EQUITY RESEARCH INDUSTRY UPDATE

June 6, 2017 Consumer Internet The Future of Companies mentioned: Summary

AMZN Buy Amazon.com will become simply Amazon as consumers increasingly interact Target Price: (Prior:$1,075.00) $1,300.00 with the company in physical locations (i.e. offline). In this white paper, our Closing Price: $1,011.34 10th on the convergence of the technology and retail sectors, we analyze 18 BURBY Buy opportunities for Amazon to fuel its future growth and further disrupt the retail Target Price: $26.00 sector. For each one, we project the opportunity to drive incremental sales Closing Price: $23.41 growth and the impact on profitability. This research increases our conviction EBAY Buy in the stock and accordingly, we are raising our 12-month price target to $1,300, Target Price: $36.00 from $1,075. Closing Price: $35.55 ETSY Buy Details Target Price: $17.00 Closing Price: $13.54 Opportunities: 4 New and 14 Existing EVLV Buy The 18 opportunities include 14 categories the company is already pursuing: Target Price: $2.50 Closing Price: $1.24 • Advertising, Apparel, B2B E-Commerce, , the Consumer GRPN Buy Internet of Things, Delivery, Grocery, Hardware, Professional Services, Target Price: $4.25 Publishing, Restaurants, Stores, Video Content, and Video Games Closing Price: $3.05 and four new ones: GRUB Hold Target Price: NA • Credit, Gas Stations, Pharmacy, and Travel Closing Price: $44.52 Sales Implications: 10 $1 Trillion Categories HSNI Buy Target Price: $46.00 We estimate the global total addressable market for these 10 categories exceeds Closing Price: $32.45 $1 Trillion: JWN Buy Target Price: $56.00 • Apparel, B2B E-Commerce, the Consumer Internet of Things, Gas Stations, Closing Price: $41.65 Grocery, Pharmacy, Professional Services, Restaurants, Stores, and Travel OSTK Buy Margin Implications: Half Accretive and Half Dilutive Target Price: $25.00 Closing Price: $14.55 We project success in nine categories would be accretive to margins: QUOT Buy • Advertising, B2B E-Commerce, Cloud Computing, Credit, Delivery, Publishing, Target Price: $15.00 Travel, Video Content, and Video Games Closing Price: $11.60 QVCA Buy While dilutive in nine categories: Target Price: $39.00 Apparel, the Consumer Internet of Things, Gas Stations, Grocery, Hardware, Closing Price: $24.02 • Pharmacy, Professional Services, Restaurants, and Stores SHOP Hold

Consumer Internet Target Price: NA Sources Closing Price: $97.48 In addition to leveraging our experience from our 15+ years of covering the consumer W Buy and technology sectors, we relied heavily on three sources: Target Price: $75.00 Closing Price: $68.59 • Professor David Bell from Wharton, author of the seminal book “Location Is (Still) YELP Buy Everything: The Surprising Influence of the Real World on How We Search, Shop, Target Price: $41.00 and Sell in the Virtual One” Closing Price: $30.09 • Sucharita Mulpuru, led Forrester's research on E-Commerce, Retail, and Marketing • Kelly Stickel, Founder & CEO of Remodista, a social think tank examining disruption in global retail Increasing Price Target to $1,300, from $1,075 Our price target is based on our updated discounted cash flow analysis that includes our long-term adjusted EBITDA margin forecast of 19.0% (up from our prior forecast of 17.5%) vs. 11.2% in 2016. Tom Forte, CFA 212-895-3527 [email protected]

SEE PAGE 66 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS Consumer Internet

TABLE OF CONTENTS

Overview…………………………………………………………………………………. 2 Executive Summary…………....………………………………………………………. 4 Sources……….……………....…………………………………………………………. 6 Increasing Target Price….……………………………………………………………... 7 Financial Forecasts……………………………………………………………………... 7 Management…………………………………………………………………………….. 11 Advertising……..………………………………………………………………………... 12 Apparel…………………………………………………………………………………… 14 B2B E-Commerce.……………………………………………………………………… 17 Cloud Computing……………………………………………………………………….. 18 Consumer Internet of Things………………………………………………………….. 21 Credit…………………………………………………………………………………….. 24 Delivery…………………………………………………………………………………... 25 Gas Stations…………………………………………………………………………….. 29 Grocery…….…………………………………………………………………………….. 31 Hardware…..……………..….………………………………………………………….. 35 Pharmacy…………………..…..……………………………………………………….. 37 Professional Services………………………………………………………………….. 38 Publishing……………………………………………………………………………….. 39 Restaurants………………………………………………………………………….….. 41 Stores…….……………………………………………………………………………… 42 Travel…….………………………………………………………………………………. 45 Video Content……………………………………………………………………….…... 46 Video Games……………………………………………………………………….…… 48 Competition……………………………………………………………………………… 49 Wild Cards……………………………………………………………………….………. 50 Who Survives an Amazon-Led Nuclear Winter In Retail? ..…….………..………… 50 Company Milestones.……………………………………………….………..………… 57 Performance Against Guidance…………………………………….…….…………… 58 Appendix……………………………………………………………….………………… 59

OVERVIEW

The Future of Amazon Amazon.com will become simply Amazon as consumers increasingly interact with the company in physical locations (offline).

Figure 1. The Future of Amazon, 1 of 4, June 2017

Source: Company reports and Maxim Group

For example, consumers will be able to save money at the Amazon gas station because they belong to , much like Costco members today. They will also be able to pick up and return their merchandise ordered online at the Amazon gas station.

They will purchase groceries from Amazon via many different means, including: 1) ONLINE and have them delivered to their homes or offices, 2) ONLINE and pick them up at an Amazon pick-up point or an Amazon retail store (book store, convenience store, grocery store), and 3) OFFLINE and pick them up at an Amazon convenience or grocery store.

Maxim Group LLC 2 Consumer Internet

For those interested, they will be able to dress from head to toe in Amazon’s private label apparel from Buttoned Down non-iron dress shirts to Goodthreads chino pants to underwear, t-shirts, and socks. Additionally, if they are more brand focused, they can purchase products from designers on Amazon including Burberry – both the full-priced merchandise and markdowns - with many items delivered by Amazon itself.

Figure 2. The Future of Amazon, 2 of 4, June 2017

Source: Company reports and Maxim Group

They will shop for furniture in small-format showrooms that leverage augmented reality to enable them to see a large selection but carry minimal inventory at the location.

They will be presented with advertisements in many formats (such as audio, video, and display) when they watch their Amazon TV’s (both Amazon branded TV’s and those of other brands using their Amazon set-top boxes), drive in their connected cars, and live in their smart homes - and not just when they shop on the Amazon website.

While still somewhat reliant on FedEx, UPS, and USPS, given its massive size, we expect Amazon will increasingly deliver merchandise to consumers leveraging its own assets and infrastructure from end to end, including air freight, ground, fast delivery (such as ), physical stores, pick-up points, and even its drones. Additionally, a growing amount of merchandise will be made at its fulfillment centers with 3D printers and shipped directly to its consumers.

Figure 3. The Future of Amazon, 3 of 4, June 2017

Source: Company reports and Maxim Group

Consumers will have the option of purchasing merchandise or services from Amazon using cash (deposited at a participating physical store or one of its own retail locations), credit and debit cards (including branded ones), a blockchain enabled e-currency (akin to today’s Bitcoin), and by using their Amazon credit line.

Consumers will watch a blockbuster movie from and purchase licensed merchandise at Amazon and, even, Walmart (unless it is renamed Jet, similar to Amazon.com becoming Amazon).

Depending on how many add-on services they have chosen as part of their Amazon Prime membership they will pay Amazon for subscription video services (instead of Comcast and DirecTV), car insurance (though the company may just serve as a reseller for Geico, for example), and wireless service (instead of AT&T or Verizon Wireless).

Maxim Group LLC 3 Consumer Internet

Figure 4. The Future of Amazon, 4 of 4, June 2017

Source: Company reports and Maxim Group

They will book airfare, hotels (or even overnight stays at private residences, similar to Airbnb), rental cars (or pre-arranged trips from Uber), and cruises on Amazon Travel. If they chose to, they will have all the essentials waiting for them at their final destination that were previously bought on Amazon and, increasingly, shipped by Amazon, including, but not limited to, groceries and apparel, not to mention sunscreen and sunglasses.

Looking even farther out, consumers will fly to Mars on an Amazon rocket; however, we still need more time to determine the long-term sales and margin impact from that one.

What are the gating factors to such a future? 1) Amazon’s real competition, including Alibaba, Apple, Facebook, Google, Walmart/Jet.com, and startups that have not even been funded as of today (the next Amazon.com); 2) antitrust laws (what slowed AOL and Microsoft); and 3) ’ long-term health and the ability of the company to replace him.

EXECUTIVE SUMMARY

In this white paper, we discuss a number of the categories Amazon is either already pursuing or may consider doing, including the potential impact on its top-line and profitability.

Amazon’s Strategy for Pursuing New Categories Innovation is core to the company’s culture and it strives to try new things and does not want to stagnate. When deciding what opportunities to pursue it seeks to provide products and services customers love. In that regard, its famous phrase is to work backwards from the consumer (figure out ways to give customers what they want or what they anticipate they will want). It also prefers those that are durable. It is also important that the company has an opportunity to differentiate itself from the competition. From a financial standpoint, it seeks to invest in new opportunities that could result in significant free cash flow.

