platform shifts has been the recent emergence of the freemium business model, which dramatically changes the economics of gaming. Initially, freemium (or free-to- play) emerged in Asia among game publishers who were reluctant to publish titles on PC-CDROM or video game console disks for fear of piracy, which is rampant in certain parts of the world. The idea was to attract initial trials and then convert users to subscriptions. In the last two years or so, this model has taken off in the U.S., and is profoundly changing the landscape.
Valuing Engagement 13 Typically, freemium games have much shorter development cycles, lower development costs, and are updated and changed continuously after the launch, in contrast to console games, which have long development times, high budgets, and are changed post-launch typically only through the addition of new levels. This new model has seen new publishers quickly gain market share, as older publishers have struggled to protect legacy retail package goods businesses. In this respect, social networks have become an agent of the most profound changes to hit interactive digital gaming in decades.
Casual games have the broadest demographic appeal, the lowest technological threshold, and the least time commitment. They are both a reason to visit a social network, and a major beneficiary of the sociality. Gaming becomes just another way of sharing information about oneself and expressing oneself. Users, rather than having to wait until they see their friends, can share information with them instantly. Someone playing Farmville can send a message to her friends saying, “Hey, look I bought a cow!” Or, more importantly, “Would you like to buy some seed for me so I can plant corn?”
Zynga’s success was built on the virality of social games. Indeed, the fact that Facebook curtailed the extent to which un-requested updates on friends’ games could be shared, Zynga was able to exploit this virality feature to build its massive user base. Economically, social networks have emerged as an important driver of economics. While much has been made of the fact that the dominant player in social gaming, Zynga, derives over 90% of its revenue through Facebook, it is just as important to note that Zynga accounted for 12% of Facebook’s revenue, according to recent SEC filings.
We believe that women have been drawn by the emergence of casual and social games. Women are attracted to games that emphasize cooperation rather than competition, and they are interested in games that connect them to their friends. In addition, we believe that the freemium model also attracts women who may be more reluctant than men to try games that require a cash outlay before the experience.
Economically, social networks benefit from gaming in several ways. Indirectly, the appeal of games helps broaden the subscriber base, which, in turn, makes the networks more valuable to advertisers. More directly, networks such as Facebook collect a portion of the money that user pay to play the games. All transactions within Facebook games are paid for with Facebook credits, which users either buy directly, or earn through game play. Facebook keeps 30% of the money that users pay for in-game purchases (for lives, weapons, “skins,” props and other cosmetic features).
Generally, length of user engagement on a social network increases the monetization potential of that user. That is, because gamers are monetized through advertising, longer engagement times should lead to more ads viewed. However, we note that revenues can also be realized from gamers looking to reduce the length of time they play a game. Specifically, freemium model games give players opportunities to make in-game purchases (for lives, weapons, etc.). For consumers unwilling to lay out “real” money, the way to earn these rewards is to play long enough to earn the in-game currency needed to make the purchases. Less patient, but perhaps more affluent, gamers may choose to take a “short cut” by making purchases with real currency. In these cases, the social network may actually realize greater revenues from a gamer taking such short cuts (and thereby reducing the engagement time) than from the user playing the game for longer periods.
In our view, the future for gaming on social networks is bright, but not without its challenges. One emerging technology that promises to foster meaningful growth in gaming on social networks is the HTML5, an authoring tool that should allow for increasingly robust games being available through the browser, as opposed to requiring a download. Still in its early stages, HTML5 could result in much broader range of genres available through social networks. Among the challenges that Facebook and other networks will face is the (understandable) desire of game publishers not to be dependent on any
14 An investment analysis by Needham & Company, LLC one platform, and not to have to fork over 30% of the in-game revenue. Recently, we have seen publishers such as EA establish their own game networks (Origin, in the case of EA), which they use to sell their own games as well as those of other publishers. Recently, Kabam announced it was partnering with GameStop’s Kongregate to make its games available on that network. And we would not be surprised to see Zynga and other game companies set up their own networks, both to capture greater economics, as well as to reduce their dependence on a single partner.
The Economics of Engagement
Can we put a value on consumer engagement? If “time spent” is a proxy for engagement, then the U.S. TV ecosystem may provide a starting point to calculate the revenue associated with an hour of engagement when the internet ecosystem is mature. As illustrated in Figure 13, total time spent on the Internet has been growing rapidly over the past decade and today represents approximately 21% of total TV (Live-Only + DVR) viewing in the U.S.
U.S. Internet vs. Other In-Home Uses of Time, 2011 Figure 13
Millions of Hours of Monthly Media Con sum ption
Tr a d it io n a l Live‐Only TV 44,037
Inte rnet (A ll Web Co nsum ption) 10,0 56
DVR Viewing 2,988
Online Video 641
Video on Dem and 353
Netflix (Online Stream ing) 68
0 10,00020,00030,00040,00050,000
Sources: Simulmedia (U.S. only) and Nielsen. Traditional Live-Only TV and DVR viewing based on average monthly figures during 1Q11. Internet and Online Video based on average monthly consumption during April 2011. Video on Demand based on consumption during May 2011. Netflix based on consumption during January 2011. Internet excludes mobile.
As a starting point for the value of consumer engagement in a mature ecosystem, PriceWaterhouseCoopers (PWC) estimates that the U.S. TV ecosystem reported total revenue of $150 billion in 2011 ($70 billion of advertising + $80 billion of monthly fees paid by consumers). At the simplest level of analysis, as the hours per month spent on the Internet per person move toward TV’s, the revenue gap should close. Additional revenue should be added to U.S. economics for engagement achieved outside the U.S.
Can we value an hour of engagement? As illustrated in Figure 14, we estimate that each hour of engagement by a single person could generate revenue of approximately $266 by advertisers plus consumers. We calculate this by taking total revenue (subscription plus advertising) and dividing it by total hours of engagement (viewing) in 2011.
Valuing Engagement 15 Calculation of an Hour of U.S. Engagement Figure 14
$s in millions
Annual U.S. TV Revenue (mm) $150,000
Total live TV hours/month 44 Total DVR hours/month 3 Total TV viewing /month 47 Months/Year 12 Total TV Hours viewed per year (mm) 564
Revenue/hour of engagement $266
Source: PWC, Nielsen and Needham & Company, LLC.
Valuation Multiple
What multiple should be put on this revenue? High multiples are justified for Internet revenue owing to its lower capital intensity and global footprint. Global scale elongates the revenue growth runway and creates incremental upside optionality. Additionally, growth commands a premium multiple in the current low growth environment, driven by its sheer rarity value. Finally, many of the digital markets appear to be “winner-take-most” markets, so investors that want to participate in a specific sector have few investment options, driving higher valuations.
Companies that Benefit from Rising Engagement
Facebook Facebook has developed the most successful social platform that allows retailers and advertisers to engage with consumers at scale. Facebook’s 845 million users represent nearly 37% of global Internet users5. Advertisers and retailers are attracted to the sheer number of Facebook users, which we believe is one of the primary forces behind Facebook’s increasing advertising revenue. In addition to the scale represented by 845 million active monthly users and 483 million daily users, Facebook’s fans and friends of fans are the key metrics we look to for engagement trends. Facebook revealed that users generated an average of 2.7 billion Likes and Comments per day during 4Q11. Additionally, users generate 100 million Likes for brands every day.
5 Internet World Stats indicate 2,267,233,742 Internet users as of 12/31/2011.
16 An investment analysis by Needham & Company, LLC Users Are Engaging More Frequently on Facebook Figure 15
900
800
700
600
500
400
300 Users (in Millions) (in Users
200
100
0 2009 2010 2011
Daily Active Users Monthly Active Users
Source: Facebook and Needham & Company, LLC.
In December 2011, Facebook highlighted that over 50% of its month active users, or 425 million users, accessed Facebook with mobile devices. The number of mobile Facebook users increased 4x from 2010 and even 21% from the 350 million mobile uses Facebook highlighted in September 2011. Despite the rapid growth in mobile users, we believe mobile access is not yet cannibalizing web engagement given the continued strong growth in unique visitors to Facebook’s PC website, which increased 28% year over year in January 2012. Additionally, increased mobile usage was a primary contributor to Facebook’s overall daily active user growth of 48%.
Google Google (GOOG, Buy) connects consumers and businesses not only with its recently launched Google+ social network, but also through its market leading search engine, display advertising ecosystem, and mobile business. Google dominates Internet advertising, primarily through its search engine. With 66% market share, according to comScore, Google dominates search, which is the largest component of online advertising today. The company is seeking to replicate its success in display advertising, and has assembled one the most comprehensive display advertising ecosystems, with Invite Media, the DoubleClick Ad Exchange, the Display Network, Teracent, and AdMeld. Google indicated that its display advertising annual revenue run-rate was $5 billion in 4Q11, which would indicate that it passed Yahoo! in display advertising market share. Google’s advertising network also extends to mobile. Its Android operating system garners 46% of the smartphone market with 700,000 activations a day. Google’s acquisition of Admob in 2009 was the genesis of its mobile advertising network, which is now on an annual revenue run of $2.5 billion and accounts for 52% of the mobile advertising market, according to eMarketer.
Valuing Engagement 17 With Google’s social network, Google+, the company established itself as a key player in social media. Google+ has an estimated 90 million users. Google+ announced Pages in November 2011, which enables brands to manage their social presence on the Google+ network. While still early, BrightEdge reports that 61% of the top 100 brands have established Google+ Pages, a strong start, but still behind the 93% of the top 100 brands on Facebook. While we are skeptical that Google+ will reach the scale of Facebook, the social platform is likely to be woven into all things Google. The company began to integrate its Google+ social network into its search engine results page. Known as “Search Plus Your World,” the search results include private and personal content from users logged in to Google+. Google+ people and pages are at the top right side of the search engine results page in an area typically reserved for ads. Google’s search box auto completes Google+ usernames for people who are in the searcher’s network of friends and pages, as well as other prominent users. Google has been integrating Google+ with Android, Picasa Web Albums, Gmail, and Reader, unifying and cross-promoting its products. We also believe Google has been experimenting with Google+ social aspects, such as the size of circles, users following a brand, and collected +1s into its page rank algorithms. We believe the impact of integrating Google+ into the search engine results pages could be significant as marketers are compelled to launch Google+ pages to take advantage of the new page rank algorithms, further driving user growth. The social platform is also integrated into Android, which prompts new users to sign up for Google+. We also believe Google+ is integrated into Google Maps, Google Places, and Wallet. Google should be able to link local listings from its Maps to Google’s branded pages, which in turn could offer coupons, discounts, deals, or typical e-commerce offerings. Those with a Wallet-enabled smartphone are likely to receive location-based deals, which can be purchased using Google Wallet.
Many also consider YouTube a social network, which continues to dominate video viewing on the Internet. YouTube is the fourth most popular website on the Internet, behind Google.com, Facebook, and Yahoo!. According to social marketing software firm, Awareness, YouTube is the fourth most popular social networking platform for marketers. We expect marketers to turn to YouTube as a viable alternative to the big three social networks in 2012. YouTube enables brands to connect to consumers through creative video advertisements, blogs, and tutorials. In turn, consumers can share and vote on videos they enjoy.
Twitter Twitter provides a real-time information platform. As the largest real-time information platform, Twitter has 100 million active users that produce over 250 million tweets per day. Twitter generated revenue of $140 million in 2011, a 210% increase from 2010. According to eMarketer, Twitter’s revenue could reach $400 million in 2013. A study by BrightEdge analyzed 4 million randomly sampled tweets and found that sites that adopted Tweet buttons drove almost 7x more link mentions on average than sites that did not have a button. Over the last couple of years, the company launched sponsored advertising, in the form of promoted tweets, trends and accounts. The promoted tweets have exhibited engagement levels 100x over its display ads. Twitter also recently redesigned its site that provides advertisers and brands with the ability to create their own pages. We believe the objective of the site redesign was to make information discovery easier, as well as easier for brands to connect with consumers. We believe the flexibility of Twitter’s brand pages should enable the company to attract brands and compete effectively with Facebook and Google+. We also believe the ease for consumers to tweet, retweet, or following brands should appeal to brands. In a further attempt to lure brands to Twitter, we believe the company is beginning to enable brands to build platforms on their brand pages, which broadens the functionality of the brand pages. The goal is to keep users within a brand’s page and in the Twitter environment. Twitter has also recently launched its self-service ad platform. While limited to only a few testing advertisers and promoted products, we expect the options to expand over time. We believe the self-serve ad platform should appeal to small and medium businesses, which could significantly increase ad volumes and revenue growth. We also believe Twitter is experimenting with enabling in-stream advertisements.