Figure 5. Amazon 2013/2016/2019E

Source: Company reports, eMarketer, and Maxim Group

Maxim Group LLC 4 Consumer Internet

Jeff Bezos, Founder, CEO, Chairman, and President of Amazon shed additional light on this matter in an October 2016 interview with Charlie Rose at the Economic Club in New York, indicating the following keys to Amazon’s strategy:  Customer Obsession – working backwards from customer’s needs  Pioneering/Inventing – coming up with its own means to address customer’s needs as opposed to fast following a competitor’s efforts  Thinking Long Term – investing in new initiatives, which are often risky, for five to seven year periods as compared to investing long-term in less risky ventures (a more common practice by the competition)  Operational Excellence – finding defects and making incremental improvements in its efforts to eliminate them  Differentiated and Superior – the company seeks to offer services and sell products to consumers in a manner that is different and better than the competition  Finding a Way to Pay for the Customer Experience – while it starts with the customer and works backwards, an important part of the process is for the company to determine a way to pay for a new initiative (i.e. cover the economic costs), such as increasing Amazon Prime membership and renewals with its Prime Video efforts

To Build or To Buy? Amazon’s M&A Strategy The company has a strong preference towards building something first and buying it second. At the same time, the company will make tuck-in acquisitions or acqui-hires to advance its own efforts, especially for (AWS). What is remarkable, in our view, is that it has been able to grow to such a significant size without a single $1B deal.

In 2013, we wrote that Amazon should acquire Uber because it was already apparent that the company had far greater intentions than merely crowdsourcing drivers to get consumers from point A to point B in a less expensive black car.

Today, we believe Amazon should purchase the following two companies because, similar to in and Quidsi’s diapers.com in baby, they already are, or have the ability in the future, to disrupt their respective categories to a greater extent than even Amazon.

Everlane The company sells consumers basics (such as white t-shirts) that are ethically sourced (shares with the consumer where it was made) with an even greater layer of transparency (tells the consumer how much it pays for the merchandise, therefore, also disclosing its markup). It has a small physical footprint (the Everlane Soho Studio and the Everlane Lab San Francisco), but has created an idea (ethically sourced basics with multiple layers of transparency) that we believe could scale well.

Maxim Group LLC 5 Consumer Internet

Figure 6. Everlane, June 2017

Source: Company reports and Maxim Group

Warby Parker The company’s first act was to disrupt the prescription eyewear market by offering a much lower cost (and even trendy) pair of its self-branded glasses. Since then it has assembled a small, but effective, footprint of physical stores, many with their own eye doctors. First, we believe the company could disrupt additional healthcare related categories, such as hearing aids. If you scaled its (eye) doctor in a small box footprint, you could have mini-clinics across the U.S. to treat a much greater variety of ailments and even include a pharmacy to fill prescriptions. Second, we believe its brand carries enough weight to extend into additional fashion categories, such as apparel.

Figure 7. Warby Parker, June 2017

Source: Company reports and Maxim Group

SOURCES

For this white paper, we leveraged our 15+ years of covering the Consumer Technology sector and many conversations and experiences with numerous public companies, private companies, and industry experts. In particular, however, we wanted to call out the contributions of three of our favorite industry experts:

Maxim Group LLC 6 Consumer Internet

Professor David Bell, Wharton  Professor at Wharton  Expert in consumer shopping behavior, offline and online: Research focus on geographic variation in operating performance of digital native vertical brands, including Bonobos, Diapers.com, and Warby Parker, among others  Author of “Location Is (Still) Everything: The Surprising Influence of the Real World on How We Search, Shop, and Sell in the Virtual One” Sucharita Mulpuru, Retail Industry Analyst  Industry expert for both E-Commerce and Retail  Ms. Mulpuru was at Forrester for more than 10 years, where she led its research on E-Commerce, Retail, and Marketing  Most recently, she served as Chief Retail Strategist at Shop Talk from 2016 to early 2017 Kelly Stickel, Remodista Founder & CEO  Founded in 2010, Remodista is a social think-tank examining disruption in global retail. Its mission is to provide insight, education, and innovation to global brands through collaborative research and analysis.  Ms. Stickel also founded Women Influence Chicago in 2016, which cultivates women leaders in enterprise, start-up, and non-for-profit technology organizations.  Ms. Stickel is a columnist, where she writes articles focused on Global Retail Disruption and Women to Watch.

INCREASING TARGET PRICE

Increasing Our Price Target to $1,300 from $1,075 We have included our updated discounted cash flow model in Figure 8. We have increased our long-term adj. EBITDA margin projection to 19.0% from 17.5% vs. 11.2% in 2016. As outlined in this report, we believe incremental market share gains in the advertising, B2B E-Commerce, cloud computing, credit, delivery, publishing, travel, video content, and video games categories could result in margin accretion from today’s levels. However, at the same time, while advancing sales in the apparel, consumer Internet of things, gas stations, grocery, hardware, pharmacy, professional services, restaurants, and stores categories could drive future revenue growth it may put pressure on the company’s long-term margin. We will monitor its advancements on both fronts, which could cause us to reconsider our long-term margin forecast. The $225 increase in our price target is from the incremental cash flow from raising our long-term sales growth forecast and adjusted EBITDA projections. Figure 8. AMZN Discounted Cash Flow Analysis Discounted FCF Discounted Total AMZN 10 Years Terminal Discounted Current Shares Ending Cash Cash Net Total Out. 12-Month Current Discount FY26E Flow Flow Cash Value FY17E Price Share Upside/ Rate ($M) ($M) ($M) ($M) ($M) (M) Target Price Downside 8.0% 217,546 412,200 629,746 13,840 643,586 491 $1,311.47 $1,006.73 30.3% Source: Company reports and Maxim Group

FINANCIAL FORECASTS

Sales When projecting sales for the Consumer Technology space, we focus on two sets of numbers: estimates for global retail and e-commerce. We forecast the global retail market to expand at a 6.0% CAGR between 2016 and 2019, which is higher than the 1.3% pace achieved in the prior three-year period, and at a long-term rate of 5.4%. For global e-commerce, our estimates are 21.3% for 2016 through 2019, vs. 25.2% from 2013-2016 and 15.1% long term. These projections are based on data from eMarketer for the period 2013 through 2020, and our forecasts for the period 2020 to 2026.

Maxim Group LLC 7 Consumer Internet

Figure 9. Consumer Technology Forecast – 2013-2026E CAGR 2013- 2016E- 2016- ($B) 2013 2016 2019E 2026E 2016E 2019E 2026E Global Commerce 21,189.0 22,049.0 26,287.0 37,155.5 1.3% 6.0% 5.4% Global E-Commerce 976.6 1,915.0 3,418.0 7,814.9 25.2% 21.3% 15.1% Wal-Mart 476.3 485.9 520.7 N/A 0.7% 2.3% N/A Amazon.com (GMV) 121.1 243.6 409.7 570.9 26.2% 18.9% 8.9% Amazon.com 70.5 136.0 241.4 361.3 24.5% 21.1% 10.3% Burberry 3.7 3.6 3.9 5.8 (0.8%) 2.9% 4.8% eBay (GMV) 76.4 83.8 91.7 112.7 3.1% 3.0% 3.0% eBay 6.6 7.0 7.7 9.0 2.4% 2.8% 2.5% Etsy (GMV) 1.3 2.8 3.9 5.4 28.2% 11.4% 6.6% Etsy 0.1 0.2 0.2 0.3 26.3% 11.4% 6.6% EVINE Live 0.6 0.7 0.7 0.9 1.3% 2.4% 2.8% Groupon 2.6 3.1 3.3 4.1 6.9% 1.5% 2.7% GrubHub (GMV) 1.0 3.0 4.8 7.8 43.5% 17.4% 10.0% GrubHub 0.1 0.5 0.9 1.7 53.2% 22.7% 13.4% HSNi 3.4 3.6 3.6 4.5 1.6% 0.5% 2.3% Nordstrom 12.5 14.8 16.5 20.0 5.6% 3.8% 3.1% Overstock 1.3 1.8 2.1 2.7 11.3% 4.5% 4.2% Shopify (GMV) 1.6 15.4 47.6 74.2 112.0% 45.6% 17.0% Shopify 0.1 0.4 1.2 2.1 97.9% 44.2% 18.1% Quotient Technology 0.2 0.3 0.4 0.6 17.9% 15.7% 7.5% QVC 8.6 8.7 9.1 11.1 0.2% 1.5% 2.5% Wayfair 0.7 3.3 7.0 14.4 69.1% 29.2% 16.0% Yelp Platform 0.2 0.7 1.2 1.8 N/A 18.1% 9.7%

Market Share - Global Commerce Change (Basis Points) Wal-Mart 2.25% 2.20% 1.98% NA (4.4) (22.3) N/A Amazon.com (GMV) 0.57% 1.11% 1.56% 1.54% 53.3 45.4 43.1 Amazon.com 0.33% 0.62% 0.92% 0.97% 28.4 30.2 35.6 Burberry 0.02% 0.02% 0.01% 0.02% (0.1) (0.1) (0.1) eBay (GMV) 0.36% 0.38% 0.35% 0.30% 1.9 (3.1) (7.6) eBay 0.03% 0.03% 0.03% NA 0.1 (0.3) N/A Etsy (GMV) 0.01% 0.01% 0.01% 0.01% 0.7 0.2 0.2 Etsy 0.00% 0.00% 0.00% 0.00% 0.0 0.0 0.0 EVINE Live 0.00% 0.00% 0.00% 0.00% (0.0) (0.0) (0.1) Groupon 0.01% 0.01% 0.01% 0.01% 0.2 (0.2) (0.3) GrubHub (GMV) 0.00% 0.01% 0.02% 0.02% 0.9 0.5 0.7 GrubHub 0.00% 0.00% 0.00% 0.00% 0.2 0.1 0.2 HSNi 0.02% 0.02% 0.01% 0.01% 0.0 (0.2) (0.4) Nordstrom 0.06% 0.07% 0.06% 0.05% 0.8 (0.4) (1.3) Overstock 0.01% 0.01% 0.01% 0.01% 0.2 (0.0) (0.1) Shopify (GMV) 0.01% 0.07% 0.18% 0.20% 6.2 11.1 13.0 Shopify 0.00% 0.00% 0.00% 0.01% 0.2 0.3 0.4 Quotient Technology 0.00% 0.00% 0.00% 0.00% 0.0 0.0 0.0 QVC 0.04% 0.04% 0.03% 0.03% (0.1) (0.5) (1.0) Wayfair 0.00% 0.01% 0.03% 0.04% 1.2 1.2 2.4 Yelp Platform 0.00% 0.00% 0.00% 0.00% 0.2 0.1 0.2