18 An investment analysis by Needham & Company, LLC Twitter has the highest percentage mobile usage among its social networking peers. Management indicated in 3Q11 that 55% of active Twitter users are on mobile devices. With over a 100 million active users, that would translate into approximately 55 million mobile users. However, we believe this percentage likely increased dramatically as Apple integrated Twitter into iOS 5, which launched in early 4Q11. Moreover, Twitter CEO, Dick Costolo, indicated that Twitter’s sign-ups doubled and the number of tweets sent increased 90% following the launch of iOS 5. Additionally, Twitter is the only social network that can claim that mobile users spend twice the amount of time accessing Twitter than PC Twitter users.
LinkedIn LinkedIn has also carved out a successful social network focused on professionals with 145 million users in over 200 countries. The company’s professional graph adds social relevancy to each user’s potential connections within a user’s network by indicating how each user relates to other users and entities. LinkedIn’s recommendation engine incorporates users’ profiles, clicking behavior, and information pulled from users’ networks to provide personalized connections, jobs, groups, and content. We believe LinkedIn is effectively the leader in brand pages with two million companies establishing LinkedIn pages. Through enterprise and consumer subscription and advertising, LinkedIn generated revenue of $522 million in 2011. LinkedIn has taken steps to enhance engagement with new features and content. Over the past couple of years, LinkedIn has added LinkedIn Today, LinkedIn Plug-in and APIs, and Polling. LinkedIn Today is a customized news feed tailored toward users’ connections and industry peers’ interests. Additionally, over 300,000 pages have integrated the LinkedIn share button on their sites. Near the end of 2011, the company introduced Polls, which was designed to improve conversation flow. The company’s mobile app has proliferated widely and represents LinkedIn’s fastest growing segment. Beyond LinkedIn pages, the company maintains a highly valuable and unique database of sought-after professionals that are attractive to marketers. Moreover, through LinkedIn’s profile, the company can target advertising toward users’ potential interests.
LinkedIn’s mobile visits accounted for more than 15% its total unique user visits in 4Q11, an increase from 13% in 3Q11. Given LinkedIn’s 145 million users, the company’s mobile users number just above 22 million, relatively small.
Tumblr Founded in 2007, Tumblr is a creative combination between a micro-blogging platform and social networking site that enables users to curate text, images, videos, links, quotes and audio to their tumble-log, a short-form blog. Users follow other users and “reblog” their posts, or choose to make their tumble-log. The service emphasizes ease of use and each blog can be customized from the colors to the theme. Tumblr had over 45 million blogs, and according to Compete.com, received 18 million unique visitors in the U.S. in January 2012, an 80% increase from January 2011. Similar to the overall Internet, users can find a wide variety of content, ranging from fashion, art, food, gaming, entertainment, sports, news, politics, history, and technology. Research from Awareness Inc. indicates that U.S. marketers plan to invest in smaller social networking sites, particularly Tumblr. The investment is expected to boost Tumblr’s presence with marketers to 25% from 15%, which is a 66% increase from the previous year. The company has indicated that on average a post on Tumblr is reblogged nine times, which suggests the engagement is high on the site. Tumblr recently began hiring its own writers and editors in order to curate the best or most popular of Tumblr. We believe this curation could serve to increase the amount of time users spend on the site, resulting in an increased value to advertisers.
Valuing Engagement 19 Foursquare Foursquare initially offered a GPS-based mobile app check-in service that lets people share their location and personal recommendations, as well as enabling users to earn badges. Within the app, which is available on iOS, BlackBerry and Android, users can also follow friends, get tips on local venues and make to-do lists. These functions have enabled Foursquare to increase its users from 9 million to 15 million in less than a year. While location remains the cornerstone of the Foursquare app, we believe the company has moved beyond its check-in app by leveraging the data gleaned by users to recommend offerings to users based on their proximity, previous check-ins and the check-ins of their friends. Foursquare also has 600,000 merchants that offers coupons and other deals to consumers who check-in near their locations. While the company has not generated a fee for this service, we believe Foursquare may begin charging a fee over time. Over the course of 2011, the company has partnered with several high-profile companies to drive additional adoption of its app. Foursquare has partnered with American Express, Living Social, Groupon, Gilt Groupe, and AT&T. These partners make their daily deals available through Foursquare. The company has also been busy introducing new features, such as Radar, Save to Foursquare, and Follow on Foursquare. Radar notifies users when they are near venues they have shown interest in visiting. The “Save to Foursquare” and “Follow on Foursquare” integrates the real world with the online world. The “Save to Foursquare” button is aimed at online publishers and can enable publications to relate stories and reviews to places listed in the Foursquare app, which is being used by Frommer’s Travel, Eater.com, New York Magazine, Time Out NY, Time Out Boston, Time Out Chicago, AskMen.com and CBS. The “Follow on Foursquare” button enables anyone with a website to allow Foursquare users to follow that person or business on Foursquare with a simple click, similar to Twitter’s follow button. Most recently, Foursquare has partnered with SinglePlatform to offer menu information for nearly 250,000 restaurants across the U.S. We believe brands are beginning to gravitate toward Foursquare as the network effect shifts into high gear. Foursquare is able to offer brands a highly engaged distribution channel, which can target users through better use of data and the shopping habits of its millions of customers. Most recently, Foursquare partnered with American Express and Pizza Hut for a $5 rebate on any food order from the pizza chain that exceeds $10. American Express users must check-in to the “Super Swarm Sunday” feature created for the Super Bowl. Users paying with their American Express card will receive a $5 statement credit after ordering from Pizza Hut online, by phone, or in stores.
Automattic Automattic is the parent of the largest blogging site on the Internet, Wordpress.com. While brands have leveraged blogs, we expect advertising to target blogs as contextual advertising technologies become more robust. There are over 71 million Wordpress sites with approximately half hosted by Wordpress. It reports that over 350 million people view more than 2.5 billion pages each month. We noted that Wordpress.com had 34.2 million unique visitors, a 6% year-over-year increase, according to Compete.com. Wordpress.com’s flexibility enables users to create news sites, company sites, magazines, social networks, and sports sites, such as Mashable, The New York Times, CNN, Forbes, All Things Digital, GM, and eBay. In facts, the majority of users use Wordpress as a content management system, which differentiates Wordpress from Tumblr. Recently, Wordpress launched a new word-based advertising service, called WordAds. It entered into an advertising partnership with Federated Media in October 2011, which through its partnership brands can pull in curated content from these blogs. Marketers should be able to deliver ads based on the context of these blogs. We believe the platform functions much like Google’s AdSense, enabling bloggers to put hyper-linked text ads on their site based on the type of content they produce, and in return generate revenue based on page views and the number of times someone clicks through each ad. WordAds is likely to generate the majority of its revenue from display advertising. The new ad platform is expected to launch in 1Q12. We also expect the company to focus on launching social and mobile features in 2012.
20 An investment analysis by Needham & Company, LLC Pinterest Pinterest is a new social site that is gaining considerable traffic. This virtual pinboard enables users to curate and share interests with others. Users create visual creations, such as weddings, home décor, or favorite recipes. Users can browse, discover and comment on the pinboards created by other people. Pinterest’s visually appealing images have resonated with users, particularly women, propelling unique visitors to 11.1 million unique visitors in January 2012 from just 120,000 a year earlier. This image sharing site is well positioned to cater to brands. We believe Pinterest enables retailers to create virtual storefronts. Nordstrom leverages Pinterest to share ideas and trends in the retail social media landscape. Additionally, users are able to easily comment on the photos of the curated fashion collections. Lands’ End leveraged Pinterest to hold its “Pin It to Win It” contest, which encouraged users to browse Land’s End and create pins of items they liked and the most creative and stylish entries won prizes. Other brands have leveraged Pinterest’s feedback mechanism to conduct market research or test product launches. Brands can also create story boards with images. The company has referred significant amounts of traffic to e-commerce sites, such as Etsy and Nordstroms. While driving traffic is important to marketers, the true potential in Pinterest may be in its ability to impact purchases as users view Pinterest’s curated pinboards.
Tagged Tagged is carving out a niche for social discovery and connecting people that do not know each other, which is different than Facebook’s focus on connecting users that know each other. The company has over 20 million active users and about 330 million registered users, half coming from the company’s recent acquisition of social networking site, Hi5. Tagged intends to pivot Hi5 toward social discovery as well. According to Compete.com, Tagged had the highest average stay per user visit at over 21 minutes. This beats YouTube and Facebook. The majority of the user base is international with only 30% of the Tagged user base in the U.S. There was very little geographic overlap with the Hi5 user base as Hi5 had almost no U.S. presence. Tagged is profitable and revenue increased 35% year over year to $43 million in FY11.
Quepasa Corporation Quepasa is a leading social discovery platform. Quepasa operates leading social networking sites myYearbook.com and Quepasa.com, as well as Quepasa Games, a cross platform social game development studio. myYearbook.com and Quepasa.com comprise the company’s social discovery properties. Quepasa, through its website Quepasa.com, is one of the fastest growing online social communities for young Latinos. Quepasa.com provides users with access to an expansive, multilingual menu of resources that promote social interaction, information sharing, and other topics of importance to Latino users and is dedicated to empowering young Latinos with the most entertaining online social community. On November 10, 2011, Quepasa Corporation acquired Insider Guides, Inc., owner of social network myYearbook.com. myYearbook.com enables users to meet new people online and through mobile phones. myYearbook combines social games, virtual goods, social and mobile games, a location-based news feed, video chat, and a robust virtual currency called “Lunch Money” to facilitate introductions and break the ice among its users. myYearbook drives revenue from a mix of advertising and virtual currency. In September 2011, myYearbook’s mobile applications accounted for over 46% of its total daily active users, up from only 2% in January 2010.
Valuing Engagement 21
Comp Table ($ in MM, except per share data) Figure 16