Market Share - Global E-Commerce Change (Basis Points) Wal-Mart 0.79% 0.72% N/A N/A (7.2) N/A N/A Amazon.com 7.22% 7.10% 7.06% 4.62% (11.9) (3.9) (247.8) Amazon.com (GMV) 12.40% 12.72% 11.99% 7.30% 32.3 (73.6) (541.8) Burberry 0.04% 0.02% 0.02% 0.01% (1.7) (0.7) (1.0) eBay (GMV) 7.83% 4.37% 2.68% 1.44% (345.2) (169.2) (293.1) eBay 0.67% 0.37% 0.22% 0.12% (30.5) (14.4) (25.2) Etsy (GMV) 0.14% 0.15% 0.12% 0.07% 1.0 (3.3) (7.9) Etsy 0.01% 0.01% 0.01% 0.00% 0.0 (0.2) (0.4) EVINE Live 0.07% 0.03% 0.02% 0.01% (3.1) (1.4) (2.4) Groupon 0.26% 0.16% 0.10% 0.05% (9.9) (6.8) (11.2) GrubHub (GMV) 0.10% 0.16% 0.14% 0.10% 5.3 (1.5) (5.7) GrubHub 0.01% 0.03% 0.03% 0.02% 1.2 0.1 (0.4) HSNi 0.35% 0.19% 0.11% 0.06% (16.2) (8.0) (12.9) Nordstrom 0.08% 0.07% 0.06% 0.05% (0.8) (1.1) (2.1) Overstock 0.13% 0.09% 0.06% 0.03% (4.0) (3.4) (5.9) Shopify (GMV) 0.17% 0.80% 1.39% 0.95% 63.9 58.8 14.5 Shopify 0.01% 0.02% 0.03% 0.03% 1.5 1.4 0.6 Quotient Technology 0.02% 0.01% 0.01% 0.01% (0.3) (0.2) (0.7) QVC 0.26% 0.18% 0.13% 0.08% (8.3) (5.3) (10.1) Wayfair 0.07% 0.17% 0.21% 0.18% 10.1 3.5 1.4 Yelp Platform 0.02% 0.04% 0.03% 0.02% 1.3 (0.3) (1.4) Source: Company reports, eMarketer, and Maxim Group

Maxim Group LLC 8 Consumer Internet

In the following two figures, we offer our base projections for the near-term (next three years) and long term (next 10 years). We forecast Amazon.com’s sales to increase at a 22.2% rate over the next three-year period and at a 10.3% level for the long term. This compares against its 22.2% performance from the prior three-year period. Our estimates reflect robust growth for its AWS effort, with the mix of sales from that unit increasing to 11.6%, from 7.4%, between 2015 and 2018.

Figure 10. Amazon.com Sales Forecast – 2013-2026E CAGR 2013- 2016E- 2016E- ($B) 2013 2016E 2019E 2026E 2016E 2019E 2026E North American Revenue NA 79.8 140.5 204.3 NA 20.8% 9.9% International Revenue NA 44.0 70.5 95.3 NA 17.0% 8.0% AWS Revenue NA 12.2 30.4 61.7 NA 35.5% 17.6% Total Amazon Revenue 74.5 136.0 241.4 361.3 22.2% 21.1% 10.3%

Source: Company reports and Maxim Group

We forecast Amazon.com’s adjusted EBITDA margin to expand 220 basis points to 13.4%, over the next three-year period and by 772 basis points, to 19.0%, for the long term. This compares against its 435 basis point expansion, to 11.2%, in 2016 from the prior three-year period.

Figure 11. Amazon Adj. EBITDA Margin – 2013-2026E Change (Basis Points) 2013- 2016E- 2016E- 2013 2016E 2019E 2026E 2016E 2019E 2026E Amazon.com 6.9% 11.2% 13.4% 19.0% 435 220 772 Source: Company reports and Maxim Group

In the following Figure, we illustrate the potential for incremental sales growth should Amazon either penetrate a new market to take 100 basis points of share or take incremental share in an existing effort. We also show the impact on our profitability (adjusted EBITDA margin) if the company is successful in its share gains when considering the margin profile of other large players in the category.

Figure 12. Emerging Opportunities – Sales and Margin Implications 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Advertising 234 53 <50% Google 40.5% 26 Apparel 1,211 236 100% Gap 12.4% (5) B2B E-Commerce 5,969 1,226 <50% Grainger 13.5% 1 Cloud Computing 333 79 100% Amazon 36.3% 31 Consumer Internet of Things 1,213 302 100% Fitbit 1.4% (58) Credit 247 51 <5% Alliance Data 29.4% 16 Delivery 280 58 <10% UPS 17.0% 4 Gas Stations 2,384 432 <5% CST 4.0% (85) Grocery 4,383 824 <5% Kroger 5.1% (128) Hardware 688 147 <5% Samsung 32.7% 53 Pharmacy 2,022 407 <5% Walgreens Boots 7.3% (48) Professional Services 2,757 555 <5% Angie's List 8.5% (50) Publishing 364 75 <5% Bertelsmann 15.2% 3 Restaurants 3,638 719 <5% Darden 13.2% (4) Stores 22,869 3,152 <5% Walmart 6.7% (327) Travel 1,466 304 <5% Priceline 38.5% 144 Video Content 107 24 <25% Lionsgate 6.9% (3) Video Games 119 26 <5% Activision Blizzard 37.2% 12 Source: e-marketer, Frost & Sullivan, Gartner, LIMA, Markets and Markets, Motion Picture Assoc. of America, Newzoo, Phocuswright, PWC, Research and Markets, U.S. Census Bureau, and Maxim Group

Maxim Group LLC 9 Consumer Internet

Global E-Commerce and Retail Sales While our focus for this white paper was 18 global categories for Amazon to pursue, we also believe that in order for Amazon to sustain its high rate of sales growth for an extended period of time, the company will need to continue its international expansion – both entering new countries and expanding its efforts in existing ones. To that end, in Figure 13 we ranked countries on their potential based on their 2016 GDP (for the 35 largest countries), population, mobile phone subscribers, internet users, retail sales, and e-commerce sales. Not surprisingly, the analysis reinforced the importance of Amazon.com exploiting the Chinese and Indian market. Additionally, it provides insights on the potential for the Egypt, Saudi Arabia, and UAE markets that Amazon.com should be adding following its March 2017 announcement of its plans to purchase Souq.com (the transaction is expected to close later this year).

Figure 13. Country Rankings – 2016E 2014E Mobile 2014E 2016E 2016E 2016E 2016E 2016E Phone Internet Retail eCommerce eCommerce Total GDP Mix Pop. Mix Subs. Mix Users Mix Sales Mix Sales Sales Country Rank Rank ($B) (%) Rank (M) (%) Rank (M) (%) Rank (M) (%) Rank ($B) (%) Rank ($B) (Mix) China 1 1 21,270 17.8% 1 1,374 18.8% 1 1,300 18.6% 1 627 19.8% 1 5,993 23.6% 1 899 15.0% India 4 3 8,721 7.3% 2 1,267 17.3% 2 944 13.5% 3 237 7.5% 5 941 3.7% 21 16 1.7% U.S. 2 2 18,560 15.5% 3 324 4.4% 4 317 4.5% 2 277 8.7% 2 4,846 19.1% 2 395 8.1% Brazil 7 7 3,135 2.6% 5 206 2.8% 5 280 4.0% 5 108 3.4% 10 596 2.3% 19 18 3.0% Japan 3 4 4,932 4.1% 10 127 1.7% 7 153 2.2% 4 109 3.4% 3 1,282 5.1% 3 103 8.0% Russia 7 6 3,745 3.1% 9 142 1.9% 6 221 3.2% 6 84 2.6% 8 717 2.8% 16 19 2.7% Indonesia 5 8 3,028 2.5% 4 258 3.5% 3 319 4.6% 13 42 1.3% 6 787 3.1% 5 63 8.0% Germany 6 5 3,979 3.3% 15 81 1.1% 13 100 1.4% 7 70 2.2% 4 1,035 4.1% 4 83 8.0% Mexico 9 11 2,307 1.9% 11 123 1.7% 12 102 1.5% 11 50 1.6% 11 531 2.1% 10 27 5.0% Nigeria 14 23 1,089 0.9% 7 186 2.5% 8 139 2.0% 8 67 2.1% 26 207 0.8% 27 6 3.0% U.K. 10 9 2,788 2.3% 19 64 0.9% 18 79 1.1% 9 57 1.8% 7 725 2.9% 6 58 8.0% France 11 10 2,737 2.3% 18 67 0.9% 22 65 0.9% 10 57 1.8% 9 712 2.8% 7 57 8.0% Italy 12 12 2,221 1.9% 20 62 0.8% 16 94 1.3% 16 37 1.2% 13 511 2.0% 11 26 5.0% Egypt 19 22 1,105 0.9% 13 95 1.3% 15 95 1.4% 14 42 1.3% 24 210 0.8% 26 6 3.0% Pakistan 22 25 988 0.8% 6 202 2.8% 9 136 1.9% 25 21 0.7% 29 188 0.7% 29 6 3.0% Philippines 17 29 802 0.7% 12 103 1.4% 11 111 1.6% 15 39 1.2% 25 208 0.8% 20 17 8.0% Turkey 15 17 1,670 1.4% 16 80 1.1% 19 72 1.0% 17 37 1.2% 17 317 1.3% 24 10 3.0% South Korea 13 13 1,929 1.6% 22 51 0.7% 24 57 0.8% 12 45 1.4% 14 502 2.0% 8 40 8.0% Iran 21 18 1,459 1.2% 14 83 1.1% 20 69 1.0% 24 23 0.7% 21 277 1.1% 25 8 3.0% Thailand 15 20 1,161 1.0% 17 68 0.9% 14 97 1.4% 27 20 0.6% 19 302 1.2% 13 24 8.0% Spain 18 15 1,690 1.4% 23 49 0.7% 27 51 0.7% 18 36 1.1% 15 389 1.5% 15 19 5.0% Bangladesh 26 33 628 0.5% 8 156 2.1% 10 120 1.7% 32 11 0.4% 33 119 0.5% 33 4 3.0% South Africa 25 30 736 0.6% 21 54 0.7% 17 80 1.1% 22 25 0.8% 28 191 0.8% 22 15 8.0% Argentina 29 26 879 0.7% 25 44 0.6% 21 66 0.9% 21 26 0.8% 30 167 0.7% 30 5 3.0% Poland 26 24 1,052 0.9% 27 39 0.5% 23 60 0.9% 20 26 0.8% 27 200 0.8% 28 6 3.0% Canada 20 16 1,674 1.4% 29 35 0.5% 33 30 0.4% 19 32 1.0% 12 524 2.1% 9 34 6.5% Saudia Arabia 23 14 1,731 1.4% 31 28 0.4% 26 53 0.8% 28 16 0.5% 16 329 1.3% 23 10 3.0% Colombia 32 31 690 0.6% 24 47 0.6% 25 55 0.8% 23 24 0.8% 31 131 0.5% 31 4 3.0% Australia 24 19 1,189 1.0% 33 23 0.3% 31 31 0.4% 26 20 0.6% 18 309 1.2% 12 25 8.0% Taiwan 26 21 1,125 0.9% 32 24 0.3% 32 30 0.4% 30 16 0.5% 20 293 1.2% 14 23 8.0% Malaysia 30 28 864 0.7% 30 31 0.4% 28 45 0.6% 31 12 0.4% 23 225 0.9% 18 18 8.0% Algeria 33 34 609 0.5% 26 40 0.6% 29 37 0.5% 33 7 0.2% 34 116 0.5% 34 3 3.0% Netherlands 31 27 866 0.7% 34 17 0.2% 34 20 0.3% 28 16 0.5% 22 225 0.9% 17 18 8.0% Iraq 34 35 597 0.5% 28 38 0.5% 30 33 0.5% 35 3 0.1% 35 113 0.4% 35 3 3.0% United Arab Emirates 35 32 667 0.6% 35 6 0.1% 35 17 0.2% 34 5 0.2% 32 127 0.5% 32 4 3.0% Source: Company reports, eMarketer, and Maxim Group