Price Market PE Ratio EPS Revenue Ticker Company Analyst Rating 2/16/12 Cap. CY12E CY12E CY12E Large Cap AMZN AMAZON.COM INC. RICE HOLD $179.93 $82,948 133.4 $1.35 $62,986 EBAY EBAY INC. N/R $34.51 $44,411 15.0 $2.30 $13,820 GOOG GOOGLE INC. RICE BUY $606.52 $198,575 14.4 $42.20 $35,444 YHOO YAHOO INC. MARTIN, CFA BUY $15.36 $19,689 18.4 $0.83 $4,441 Mean x 45.3 x Internet Media AOL AOL INC. MARTIN, CFA BUY $18.80 $2,015 24.0 $0.78 $2,121 DMD DEMAND MEDIA INC. N/R $5.94 $498 18.9 $0.31 $366 EHTH EHEALTH INC. N/R $16.08 $322 51.9 $0.31 $150 GOOG GOOGLE INC. RICE BUY $606.52 $198,575 14.4 $42.20 $35,444 IACI IAC/INTERACTIVECORP RICE HOLD $46.15 $4,493 17.5 $2.64 $2,529 INSP INFOSPACE INC. N/R $12.33 $486 18.5 $0.67 $256 MOVE MOVE INC. N/R $8.98 $354 26.4 $0.34 $197 P PANDORA MEDIA INC. MARTIN, CFA BUY $12.82 $2,449 646.5 $0.02 $409 TTGT TECHTARGET INC. N/R $7.07 $273 17.7 $0.40 $118 TZOO TRAVELZOO INC. N/R $25.35 $405 16.4 $1.55 $164 TRIP TRIPADVISOR INC. N/R $30.40 $4,057 22.3 $1.37 $749 VCLK VALUECLICK INC. RICE BUY $19.71 $1,635 16.4 $1.20 $714 XOXO XO GROUP INC. N/R $9.00 $258 37.1 $0.24 $136 YHOO YAHOO INC. MARTIN, CFA BUY $15.36 $19,689 18.4 $0.83 $4,441 Mean x 67.6 x E-Commerce FLWS 1-800-FLOWERS.COM N/R $3.02 $196 17.0 $0.18 $734 AMZN AMAZON.COM INC. RICE HOLD $179.93 $82,948 133.4 $1.35 $62,986 ABTL AUTOBYTEL INC. N/R $0.99 $46 10.2 $0.10 $72 NILE BLUE NILE INC. N/R $37.52 $509 42.2 $0.89 $384 DRIV DIGITAL RIVER INC. N/R $18.33 $651 14.9 $1.23 $405 EBAY EBAY INC. N/R $34.51 $44,411 15.0 $2.30 $13,820 EXPE EXPEDIA INC. N/R $33.27 $4,446 11.9 $2.80 $3,739 GRPN GROUPON INC. N/R $20.30 $12,797 69.2 $0.29 $2,341 AWAY HOMEAWAY INC. N/R $26.98 $2,174 49.2 $0.55 $284 LQDT LIQUIDITY SERVICES INC. N/R $42.21 $1,294 29.6 $1.43 $461 OWW ORBITZ WORLDWIDE INC. N/R $2.93 $304 13.6 $0.22 $813 OSTK OVERSTOCK.COM INC. N/R $6.62 $154 N/M ($0.17) $1,228 PETS PETMED EXPRESS INC. N/R $11.69 $238 15.1 $0.77 $237 PCLN PRICELINE.COM INC. N/R $571.32 $28,442 19.1 $29.90 $5,428 SFLY SHUTTERFLY INC. N/R $27.47 $958 96.0 $0.29 $556 PRTS U.S. AUTO PARTS NETWORK INC. N/R $4.40 $135 55.0 $0.08 $346 VPRT VISTAPRINT NV N/R $39.74 $1,467 20.4 $1.95 $1,132 Mean x 38.2 x Internet Marketing ACTV ACTIVE NETWORK INC. N/R $15.76 $855 100.1 $0.16 $409 SCOR COMSCORE INC. N/R $23.01 $760 20.5 $1.12 $278 CTCT CONSTANT CONTACT INC. HUANG BUY $29.75 $865 33.4 $0.89 $252 LPSN LIVEPERSON INC. N/R $15.09 $804 36.0 $0.42 $163 LOCM LOCAL.COM CORP. N/R $3.04 $67 27.6 $0.11 $109 MCHX MARCHEX INC. N/R $5.08 $189 22.1 $0.23 $151 QNST QUINSTREET INC. N/R $11.33 $540 11.5 $0.99 $417 MKTG RESPONSYS INC. N/R $11.98 $568 53.0 $0.23 $161 RLOC REACHLOCAL INC. RICE BUY $8.00 $237 N/M ($0.09) $442 SAPE SAPIENT CORP. N/R $13.01 $1,819 17.9 $0.73 $1,175 VOCS VOCUS INC. N/R $23.47 $470 25.8 $0.91 $133 Mean x 34.8 x Internet Services ACOM ANCESTRY.COM INC. N/R $23.83 $1,050 15.5 $1.53 $464 ANGI ANGIE'S LIST INC. N/R $15.41 $857 N/M ($0.79) $140 RATE BANKRATE INC. N/R $23.49 $2,349 27.6 $0.85 $541 DHX DICE HOLDINGS INC. N/R $9.03 $589 16.0 $0.56 $197 LNKD LINKEDIN CORP. N/R $92.00 $8,871 149.3 $0.62 $869 LOOP LOOPNET INC. N/R $17.51 $590 60.4 $0.29 $95 MWW MONSTER WORLDWIDE INC. N/R $7.04 $867 25.5 $0.28 $980 NFLX NETFLIX INC. WOLF UP $121.91 $6,759 N/M ($0.18) $3,650 ORCC ONLINE RESOURCES CORP. N/R $2.75 $88 13.0 $0.21 $161 OPEN OPENTABLE INC. N/R $49.79 $1,183 32.3 $1.54 $168 RNWK REALNETWORKS INC. N/R $10.62 $365 N/M ($0.65) $338 STMP STAMPS.COM INC. N/R $29.77 $447 22.1 $1.35 $114 WWWW WEB.COM GROUP INC. N/R $13.35 $632 9.1 $1.46 $463 Z ZILLOW INC. CL A N/R $34.26 $944 119.2 $0.29 $101 Mean x 44.5 x Overall Mean x 46.3 x Source: FactSet, Needham & Company, LLC.
22 An investment analysis by Needham & Company, LLC Private Social Companies Any.DO was founded in 2010 by Omer Perchik, Yoni Lindenfeld and Itay Kahana. Inspired to create a tool that will simplify the way people Any.DO do things (so they can have more time for fun), Omer started http://www.any.do sketching some ideas and after getting Yoni and Itay on board they started their journey to find a better way to make things happen. The first step was to release a simple to do list app, collect some feedback and test some concepts. The app soon became one of the most popular to do list apps out there.
AVOS recently re-launched Delicious.com to help people discover and collect the web. The company is led by Chad Hurley and Steve Chen, Avos who previously co-founded YouTube, which was acquired by Google http://www.avos.com for $1.76 billion. Hurley and Chen were early employees at PayPal, a leading online payment service, which is now part of eBay. AVOS is located in San Mateo, California.
Founded in 2010, Badgeville’s client roster includes over 100 Fortune
Badgeville 1000 enterprises and the world’s most innovative companies, http://badgeville.com including Deloitte Digital, Dell, AOL, Samsung, NBC, The Active Network, Bluefly.com, and Universal Music. Badgeville makes it easy for marketers and brand strategists across content, commerce and enterprise sites to increase and measure conversions, referrals, retention and user-driven business objectives using proven techniques from social gaming, loyalty, social media, and social analytics.
Founded in 2006, Badoo is a multi-lingual social networking website with over 138 active members that is managed out of its London Badoo headquarters. It currently employs over 200 full-time international http://badoo.com staff. Badoo is available in 38 languages via Badoo.com and various social/mobile platforms as an iPhone, Android, Facebook and Desktop application. The site operates in 180 countries and is most active in Latin America, Spain, Italy and France.