By-Country Category Efforts In Figure 14, we illustrate Amazon’s by-category efforts for the 18 categories that are the focal point of this white paper. In Figure 15, we show its efforts on a by-country basis in the way that the company has historically presented it when it reports earnings. Both tables illustrate that Amazon has a lot of opportunity to further penetrate existing markets with its current set of products and services and the new ones we believe it could add.

Figure 14. Amazon.com By-Country Category Efforts (1 of 2) – 1Q17 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Maxim Group LLC 10 Consumer Internet

Figure 15. Amazon.com By-Country Category Efforts (2 of 2)– 1Q17 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

MANAGEMENT

In the following table, we outline Amazon’s senior management, including their tenure, and prior experience. Figure 16. Amazon’s Senior Management Experience Name Title Tenure Company Title Tenure Jeff Bezos Founder, Chairman, CEO, 2000 - Present President Founder, Chairman, CEO, 1997 - 1999 President Founder, Chairman, 1996 - 1997 Secretary, CEO, President, Treasurer 1994 - 1996 Founder, Chairman, President Owner 2013 - Present Blue Origin Founder 2000 - Present D.E. Shaw SVP 1990 - 1994 Bankers Trust VP 1988 - 1990 Jeff Blackburn SVP, Business Development 2006 - Present

VP, Business Development 2004 - 2006 VP, European Customer 2003 - 2004 Service VP, Operations Integration 2002 - 2003 Product Development and 1998 - 2002 Operations Deutsche Bank AVP 1996 - 1998 Morgan Stanley Associate 1995 - 1996 SVP, Amazon Web Services 2003 - Present Brian Olsavsky SVP, CFO 2015 - Present CFO, Global Consumer 2012 - 2015 Business VP, Finance - International 2010 - 2012 Retail VP, Finance - North America 2007 - 2010 Retail VP, Finance - Global 2002 - 2007 Operations Fisher Scientific VP, Finance - Global 1997 - 2002 Logistics Fisher Scientific VP, Finance - Fisher 1995 - 1997 Chemicals Diego Piacentini SVP, International Consumer 2012 - Present Business SVP, International Retail 2007 - 2012 SVP, Worldwide Retail and 2001 - 2006 Marketing SVP & GM, International 2000 - 2001 Apple VP Sales and GM Europe 1997 - 2000 Shelley Reynolds VP, Worldwide Controller and 2007 - Present Principal Accounting Officer

VP, Finance and Controller 2006 - 2007 Jeffrey Wilke SVP, Consumer Business 2012 - Present SVP, North American Retail 2007 - 2012 SVP, Worldwide Operations 2002 - 2006 VP, GM 1999 - 2001 David Zapolsky SVP, General Counsel and 2014 - Present Secretary VP, General Counsel and 2012 - 2014 Secretary VP, Associate General 2002 - 2012 Counsel Associate General Counsel 1999 - 2002 Dorsey & Whitney LLP Partner 1999 - 1999 Bogle & Gates Partner 1994 - 1999 Wachtell, Lipton, Rosen & Associate 1991 - 1994 Katz Kings County District Kings County District 1988 - 1991 Attorneys Office Attorney Source: Company reports, LinkedIn, and Maxim Group

Maxim Group LLC 11 Consumer Internet

ADVERTISING

Figure 17. Advertising, June2017

Source: Company reports and Maxim Group

Conclusions  Amazon’s increasing focus on advertising should be beneficial to both its top- and bottom-line growth, given its favorable margin profile.  Its advertising efforts are enabling third-party sellers to promote their products, which should become more important over time as a larger portion of its units sold will be from third parties.  It has a tremendously broad platform to offer advertising from display ads on its e-commerce website, mobile app, and hardware (such as its Kindle Fire tablets) to audio on its Unlimited subscription service and .com audio books platform, to video on its Amazon Fire over-the-top service.  We see its advertising efforts as an increasingly effective way for the company to compete against its consumer tech rivals, most notably Google. Figure 18. Advertising, Incremental Sales, and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Advertising 234 53 <50% Google 40.5% 26 Source: PWC and Maxim Group Sales Implications We estimate the global market for online advertising will be $234B in 2019, based on data from PWC. Each 100 basis points of market share would increase our 2019 sales growth forecast by 53 basis points. We project the company has a greater than 50% chance of achieving that level of penetration. Margin Implications Online advertising is a high margin category, as reflected in Google’s robust 40.5% adjusted EBITDA margin in 2016. For its part, should Amazon penetrate the market by 100 basis points in 2019, we estimate it would add 26 basis points to our forecast.

Amazon has been generating revenue from advertising since, at least, 2005 (according to its 10K SEC filings). In 2011, it began offering its hardware, such as its Kindle e- readers, at lower prices if consumers were willing to see promotions on their start-up screens. For example, today, it offers the Fire HD8 tablet for $79.99 with Special Offers, a $15 discount to its tablet without them. In May 2015, it expanded its advertising program enabling third-parties to sponsor their products on its website. Today, its efforts include the Amazon Advertising Platform (AAP), which features programmatic advertising and the Amazon Media Group (AMP), which features display advertising.

Maxim Group LLC 12 Consumer Internet

Figure 19. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Anecdotal Observations While we have followed the consumer and technology sectors for more than 15 years and our peers may refer to the following observations as channel checks, we prefer to call them anecdotal observations, as we recognize that with more than 300M customers, our experiences on Amazon may not be representative. Shopping on Amazon.com Desktop/Laptop When it comes to shopping on its flagship e-commerce site on a desktop or laptop computer, we believe Amazon has an appropriate amount of advertising, i.e. is properly balancing its ad load. For example, searching for a hairdryer, we see sponsored listings at the top of the results and along the right-hand side of the page. The first result that is not demarked as sponsored is noted as Amazon’s Choice. Years of searching for items on Google have trained us to expect this amount of advertising. Shopping on Amazon.com Mobile App Performing the same search on our iPhone in the Amazon app provides similar results to the extent that Amazon’s Choice is the first item, but we have to go 10 deep to find a sponsored one. That experience suggests to us the company has room to increase its ad load on its mobile app without materially degrading the experience. Watching TV on Amazon Fire TV When we first turn on our Sony TV and Amazon Fire TV set-top box, we are greeted with a home page that includes short video ads promoting a span of videos including original content from Amazon, Netflix, and Showtime. We believe Amazon could include more advertising in the experience without it becoming too disruptive, from offering a dedicated portion of the landing page to show trailers for new movies and sponsored movies and TV shows to a pre-roll when we select a video we want to watch, such as what Showtime does when we see a promotion for Ray Donovan before we watch the next episode of Homeland. Interacting with Alexa on Our Echo Dot Similar to its $15 discount on its hardware, such as its Fire Tablet, we believe Amazon could sell its Echo devices for less, even to the point of giving them away for free, for consumers willing to endure promotions, such as ads promoting ESPN before finding out the score of the beloved Chicago Cubs’ game.

Maxim Group LLC 13 Consumer Internet

APPAREL

Figure 20. Apparel, June 2017

Source: Company reports and Maxim Group

Conclusions  While impressed by Amazon’s strong performance to-date in apparel, we believe improving the shopping experience for consumers who do not know the specific item they want to purchase when shopping on Amazon will be one of the keys to further penetrating the category.  We believe Amazon will, at the minimum, add apparel inventory to its existing physical store footprints, and, at the maximum, open its own retail stores dedicated to apparel sales (or acquire a retailer with an existing store base).  Additionally, we expect the company to innovate, including using augmented reality and other technology, such as its Echo Look, to drive its apparel sales.  Given its increasing prominence in retail, we expect more luxury brands to leverage its platform to, at the minimum, liquidate inventory, and, at the maximum, offer their entire assortments.

Figure 21. Apparel, Incremental Sales, and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Apparel 1,211 236 100% Gap 12.4% (5) Source: U.S. Census Bureau and Maxim Group

Sales Implications We estimate the global market for apparel will be $1,211B in 2019, based on our analysis of data from the U.S. Census Bureau. Each 100 basis points of market share would increase our 2019 sales growth forecast by 236 basis points. We project the company has a 100% chance of achieving an incremental 100 basis points of market share. Margin Implications Apparel is a relatively high margin category in retail, as reflected by the Gap’s respectable 12.4% adjusted EBITDA margin in 2016. However, when we consider the

Maxim Group LLC 14 Consumer Internet

much higher relative margin the company derives from its cloud computing effort, we estimate that should Amazon penetrate the apparel market by 100 basis points in 2019 it would subtract five basis points to our forecast. Figure 22. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Today, Amazon is focused on expanding its selection and enhancing the website shopping experience by trying everything from improving search and browse features (so consumers can find merchandise easier) to curation and personalization to using higher quality imaging. Mr. Bezos also discussed Amazon’s apparel efforts in his October 2016 interview with Charlie Rose, commenting that what was remarkable was that the company was already selling a lot of apparel, acknowledging it was one of the market leaders in the category, despite its team thinking it was not doing it as well as it could and that no one has perfected a means to exploit the category yet. Additionally, and importantly, Amazon has several ideas, including its own inventions, to advance its efforts by experimenting with new ways to sell apparel online.

Ms. Mulpuru noted that Amazon has many levers to win the apparel category, including and Zappos. Remodista commented that Amazon is making strides in its apparel efforts and attributed that to the company’s significant R&D investments. Ms. Mulpuru estimates that online penetration for the apparel category today is between 15%-20%. It is a highly fragmented market, with Amazon as the market leader. Based on surveys she has conducted, the strength of Amazon’s sales today is basics (such as t-shirts and athletic shoes). She believes consumers prefer boutique e-commerce sites, other than Amazon, for most of their apparel purchases. Professor Bell noted that it makes sense for Amazon to pursue the category as others, such as Bonobos have “proven” the model for selling apparel online. Private Label Merchandise Ms. Mulpuru believes consumers shop Amazon’s private label brands for the same reasons they do other companies’ – the merchandise is shown in a prominent position on its website and the pricing satisfies the consumers’ value proposition. Ms. Mulpuru considers this to be a universal truth for private label merchandise from microwave popcorn to wrinkle-free shirts. For its part, Zulily’s entire business was built on generic products consumers wanted, where they did not care about the brand, which was the opposite of Gilt. Conversely, when consumers seek product attributes that cannot be found with private label, such as a national brand (like Nike), private label merchandise is overlooked and the consumer opts for the national brand. Remodista suggested Amazon may pursue a small-batch manufacturing effort to advance its own private labels in the fashion category. Private Label Merchandise – Driving Trial Usage Ms. Mulpuru commented that Amazon’s lack of physical stores selling apparel puts it at a competitive disadvantage when it comes to driving trial usage for its private label brands. Line of sight in physical stores enables you to consume hundreds of products with your eyes in a matter of seconds. One workaround for Amazon is recommendations. It is important for the company to have great photography of its merchandise on its website. Of course, Amazon benefits from the tremendous traffic to its website. Fundamentally, it must overcome the fact it has trained consumers to shop

Maxim Group LLC 15 Consumer Internet

on its website in a manner similar to spear fishing and it has lost the leisure experience of shopping. The company may be able to leverage its sister brands, such as Shopbop and Zappos, to create a leisure experience. It could also drive traffic to its private label brands by a direct email campaign effort leveraging its large database and even by direct mailing consumers magazines or catalogues showcasing its merchandise. Remodista anticipates Amazon will be able to drive usage of its private label brands through a large, organized advertising campaign. To drive trial usage, Professor Bell believes Amazon has to have a clear value proposition. Department store private labels are going nowhere, so why should Amazon expect anything different? Therefore, Professor Bell is not certain if private label resonates with consumers, without a very clear value proposition. Physical Stores to Drive Apparel Sales Overall, Ms. Mulpuru does not know if physical stores are essential for Amazon to drive apparel sales. It may make more sense for Amazon to mirror Stitch Fix’s business model and allow consumers to try on products for free. According to Ms. Mulpuru, Amazon must make a difficult decision when it comes to what products to sell in physical stores and whether to offer a broad assortment (and operate as a general merchant), which requires a large format store, or specialize in a category. In addition, it may not be enough to have a large format to drive apparel sales, noting that even Costco does not have a lot of square footage in its warehouses devoted to apparel. Professor Bell believes the company should open physical stores to advance its apparel sales because a number of consumers still want to touch and feel the product and get to know a brand before purchasing merchandise. To that end, a pure e- commerce model will only take you so far, according to Professor Bell. Using Technology to Drive Apparel Sales Remodista viewed the Echo Look as one of several examples of Amazon’s efforts to drive apparel sales through technology. Contrarily, Ms. Mulpuru considers the Echo Look to be a solution looking for a problem rather than an effective means for Amazon to drive apparel sales by leveraging its proprietary hardware. It was as if an engineer built the device without knowing what utility it provided. She suggested that out of the 100 press releases Amazon puts out each year, the press release announcing the product was one of the 95 that are inconsequential. Professor Bell considers the Echo Look to be a great device for selling almost anything to the consumer, including apparel. Additionally, Professor Bell would not be surprised if Amazon used 3D printing to advance its apparel sales, similar to the Ministry of Supply (a men’s apparel startup with nine physical stores that leverages 3D printing to customize and improve the quality of its merchandise). Luxury Brands Remodista suggested Amazon may have to develop its own luxury brands to increase its assortment as it may continue to be difficult for it to add certain luxury brands to its platform. Further, for Amazon.com to succeed in the luxury category of the apparel market is has to improve its user interface, according to Remodista. Professor Bell believes luxury brands are reluctant to sell on Amazon and if they ultimately do it will be a form of capitulation, i.e. the luxury brands were unable to retain their brand wedge with consumers. Anecdotal Observations The company launched its Buttoned Down private label brand in December 2016 that is only available to Amazon Prime members. We purchased our first shirts shortly thereafter and have added to our closet since then. In our view, the quality is comparable to Brooks Brothers but not as nice as our favorite men’s work dress shirt, Charles Tyrwhitt. That said the price is $39 versus $92 at Brooks Brothers and $69 at Charles Tyrwhitt. Our initial shopping experience, however, was unfavorable. Unable to determine the difference between two white shirts (SKUs), we contacted customer service. The customer service rep was also unable to determine the difference between the two. As it turned out, one shirt has a pocket on the front and the other does not and one is a standard fit while the other is more of a slim fit.

Maxim Group LLC 16 Consumer Internet

B2B E-COMMERCE

Figure 23. Amazon Business (B2B), June 2017

Source: Company reports and Maxim Group

Conclusions  We believe Amazon will be able to exploit the B2B market as it requires the same core competencies of its B2C effort, such as its marketplace and logistics capabilities.  Given the large size of the market, if successful, this could drive significant incremental revenue growth for the companies, for years to come.

Figure 24. B2B E-Commerce, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) B2B E-Commerce 5,969 1,226 <50% Grainger 15.0% 30 Source: Frost & Sullivan and Maxim Group Sales Implications We estimate the global market for B2B e-commerce will be $5,969B in 2019, based on our analysis of data from Frost & Sullivan. Each 100 basis points of market share would increase our 2019 sales growth forecast by 1,226 basis points. We project the company has a 50% chance of achieving an incremental 100 basis points of market share. Margin Implications B2B E-Commerce can be a relatively high margin category, as reflected by Grainger’s 13.5% adjusted EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add 30 basis points to our forecast. Figure 25. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company launched AmazonSupply in 2012 as its initial foray into the B2B E- Commerce market. It renamed the service Amazon Business in 2015.

Maxim Group LLC 17 Consumer Internet

CLOUD COMPUTING

Figure 26. AWS, October 2016

Source: Company reports and Maxim Group Conclusions  We believe the success of AWS has opened management’s eyes to the power of running a high-margin business, including to provide free cash flow to invest in its lower-margin efforts.  In order to continue to lead the way in cloud computing Amazon.com will have to continue to innovate to drive as much revenue as possible outside of the areas of storage and computing power, which will become increasingly commoditized.  As the cloud computing market matures, we will be monitoring the increased potential of competition, led by Google and Microsoft, to slow the rate of expansion for Amazon.com. Figure 27. Cloud Computing, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Cloud Computing 333 79 100% Amazon 36.3% 31 Source: Gartner and Maxim Group Sales Implications We estimate the global market for cloud computing will be $333B in 2019, based on our analysis of data from Gartner. Each 100 basis points of market share would increase our 2019 sales growth forecast by 79 basis points. We project the company has a 100% chance of achieving an incremental 100 basis points of market share. Margin Implications Cloud Computing can be a high margin category, as reflected by AWS’ 36.3% adjusted EBITDA margin in 2016. We estimate that every incremental 100 basis points of market share will add 31 basis points to our 2019 forecast.

Mr. Bezos discussed AWS, at length, in his October 2016 interview with Charlie Rose at the Economic Club in New York, indicating the following keys to Amazon’s strategy:  Opening a Service Initially for Amazon to Everyone – after, at first, developing a means for its own data center and networking engineers to coordinate efforts more effectively, the company recognized other companies would need the service, too, and it made additional refinements and opened it to others.  A Huge Head Start on the Competition – unlike several other initiatives where the company had a more typical head start on the competition of a two-year period, Amazon benefitted from a seven-year head start in cloud computing because legacy infrastructure technology companies underestimated its

Maxim Group LLC 18 Consumer Internet

approach and discounted it because it was outside of Amazon’s e-commerce core competency.  Benefits of its Head Start – as a result, the company was able to build a large competitive advantage including in cost structure, service offerings, and feature sets.  Adding Features and Services – to remain ahead of the competition, Amazon is rolling out 500-800 new features annually. Figure 28. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Figure 29. AWS Clients, 1Q17

Source: Company reports and Maxim Group

In the following figure, we compare Amazon against a number of competitors in the cloud computing category. In particular, we will be monitoring its performance against Microsoft and Google, which, in our view, have made significant strides in improving their efforts to better compete against Amazon.