Cyworld is a South Korean social network service operated by SK Communications, a subsidiary of SK Telecom. Members cultivate Cyworld (SK Telecom) relationships by forming Ilchon or “friendships.” Launched in 1999, http://cyworld.com Cyworld became one of the first companies to profit from the sale of virtual goods. Cyworld soon became wildly popular in its home market. By 2006, its domestic user base numbered 19 million.
Valuing Engagement 23 Echoecho is the simple location-based mobile application for finding
Echoecho friends in the real world. In just two clicks, you can find your friend's http://echoecho.me current location while sharing yours You’re in control of what you share, when you share it, and with whom you share it. People are using echoecho to help find a friend whether they’re in the same restaurant, out shopping or even in a different country. The service works anywhere in the world across multiple platforms, including Android, iPhone, Blackberry, and Nokia. An echoecho API is available to developers.
Eventbrite is an online service that people everywhere use to create, share, and join any event imaginable. Whether it’s a photography class Eventbrite with a local artist, or a sold-out concert in a city stadium, Eventbrite http://eventbrite.com makes it happen. It enables event creation, promotion and ticket sales. Eventbrite helps people discover events that match their passions. And it lets everyone share the events they’re creating or joining, bringing more people together around the world.
Flixlab makes it easy and painless for people to create great movies, exchange video clips and pictures, and share with their friends and Flixlab family right on their phones. No learning new tools, no hours lost http://flixlabs.com editing, and no experience needed—Flixlab lets anyone automatically and instantly create and share engaging movies in just a few taps. Like magic.
Flipboard is the world’s first social magazine. Inspired by the beauty and ease of print media, Flipboard’s mission is to fundamentally improve how people discover, view and share content across their social networks. Start reading your magazine by downloading
Flipboard Flipboard at www.flipboard.com. The company is based in Palo Alto, http://flipboard.com California, and backed by legendary investors Kleiner Perkins Caufield & Byer, Index Ventures, and Insight Venture Partners.
Givvy’s mission is simple: to help people find the perfect gift for any occasion. Whether it’s for a birthday, housewarming party or a little something for yourself, its community of curators makes it easy to Givvy discover trendy new gifts that will inspire and delight people. Givvy is http:www.//givvy.com uniquely designed for use inside Facebook—so people can discover gifts and share occasions while staying connected to friends. Givvy is an open community that let’s people participate in shaping the next gift-giving trend. Simply share your favorite gift ideas with friends and earn points as your influence gains in popularity.
24 An investment analysis by Needham & Company, LLC Glam Media is a pioneer of vertical media, connecting the world’s top brand advertisers with targeted vertical audiences online. Glam Glam Media invented the first commercial blog network in 2005 to harness the http://glammedia.com power of social media for brands. It has trusted relationships with more than 1,000 leading brand advertisers and is a Top 10 web property with more than 90 million monthly unique visitors in the U.S. and more than 220 million globally. Glam Media’s investors include Information Capital, Accel, DFJ, Walden Ventures, Hubert Burda Media, GLG, and Aeris.
Instagram is a free photo sharing application that allows users to take photos, apply a vintage filter, and share it on the service or a variety of
Instagram other social networking services, including Facebook, Twitter, http://instagram.com Foursquare, Tumblr, and Flickr. The application is compatible with any iPhone, iPad or iPod Touch running iOS 3.1.2 or above. Instagram is based in San Francisco.
Janrain is the most experienced provider of turnkey solutions giving organizations the ability to build deeper, more valuable relationships Janrain with their users as they connect their online presence to the social http://janrain.com web. In its early days, Janrain developed a consumer facing identity solution and wrote many of the open source OpenID libraries that continue to be used by companies and developers around the world. Janrain offers comprehensive user management solutions that have been successfully adopted by leading brands such as Sears, Universal Music Group, Meredith Publishing and National Geographic.
LAL (LikeALittle) lets students chat, flirt and connect with the people around them. Posters are 100% anonymous at all times. There are no LAL set screen names. Everyone is assigned a randomly generated fruit http://lal.com name for each comment thread and person they chat with. Fruit names contribute to the positive, playful spirit of the site. People find it difficult to take negative comments seriously when they’ve been written by a Blueberry.
Founded in 2004, Mixi is a social networking website in Japan. The focus of Mixi is “community entertainment”—meeting new people Mixi based on common interests. Users can send and receive messages, http://mixi.jp write in a diary, read and comment on others’ diaries, organize and join communities, and invite their friends.
Valuing Engagement 25 Orkut is a social networking website that is owned and operated by Google. The service is designed to help users meet new and old friends
Orkut (owned by Google) and maintain existing relationships. The website is named after its http://www.okrut.com creator, Google employee Orkut Büyükkökten. Although Orkut is less popular in the U.S. than competitors Facebook and MySpace, it is one of the most visited websites in India and Brazil. As of October 2011, 59% of Orkut’s users are from Brazil, followed by India with 27% and Japan with 6%.
Orchestra blends organization with communication to make working with others a piece of cake. Every conversation is focused around a Orchestra specific task, and you can collaborate with anyone in the world—all http://orchestra.com you need is an email or phone number to start delegating. Orchestra is your to-do list, connected with everyone in your life. It helps you get more done by organizing and communicating with others. People love Orchestra for small things like remembering which groceries to buy to large projects like planning a wedding.
Path is the smart journal that helps you share life with the ones you love. One button to post beautiful photos and videos, who you are
Path with, where you are, what you are listening to, what you are thinking, http://path.com and when you go to bed and wake up. Launched in November 2010, Path has grown to include over 2 million people sharing life with close friends and family all over the world. The company is headquartered in San Francisco.
Quora is an information network that connects its users to everything they want to know about. Quora aims to be the easiest place to blend Quora new content with the best of what’s on the web. It organizes people http://quora.com and their interests so they can find, collect and share the information most valuable to them. The company was founded by Adam D’Angelo, who was previously CTO and VP of Engineering at Facebook, and Charlie Cheever, who previously worked at Facebook, where he helped build the Facebook Platform and led the development of Facebook Connect.
26 An investment analysis by Needham & Company, LLC Qwhisper is a social search engine. It revolutionizes the way we use and think of social networks. It was co-founded by Eldar Sadikov, who Qwhisper is on leave from the Ph.D. program in Computer Science at Stanford http://qwhisper.com University, where he has done research in web search and social network mining. He has also previously worked for Google and Microsoft Research in web search. Qwhisper was also co-founded by Montse Medina, who is on leave from the Ph.D. program in Computational and Mathematical Engineering at Stanford University, where she has done research in parallel computing and social network mining. She has also previously worked at Oracle in text search.
SAY Media identifies and works with the finest editorial voices online to help them build successful media businesses—from improving SAY Media content and editorial design, to connecting with and growing http://saymedia.com audience. Its publishing platform, designed to meet the needs of the modern digital editorial team, and its people make it possible. All of the technology, from CMS to ad platform, is built in-house and proprietary to the media entities under the SAY umbrella.
TaskRabbit is an online and mobile marketplace that allows folks to live a smarter and more fulfilling life by once again relying on their TaskRabbit neighbors. TaskRabbit is about solving an age-old problem: there is http://taskrabbit.com never enough time in the day to do everything you need to do. TaskRabbit harnesses the power of the community to get things done. “Service Networking” leverages the latest social, mobile and location- based technologies to bring neighbors together to get things done.
Uptake helps travelers create their ideal vacation by giving them recommendations from friends who have been there and the largest Uptake online travel library. Founded in 2008 by some of the most http://www.uptake.com experienced online travel executives in the world, Uptake analyzes and organizes users’ travel histories, as well as travel information from more than 30,000 web sites, to help people get the most trusted, accurate and personalized recommendations and information from friends and people who know. Based in the heart of Silicon Valley, Uptake has become the largest independent U.S. travel research site, helping more than 30 million travelers research and plan their ideal vacations in 2011.
Valuing Engagement 27 Based in Silicon Valley, Viewdle is the only independent, mobile- focused computer vision company. Viewdle sits between the camera Viewdle and the consumer—introducing new user experiences in mobile http://viewdle.com interaction, augmented reality, photo management, gaming, social networking, and marketing. It enables people to see the world through computer vision with face, object and gesture recognition technology products that realize the full potential of the many advanced consumer devices that are now on the market—smartphones, tablets and other camera-enabled devices.
VK (Vkontakte) is a Russian social network service popular in Russia, Ukraine, Kazakhstan and Belarus. VK allows users to message contacts
VK publicly or privately, create groups, public pages and events, make http://vk.com notes, share and tag images and video, and play browser-based games. VK integrates torrent file sharing technology, which allows users to share large files. As of February 2012[update], VK has over 100 million users registered on its site; ~70% of its users live in Russia.
Wayin is a mobile engagement service developed by Scott McNealy, founder of Sun Microsystems. Utilizing the free Wayin app on their Wayin mobile devices, users post images and questions that will spark http://www.wayin.com humorous, passionate and lively debate among the global Wayin community. As soon as a Wayin user posts content, he or she will receive an instant pulse of other people’s sentiments about an entertaining topic. Wayin allows users around the world to connect with each other in real-time, giving them a gaming platform to share instant feedback on items that are most important to them and their friends. All Wayin users know their voice will be heard and their vote will be counted anytime, anywhere.
Yelp is a website that connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp
Yelp communities have taken root in major metros across the U.S., Canada, http://www.yelp.com U.K., Ireland, France, Germany, Austria, The Netherlands, Spain, Italy, Switzerland, Belgium and Australia. Yelp had a monthly average of ~66 million unique visitors in 4Q11. By the end of 4Q11, Yelpers had written more than 25 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists. On average, more than 5.7 million monthly unique visitors relied on Yelp Mobile applications in 4Q11 to help them make a spending decision on the go.
28 An investment analysis by Needham & Company, LLC Wiggio was created in January 2008 by two Cornell graduates looking for a better way to manage the responsibilities of working in groups. Wiggio The project secured funding in August 2008 and was officially released http://wiggio.com to the public as of September 15, 2008. The company’s mission is to continuously develop an application that eliminates the frustration of working in groups by providing the powerful, straightforward functionality that people need to work effectively. Wiggio is designed to be easy and straightforward. It provides everything you need to work productively in groups, without bogging you down with complexities, help menus and unnecessary features.
Valuing Engagement 29 Disclosures
Companies mentioned in this report under coverage by Needham & Company, LLC: Closing Price Disclosures Company Symbol 2/16/2012 Rating (see inside back cover) Amazon.com AMZN $179.93 Hold B, G Apple AAPL 502.21 Buy A, B, G AOL AOL 18.80 Buy B Constant Contact CTCT 29.75 Buy B, G Discovery Communications DISCA 44.94 Hold B, G Google GOOG 606.52 Buy B, G IAC/InterActive IACI 46.15 Hold B, G Netflix NFLX 121.91 Underperform B, G News Corporation NWSA 19.01 Hold B, G Pandora Media P 12.82 Buy B ReachLocal RLOC 8.00 Buy B, G Time Warner TWX 37.90 Hold B ValueClick VCLK 19.71 Buy B, G Walt Disney DIS 41.54 Hold B Yahoo! YHOO 15.35 Buy B, G ZipCar ZIP 13.99 Buy B, C, D, G, J
30 An investment analysis by Needham & Company, LLC Kerry Rice Internet Services & Digital Media Prior to joining joined Needham & Company, LLC in June 2011, Kerry Rice was a VP at Wedbush Securities covering companies in the Internet and e-Commerce space. Kerry utilizes his accounting background to identify potential irregularities and undervalued assets. He has hosted panels at industry conferences related to delivery content networks. Prior experience includes associate analyst positions covering the communications IC space at Pacific Growth and the communications software space at JPMorgan. Prior to Kerry’s career on Wall Street, he worked for Alcatel as an R&D accounting manager. He holds a Masters of Business degree in Finance and a Bachelor’s degree in Accounting and Economics, both from Southern Methodist University in Dallas. He is a Certified Public Accountant.