Maxim Group LLC 19 Consumer Internet

Figure 30. AWS Competitors Company Amazon.com Alphabet IBM Microsoft Baidu Ticker AMZN GOOGL IBM MSFT BIDU Market Cap ($B) 489.0 693.2 142.9 571.7 64.8 Founded 1994 1998 1910 1975 2000 Headquarters , WA Mountain View, CA Armonk, NY Redmond, WA Beijing, China CEO Jeff Bezos Sundar Pichai Ginni Rometty Satya Nadella Robin Li Sales ($B) FY14 89.0 66.0 92.8 86.8 49.1 FY15 107.0 75.0 81.7 93.6 66.4 FY16 136.0 90.3 79.9 92.0 70.5 FY17E 167.4 106.2 78.8 96.5 85.5 FY18E 205.3 122.9 78.8 103.8 103.7 Adj. EBITDA Margin FY14 7.2% 38.9% 25.3% 38.0% 34.2% FY15 9.9% 39.5% 24.4% 34.6% 26.4% FY16 11.2% 40.5% 21.8% 37.6% 19.9% FY17E 12.1% 40.7% 24.8% 37.8% 21.6% FY18E 12.8% 40.8% 24.9% 39.4% 24.0% Capital Expenditures ($B) FY14 4.9 11.0 16.9 5.5 4.8 FY15 5.6 9.9 17.0 5.9 5.2 FY16 6.7 10.2 16.4 8.3 5.5 FY17E 7.6 11.3 15.8 9.1 6.5 FY18E 7.8 13.1 15.9 9.6 7.9 Balance Sheet (2/17) ($M) Cash & Equivalents 15,890 12,918 7,826 8,468 1,537 Debt 7,694 3,935 42,168 84,371 651 Net Cash 18,287 82,398 (33,641) 38,410 9,836 Debt/Total Capital 28.5% 2.8% 69.6% 55.1% 5.0% Source: Company reports and Maxim Group

The following figure illustrates the increasing pace at which Amazon has added new features and services to AWS, which, we believe, becomes increasingly important as the category becomes more competitive. Figure 31. AWS Innovations

Source: Company reports and Maxim Group

Maxim Group LLC 20 Consumer Internet

CONSUMER INTERNET OF THINGS

Figure 32. Consumer Internet of Things, June 2017

Source: Company reports and Maxim Group

Conclusions  We see Alexa as the leading operating system in the rapidly emerging consumer Internet of Things market. Further, Amazon’s efforts in the Consumer Internet of Things have the potential to become Amazon’s fourth pillar beyond Marketplace, Amazon Prime, and AWS.  Voice search is superior to legacy methods (using a keyboard on a desktop/laptop or mobile device) in many ways, which makes Alexa a superior means for use by consumers in automobiles and other hands-free environments.  We anticipate Alexa will be used in several Amazon-branded devices and a multiple of devices made by other manufacturers, with its Echo Look as an early example of how Alexa can be used to drive sales in specific categories, such as apparel. Figure 33. Consumer Internet of Things, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Consumer Internet of Things 1,213 302 100% Fitbit 1.4% (58) Source: Gartner and Maxim Group Sales Implications We estimate the global market for the Consumer Internet of Things category will be $1,213B in 2019, based on our analysis of data from Gartner. Each 100 basis points of market share would increase our 2019 sales growth forecast by 302 basis points. We project the company has a 100% chance of achieving an incremental 100 basis points of market share. Margin Implications The Consumer Internet of Things can be a relatively low margin category, as reflected by Fitbit’s 1.4% adjusted EBITDA margin in 2016. We believe Amazon would realize a similar adjusted EBITDA margin as it historically prices hardware close to cost, in order to increase consumer interaction with Amazon. We estimate that should Amazon penetrate the market by 100 basis points in 2019, then it would subtract 58 basis points to our forecast.

Maxim Group LLC 21 Consumer Internet

Figure 34. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company’s primary focus today is building Alexa’s ecosystem. The goal is to make the offering ubiquitous, such as in cars and home appliances. On a near-term basis, consumers are able to use Alexa to order replenishments, but, today, its direct e- commerce uses are in their earliest stages. Mr. Bezos commented on its Consumer Internet of Things efforts in the October 2016 interview with Charlie Rose at the Economic Club in New York, indicating the following keys to Amazon’s strategy:  Fourth Pillar? – the Consumer Internet of Things (including its efforts in understanding natural language, Alexa, and Echo) has the potential to be the fourth pillar for Amazon, beyond Marketplace, Amazon Prime, and AWS.  Artificial Intelligence (AI) – is an area the company is investing in and it could have a material impact on its business and, in our view, the future of retail.  The Hardware: Echo – it is a small cylinder with a digital signal processor, seven microphones, and a speaker that connects to the cloud via WiFi. It is a conduit for Alexa. The seven microphones enable the device to engage in beam forming that empowers it to hear consumer’s commands even in loud environments, such as a kitchen.  The Artificial Intelligence Agent: Alexa – lives in the cloud and interacts with the consumer. For example, answering questions such as what is the time? What is the weather? And processing commands such as playing a song.  Greater than Expected Volume – the activity on Echo/Alexa has far exceeded management’s expectations.  Amazon’s Significant People Investment – the company has thousands of employees working on its Alexa initiative.  A More Typical Head Start on the Competition – unlike its unusually large seven-year head start for AWS, Amazon believes it has a two-to-two-and-a-half year head start in the Consumer Internet of Things.

Maxim Group LLC 22 Consumer Internet

Figure 35. Alexa, June 2017 Made By Alexa- Potential to Chance of Full Device Amazon Enabled Further Integrate Integration Fire Stick /Fire TV yes yes yes 100% Echo yes yes yes 100% Kindle yes no yes 50% Fire Tablet yes no? yes 100% Dash Buttons yes no yes 50% Amazon App yes yes yes 100% Phone no no yes 100% Smart Fridge no yes yes 100% Ford Sync no yes yes 75% SmartHome Hubs no yes yes 85% Smart WiFi Routers no yes yes 85% Light Bulbs no yes yes 100% Light Switch/Dimmers no yes yes 100% Smart Plugs no yes yes 100% Smart Lock no yes yes 100% Nest Thermostat no yes yes 100% Automatic (automotive) no yes yes 100% Spotify no yes yes 100% Capital One Bank no yes yes 100% Uber no yes yes 100% Google Calendar no yes yes 100% Domino's no yes yes 100% USA Today Network no yes yes 100% Kayak no yes yes 100% Home Advisor no yes yes 100% OurGroceries no yes yes 100% Pandora no yes yes 100% iHeart Radio no yes yes 100% Prime Music yes yes yes 100% FitBit no yes yes 100% Rachio Sprinkler no yes yes 100% Ooma Telo no yes yes 100%

Source: Company reports, Reviwed.com, and Maxim Group

Figure 36. Buttons, June 2017

Source: Company reports and Maxim Group

Maxim Group LLC 23 Consumer Internet

Anecdotal Observations Based on our own experiences, voice search on Alexa is incredibly intuitive and while cognizant of the current limitations – Alexa is unable to answer several semi-basic questions that we could find good results for on Google search, such as, “Alexa, what is the proper temperature to cook bacon?” and some searches we consider basic require additional set up, such “Alexa, what is the share price of Amazon?” (requires enabling a financial skill in the finance category of the skill store in the Alexa app) – for the questions it is able to answer, it is a superior experience to searching in the legacy manner – typing into a search bar on a smartphone or laptop. It is so easy to use that our young children and senior parents are able to use Alexa in no time (although, getting our senior parents to remember their WiFi password remains a hurdle). Ordering products and services on Alexa is so easy that we had to add a password to prevent our children from doing so. Additionally, our children are so fond of Alexa that we frequently find ourselves asking Alexa questions only to find that our Echo Dot is not in the kitchen, as our children have moved it elsewhere in our home. For our senior parents, it is incredibly easy to play streaming music on Alexa, such as by telling Alexa to play Pandora. Alexa vs. Siri Based on our experiences, Alexa is superior to Apple’s competing service, Siri. For starters, Alexa hears our questions on the Echo Dot better than Siri on our iPhone or in our car via Car Play.

CREDIT

Figure 37. Credit, June 2017

Source: Company reports and Maxim Group

Conclusions  Given its treasure trove of data on consumer behavior, extending credit to consumers who shop on its platform seems like a tremendous low-hanging fruit opportunity for the company.  At the minimum, mirroring the best practices of QVC and HSN, with their easy pay efforts that offer consumers the ability to purchases items and pay in a few installments without charging interest could serve as a catalyst for sales of big- ticket items, including consumer electronics and furniture.

Maxim Group LLC 24 Consumer Internet

 Lastly, given its favorable reputation with consumers and their distaste for many financial services companies, there could be additional opportunities for Amazon to expand in financial services, such as banking and insurance. Figure 38. Credit, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Credit 247 51 <5% Alliance Data 29.4% 16 Source: Vyze and Maxim Group Sales Implications We estimate the global market for retail credit will be $247B in 2019, based on our analysis of data from Vyze. Each 100 basis points of market share would increase our 2019 sales growth forecast by 51 basis points. We project the company has a 50% chance of achieving an incremental 100 basis points of market share. Margin Implications Credit can be a relatively high margin category, as reflected by Alliance Data’s 29.4% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add 16 basis points to our forecast. Figure 39. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Ms. Mulpuru suggested credit represents the single biggest asset that Amazon has not monetized. By way of comparison, Sears has generated a large and profitable business extending credit to consumers for a very long time. Ms. Mulpuru added when you consider the requirement for strong data to succeed in credit, Amazon has more data than anyone on consumer’s shopping behavior. It could expand into additional financial services, too, such as banking and insurance, because consumers often do not like the companies they work with, whereas, they hold Amazon in high regard. Professor Bell’s wild card is that Amazon becomes more deeply involved in banking and finance. When considering the huge dollars flowing through the company why wouldn’t the company do more with them, such as taking on lending functions.