Laura Martin, CFA Entertainment, Cable & Internet Laura Martin graduated from Stanford in 1980, Harvard Business School in 1983, and she holds a CFA designation. In 1983, Martin joined Drexel Burnham Lambert in investment banking, with a media company focus. In 1991, she moved to the “buy side” at Capital Research & Management as a media analyst, with money management responsibilities for a $500 million media-equity portfolio. Beginning in 1994, she worked on the “sell side” at Credit Suisse First Boston as the senior media analyst publishing research on the largest U.S. entertainment and cable companies, and she was nationally ranked by Institutional Investor each year between 1999 and 2001. In 2002, Martin moved to Paris to become EVP of Financial Strategy and Investor Relations for Vivendi Universal. In 2004, Martin founded Capital Knowledge (www.CapKnowledge.com), a financial consulting firm providing expert witness testimony, capital markets advice, and valuation services to senior management teams. In the same year, she founded and became managing partner of Media Metrics, LLC publishing equity research on the largest entertainment, cable and internet stocks in the U.S., where she was nationally ranked as “Best of the Independent Research Boutiques” by Institutional Investor for many years. In 2009, Laura moved to Needham & Company, LLC, where she continues to publish research on large U.S. entertainment, cable and media companies.
Sean McGowan Interactive Entertainment, Toys, Infant/Juvenile Products, Sporting Goods
Sean McGowan joined Needham & Company, LLC in October 2007. Sean was previously a consumer analyst at Wedbush Morgan, where he was managing director and associate director of research. Prior to that, he spent 20 years as an analyst covering toys and specialty retailers at Harris Nesbitt and its predecessors, including serving as director of research from 1998 to 2002. Sean was ranked among the top five in his sector in The Financial Times and Starmine’s “Starmine Awards” 2010 analyst survey. He has also been recognized four times for his stock selection skill in The Wall Street Journal’s All-Star Analyst survey. He holds an MBA from Harvard Business School and a BA from Hofstra University.
Valuing Engagement 31
Charles Wolf Digital Lifestyle Charlie Wolf joined Needham & Company, LLC in 2000. He began an 18-year career in the Finance Division of the Columbia Business School in 1966, rising from assistant professor to professor, during which time he published many articles on financial economics and decision theory in major academic journals. He is also co-author of The Role of Private Placements in Corporate Finance, published by Harvard University Press. He joined the equity research department at Credit Suisse First Boston (then The First Boston Company) in 1984. Between 1988 and 1993, he was elected to Institutional Investor’s “All-America Research Team” in the personal computer industry category. Between 1993 and 1996, he was a consultant to CS First Boston, managing the “New Analysts Program” and writing on the Economic Value Added approach to stock analysis. In May 1996, he rejoined CS First Boston as an analyst covering the PC industry, a position held until October 1998. From November 1998 to November 2000, Mr. Wolf was an analyst covering the PC and enterprise hardware industries at UBS Warburg. Charlie's signature publications, Wolf Bytes and Wolf Bits, provide in-depth analysis of significant industry issues. He earned his AB, MBA and DBA degrees from Harvard.
Dan Medina Entertainment, Cable & Internet
Dan Medina graduated from Harvard College in 1979 and Harvard Business School in 1983. Medina worked in investment banking at Salomon Brothers, Inc. from 1983 to 1986 and at Bear, Stearns & Co., Inc. from 1986 to 1990. He worked for the Bank of Tokyo at its U.S. subsidiary, Union Bank of California, until 1996 and at Avco Financial Services until 1999. In 2000, he founded Capital Knowledge, LLC (www.CapKnowledge.com), a financial consulting firm providing expert witness testimony, capital markets advice, and valuation services to senior management teams. In 2009, Medina moved to Needham & Company, LLC, where he writes research on large U.S. entertainment, cable, Internet and media companies.
32 An investment analysis by Needham & Company, LLC NEEDHAM & COMPANY, LLC - EQUITY RESEARCH DEPARTMENT
Thomas A. Maloney, CFA Director, Equity Research (212) 705-0366
CLEAN TECHNOLOGY & INDUSTRIAL GROWTH Sean K. F. Hannan Electronic Manufacturing Services, Electronic Components & Smart Grid (617) 457-0906 Michael Lew Energy Efficiency (212) 705-0383 Y. Edwin Mok Solar Photovoltaics, LED & Lighting (415) 262-4896 James Ricchiuti Display, Vision & Imaging Technologies; Industrial Technology (212) 705-0381
COMMUNICATIONS & ENTERPRISE INFRASTRUCTURE Glenn Hanus Enterprise Storage/Datacenter Technology (212) 705-0361 Steven Zaccone Research Associate (212) 705-0286 Richard J. Kugele Disk Drives & IT Distribution/IT Hardware & Software (617) 457-0908 Anjaneya Singh Research Associate (617) 457-0914 Richard F. Valera Communications Infrastructure (212) 705-0373
CONSUMER Christine Chen Specialty Retail (415) 262-4877 Laura Martin, CFA Entertainment, Cable & Internet (917) 373-3066 Dan Medina Research Analyst (212) 705-0295 Sean McGowan Leisure & Lifestyle (212) 705-0466 Kerry Rice Internet Services & Digital Media (415) 262-4890 Charles R. Wolf Digital Lifestyle (212) 705-0447
HEALTHCARE Alan Carr, Ph.D. CNS/Metabolic Disorders, Inflammatory & Infectious Disease (212) 705-0435 Dalton L. Chandler Medical Technology (212) 705-0315 Elliot Wilbur, CFA Specialty Pharmaceuticals (212) 705-0333 Serge Belanger Research Associate (212) 705-0407
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT N. Quinn Bolton, CFA Communication ICs & Consumer Semiconductors (212) 705-0322 Vernon P. Essi, Jr. Analog & Mixed Signal Semiconductors (617) 457-0948 Rajvindra S. Gill Consumer Semiconductors (212) 705-0355 Y. Edwin Mok Semiconductor Capital Equipment (415) 262-4896
SOFTWARE Michael Huang SaaS/Application Software (415) 262-4898 Mayank Tandon Business Services & Financial Technology (617) 457-0943 Richard F. Valera Electronic Design Automation (212) 705-0373 Scott Zeller Enterprise Software (617) 457-0903
Lawrence Tarantino Managing Editor (212) 705-0402 Willie Johnson Graphic Design/Publishing (212) 705-0285
% of companies under coverage % for which investment banking services with this rating have been provided for in the past 12 months Strong Buy 6 5 Buy 61 16 Hold 30 9 Underperform 1 0 Rating Suspended 1 0 Restricted 1 50 Under Review 0 0
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