DELIVERY

Figure 40. Delivery, June 2017

Source: Company reports and Maxim Group

Maxim Group LLC 25 Consumer Internet

Conclusions  Amazon’s increasing ability to deliver a growing number of SKUs and categories (such as grocery and restaurant food) to varying degrees of speed (one-to-two hour, same day, next day, and two day) is its GREATEST competitive strength in our view and what is enabling it to widen its competitive moat.  More companies, including large-scale retailers, will sell on Amazon’s platform to leverage its logistical platform.  For all its strengths, Amazon’s customer service does not fully understand how to leverage its assets to drive superior customer service, based on our anecdotal observations. Figure 41. Delivery, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Delivery 280 58 <10% UPS 17.0% 4 Source: FedEx, UPS, USPS, and Maxim Group Sales Implications We estimate the global market for delivery will be $280B in 2019, based on our analysis of data from FedEx, UPS, and the USPS. Each 100 basis points of market share would increase our 2019 sales growth forecast by 58 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Delivery can be a relatively high margin category, as reflected by UPS’ 17.0% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add four basis points to our forecast. Figure 42. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

When it comes to its first-party delivery efforts (leveraging its own infrastructure to deliver merchandise, with a lesser reliance on third-party providers, such as FedEx and UPS) today it is primarily to ensure it has excess capacity to ensure consumers receive packages during peak periods, such as the holidays. Units shipped out of its fulfilment centers increased by 40% in 2016 and it is important to the company to have excess capacity, including more middle mile and last mile capabilities on its own. At the same time, Amazon does not intend to let its own delivery infrastructure sit idle during non- peak periods. Lastly, despite ramping its own efforts, the company expects it will always work with large provides, such as FedEx, UPS, and the USPS. Mr. Bezos commented on this matter the October 2016 interview with Charlie Rose at the Economic Club in New York, indicating the following keys to Amazon’s strategy:  Billions of Packages – the company processes billions of packages annually, which requires extensive logistics and it has an A-plus team leading its efforts.  The Need for Excess Capacity – unlike AWS where the company found a way to sell a service it leveraged internally to other companies, its first-party delivery efforts are driven by a need for excess capacity, especially during its peak holiday season, beyond what could be offered by the incumbents including UPS and USPS in the U.S. and Royal Mail and Deutsche Post, outside the U.S.

Maxim Group LLC 26 Consumer Internet

 Increasing its Last Mile Expertise – the need for excess capacity has forced Amazon to develop expertise to address the high cost and challenges of the last mile of delivery.  Leveraging its First-Party Efforts for Fulfillment by Amazon (FBA) – one benefit from the company’s necessity to develop its first-party delivery expertise is that it leverages it to advance its FBA initiative where it stores merchandise, delivers it, and processes returns for third-party sellers. Amazon Prime: the Best of Amazon – Amazon Prime is the best of Amazon, including its fastest free-shipping service without a hurdle rate and a growing list of additional benefits, such as Prime Video.

Figure 43. Amazon Fulfillment Centers, June 2017

Source: Company reports, Wikimedia, and Maxim Group

Figure 44. Amazon’s Shipping Programs, 1Q17 US UK Germany Japan France Italy Membership Program amazon.com prime amazon.co.uk prime amazon.de prime amazon.co.jp prime amazon.fr premium amazon.it prime Launched 2005 2007 2007 2007 2008 2010 Annual Fee (Local Currency) $99 £79 € 69 ¥3900 € 49 € 19.99

Free Expedited Free Two-Day Free One-Day Free One-Day Free One-Day Free One-Day Offer Delivery, Free Delivery Delivery Delvery Delivery Delivery Scheduled Delivery

Spain Canada Austria India China Membership Program amazon.es premium amazon.com prime amazon.at prime amazon.in prime amazon.cn prime Launched 2011 2013 2014 2016 2016 Annual Fee (Local Currency) € 19.95 $99 € 49 INR.999 388 Yuan Free Delivery on Domestic Goods; Free One-Day Free Two-Day Free Two-Day Free One-Day and Offer Free Overseas Delivery Delivery Delivery Two-Day Delivery Delivery (min 200 Yuan) Source: Company reports and Maxim Group

Maxim Group LLC 27 Consumer Internet

Figure 45. Same-Day Shipping Comparison, June 2017 Amazon Postmates Deliv $2.99 - $3.99, plus an additional 9.99% service fee ($3.99 fee is Prices start at $12.50 for 3-hour same day Price Free, $35 min order waived with Postmates Plus delivery service Unlimited, in lieu of a $9.99/month membership fee Postmates member, Postmates Service Eligibility Amazon Prime Members Plus, or Postmates Plus None Unlimited Delivery Speed Within the day Calculated on a per-order basis Within the day Atlanta Arizona Atlanta Baltimore California Boston Boston Colorado Chicago Charlotte Florida Dallas Chicago Georgia Grand Rapids Cincinnati Illinois Houston Dallas/Ft. Worth Indiana Las Vegas Fresno Kansas Los Angeles Indianapolis Kentucky Miami/Ft. Lauderdale Los Angeles Louisiana New York Louisville Maryland Northern New Jersey Milwaukee Massachusetts Orange County Minneapolis/St. Paul Minnesota Philadelphia Nashville Missouri SF Peninsula & South Bay Cities Served NYC and Parts of NJ Nevada San Francisco Orlando New Jersey Seattle Philadelphia New York Washington DC Phoenix North Carolina Raleigh Ohio Richmond Oklahoma Sacramento Oregon San Antonio Pennsylvania San Diego Tennessee San Fransisco/Oakland Texas Seattle/Tacoma Virginia Stockton Washington Tampa Washington D.C. Tucson Wisconsin Washington D.C. 1800 Flowers, American Girl, Banana Republic, Best Buy, Bhindi, Bloomingdales, Bose, Brookstone, Brooks Brothers, Chico's Everlane, MuUndies, MyTable, Claire's, Foot Locker, Express, GNC, Hugo Routed Via Amazon Fulfillment Retailers/Sourcing VNYL, Various Restaurants, Boss, Kate Spade, Kiehls, Kohls, Plated, Centers Delivered via Couriers Pottery Barn, Sony, Staples, T Mobile, Sunglass Hut, Trunk Club, Tumi, , William Sonoma, Zumiez, among others

Wal Mart To Go Google Shopping Express UberRush Free, $35 minimum order $5.50 - $6.30 within 1 mile, $1.80 - $3.00 Price $4.99 for non members $5.99 for orders under $35 per extra mile

No requirements, discounts for Service Eligibility No membership required Uber account members Google Express members Delivery Speed Two business days Same-day service by end of day Calculated on a per-order basis All of the 48 contiguous New York Chicago U.S. States Los Angeles New York Chicago San Francisco Boston Washington D.C. Cities Served San Francisco Bay Area Illinois Indiana Iowa Michigan Ohio Wisconsin

Bed Bath and Beyond, Costco, For specially marked items on Kohl's, Palo Alto Sport Shop, Pier Shopify, Clover, Delivery.com, Retailers/Sourcing Walmart's website, including 1, Staples, Target, Toys R Us, Bigcommerce, 1800 Flowers, ChowNow household essentials Walgreens, Ulta, Whole Foods

Source: Company reports and Maxim Group

Maxim Group LLC 28 Consumer Internet

Figure 46. Amazon’s Spectrum of Shipping Options, June 2017 Pricing Service $14.99/month $10.99/month Amazon Prime $8.99, Free for Prime members on Local Express orders over $35 Delivery $8.99, Free for Prime members on orders over $35 One-Day Shipping Free for prime members Two-Day Shipping $2.99-$6.99 for Prime members, Kindle FreeTime $4.99-$10.99 for non-members Unlimited

4-5 days, Free for Prime members Standard Shipping Free, Prime members receive promotional rewards "No-Rush" Delivery Source: Company reports and Maxim Group

Anecdotal Observations Amazon Prime We have been shopping on Amazon since 1999 and loyal Amazon Prime members since 2012. On many occasions, the company has failed to live up to its two-day shipping promise for our deliveries. What keeps us loyal to Amazon is the willingness of its customer service team to, in general, make up for the short comings, such as by offering minor discounts on future purchases. Where Amazon falls short, in our view, is the customer service representatives’ lack of appreciation for its range of delivery offerings. For example, on an occasion where it was unable to deliver a product to our homes in Fairfield County, CT, its customer service representatives could have seen from our ordering history that we work in New York and offered to send the product via Prime Now, so that we would not have had to wait longer to receive it. Prime Now Working in New York, we have used Prime Now to deliver a variety of office snacks (such as diet Mountain Dew and Double Stuf Oreos) on several occasions. Between Amazon Prime, Prime Now, and Amazon Fresh we have had the most positive experiences and least negative ones with Prime Now. Amazon Fresh We discuss our anecdotal observations with Amazon Fresh in the grocery section (which begins on page 32).

GAS STATIONS

Figure 47. Gas Stations, June 2017

Source: Company reports and Maxim Group

Conclusions  At the minimum, consumers would be able to visit participating locations and receive discounts because they are Prime Members, at the maximum, Amazon would own and operate the gas stations.

Maxim Group LLC 29 Consumer Internet

 In addition, to functioning as traditional fueling stations, consumers would be able to have yet another location to pick up and return merchandise delivered by Amazon.  For more densely populated areas, Amazon could leverage its first-party delivery efforts at its gas stations. Figure 48. Gas Stations, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Gas Stations 2,384 432 <5% CST 4.0% (85) Source: U.S. Census Bureau, Thomson, and Maxim Group Sales Implications We estimate the global market for gas stations will be $2,384B in 2019, based on our analysis of data from the U.S. Census Bureau. Each 100 basis points of market share would increase our 2019 sales growth forecast by 432 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Gas stations margin profile is low, as illustrated by CST’s 4.0% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would subtract 85 basis points from our forecast. Figure 49. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

We expect Amazon to leverage gas stations in the future. At the minimum, consumers will be able to visit participating locations and receive discounts because they are Prime Members, akin to Costco members today or even Stop & Shop loyalty members who receive discounts on gas for purchasing groceries at its stores. At the maximum, Amazon would own and operate the gas stations and, in addition, to functioning as traditional fueling stations, consumers will be able to have yet another location to pick up and return merchandise delivered by Amazon. Adding so many distribution points could be beneficial to shipping costs by converting a large number of deliveries to less expensive ones to commercial addresses versus more expensive last-mile ones to residential addresses. Further, in more densely populated areas, Amazon could leverage its first-party delivery efforts at its gas stations.

Professor Bell believes gas stations could be an effective means for Amazon to further penetrate retail as consumers still drive around and gas stations would enable Amazon to increase its velocity and points of contacts with consumers. Further, operating gas stations could be an interesting data play as Amazon, similar to Uber, would have information on where consumers go, which could be valuable. Professor Bell agreed with our assertion that Amazon could leverage having so many commercial addresses to deliver packages to consumers and take their returns. He noted this is already occurring in countries such as China where “regular” places are used as delivery points.

When we mentioned our idea to Remodista the company suggested, in many ways, Amazon would be recreating Costco’s model, only approaching it in a different manner. For example, Amazon could reconfigure Costco’s physical footprint to create a solution

Maxim Group LLC 30 Consumer Internet

where consumers were able to pick-up groceries and while making it easier for the consumer to get into and out of its own gas station, versus a Costco where it can be somewhat laborious. When it comes to the possibilities of creating new formats and mechanisms for Amazon to develop its own unique models to service consumers, Remodista commented that it benefits from its collaborative research efforts where multiple departments within the company share each other’s research.

Poking holes in our investment thesis, as she often does, Ms. Mulpuru is concerned that gas stations do not make a lot of money. Therefore, when considering all of its investment opportunities, its best gross margin return on investment is a dollar spent to advance it AWS effort rather than towards more physical retail locations. According to Ms. Mulpuru this is why there has been a slower rollout for Amazon Fresh or its physical stores. She also considers the potential for increased adoption of driverless cars over the next decade as another reason the company may not pursue the gas station market opportunity.

GROCERY

Figure 50. AmazonFresh, June 2017

Source: Company reports and Maxim Group

Conclusions  In order to sustain its high retail sales growth rates and meaningfully increase its market/wallet share over time Amazon must find a way to succeed in the grocery category.  In our view, no one, today, has a great online grocery delivery offering, because of structural challenges, such as in produce and the frozen goods. For its part, Amazon has to make significant improvements to its AmazonFresh offering, based on our own anecdotal experience.  To maximize its efforts in grocery, Amazon MUST leverage physical assets, including pick-up points AND its own bricks and mortar stores. Figure 51. Grocery, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Grocery 4,383 824 <5% Kroger 5.1% (128) Source: U.S. Census Bureau, Thomson, and Maxim Group Sales Implications We estimate the global market for grocery will be $4,383B in 2019, based on our analysis of data from the U.S. Census Bureau. Each 100 basis points of market share would increase our 2019 sales growth forecast by 824 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Grocery is a low margin category, as reflected by Kroger’s 5.1% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would dilute our forecast by 128 basis points.

Maxim Group LLC 31 Consumer Internet

Figure 52. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

One of the company’s aspirations for Amazon Fresh is replace consumers’ trips to the grocery store. It continues to add cities at a measured pace and it seeks to determine the optimal logistics footprint for the service. Converting to a monthly fee ($14.99) from an annual one ($299 VERIFY) is resonating well with consumers. In many locations it has integrated its Amazon Fresh into its core Amazon website, versus operating it as a standalone url. It also is pursuing the grocery category with stores for take-out and through its subscribe and save program (offering consumers discounts for enlisting in auto-ship programs), Prime Pantry, and Prime Now initiatives. Ms. Mulpuru noted that online grocery remains a challenge for Amazon and others as penetration stands at only 2%-3% today. To-date its most successful efforts have been selling dry goods to consumers in boxes and not more temperature-sensitive merchandise in its Amazon Fresh packaging. She considers the fact that Amazon Fresh should have been in more markets by now another indication that the company has not found a great way, yet, to penetrate the category or, stated differently, has not mastered the economics of online grocery to roll it out nationally. Further, its efforts to-date have been focused on dense urban markets. That said, Ms. Mulpuru commented that, in general, the pace of rolling out new initiatives at Amazon is much faster when they are primarily driven by new software and much slower, as in AmazonFresh, when the company has to make a significant capital investment. To its credit the company is smart enough to try and build something that is much more robust than Webvan 2.0. Overall, Remodista believes Amazon is succeeding because it is investing R&D spending into every idea that could work. Further, it is testing and thinking beyond what is currently possible. When it comes to grocery, Remodista believes Amazon will continue to figure it out. Regarding online grocery, as a whole, Remodista believes no one, including Amazon, has figured it out today. For example, getting consumers the cut of meat they desire or produce at their desired state of ripeness remain industry-wide problems and are not limited to Amazon. Anecdotally, Remodista has experienced many of the same problems we have encountered with AmazonFresh in Fairfield Country, CT in Chicago with Instacart; further proof that there are industrywide problems that still need to solved. Professor Bell considers Amazon’s foray into grocery a “natural” thing because: 1) the category is ENORMOUS and 2) it is high velocity (the company could use grocery to get into consumer’s homes to sell other high-margin products). Further, Professor Bell commented that as logistics and technology improve, the low margin, storage, and transportation issues will be mitigated somewhat. Pick-up Points Ms. Mulpuru commented that when it comes to delivery, in general, Amazon is experimenting with several fulfillment options to reduce its dependence on the oligopoly (FedEx and UPS). That is why the company is so hot on advancing its drones efforts, as an example. Pick-up points may improve Amazon’s grocery efforts but will not solve the challenge of penetrating grocery, on its own. Ms. Mulpuru cited Auchan and DHL pick-up points in Europe as an example. They were popular for a little while then hit a wall. Pick- up points could prove to be an effective solution for a small portion of consumers. For example, Ms. Mulpuru pointed out that in affluent neighborhoods click and collect can represent 10% of a grocer’s sales mix. The other challenge for Amazon to overcome is that the company has trained consumers to have products delivered to their homes. Ms.

Maxim Group LLC 32 Consumer Internet

Mulpuru noted that Relay Food, which primarily delivered groceries to well-trafficked commercial locations, such as a Walgreens parking lot, found a way to solve for the business need (lowering the cost of delivery to consumers) but did not satisfy enough consumers to scale its business. Remodista considers pick-up points as an effective means for Amazon to improve its online grocery efforts because it would provide yet another way for busy parents to get their groceries. Professor Bell believes pick-up points will advance Amazon’s efforts because consumers really appreciate the flexibility of buying online and picking up items (at their preferred location). Buy Online and Pick Up in a Store Parking Lot (a la Walmart) Ms. Mulpuru, again, commented that this solution could work, but only for a small percent of consumers. Buy online and pick up in stores (BOPIS) was up to 50% of online orders for certain retailers with large store penetrations, seven years ago. Today, practically everyone is offering free shipping (so long as you purchase enough merchandise to surpass their hurdle rates) so consumers are less interested in picking up the merchandise themselves. When you add in the notion that many omni-channel retailers’ stores are not densely penetrated (for example, a consumer may have to drive five-to-ten miles to reach a Dick’s Sporting Goods) BOPIS penetration is now as low as 15%-30% for many stores. What that means for Amazon is that its mix of grocery sales sold via pick-up points will never achieve 80%. Opening Physical Stores to Sell Grocery Professor Bell suggested Amazon will need a greater physical presence to succeed in grocery; however, the stores would not look like those of old, which operated with a high degree of inefficiency because Amazon would combine the logistics/fulfillment and information functions of channels under one roof. He envisions them as small in footprint but large in experience and tech-heavy stores. Figure 53. AmazonFresh, June 2017 Past Present Future Potential Fees $299/yr $14.99/month Part of Prime Membership Fully integrated with Prime 3-hour time slot, order before Leverage physical stores to 10am for delivery before 6pm, have items available to be Delivery Speed Same Day (if before 10am) 1-hour on-demand delivery order before 10pm for delivery picked up shortly after by 6am placing order Sources items from other Items 95K 500K 1M grocery stores, unlimited SKUs Ability to have weekly Shopping groceries delivered based on Amazonfresh.com amazon.com Alexa/Echo ordering options past orders, simply by saying a command Source: Company reports and Maxim Group

Maxim Group LLC 33 Consumer Internet

Figure 54. Online Grocery Services Comparison, June 2017 Delivery Order Delivery Free Membership Pick-up Launched Minimum Charges Delivery Program Availability Points Free shipping on Amazon Prime members pay Washington, New York, California, Connecticut, New On orders for Fresh Amazon Fresh 2007 $40 orders over $40. $9.99 additional $14.99 per month for Jersey, Maryland, Pennsylvania, Boston, , Yes Members over $40 for orders under Fresh Add-on Chicago, Dallas

DeliveryPass membership costs New York, New Jersey, Connectivut, Pennsylvania, Fresh Direct 2002 $40 $6.99 and up With DeliveryPass $129/yr and provides unlimited free Yes Delaware deliveries

$35 for one time Arizona, California, Colorado, Connecticut, District of $5.99 for 1 hour Free shipping on deliveries, $10 or more Instacart Express membership Columbia, Florida, Georgia, Illinois, Indiana, Maryland, delivery or $3.99 for orders over $35 with Instacart 2012 for orders through costs $149/yr and provides free Massachusetts, Michigan, Minnesota, Missouri, New Yes no-rush delivery Instacart Express Instacart Express shipping for orders over $35 Hampshire, New Jersey, New York, North Carolina, (above $35) ($149/year) ($149/year) Oregon, Pennsylvania, Texas, Virginia, Washington

Illinois, Wisconsin, Indiana, Maryland, Washington $9.95 for orders $60- $60 Order Minimum to DC, Virginia, Massachusettes, Connecticuit, Rhode Yes, $2.95 PeaPod 1989 $100. $6.95 for orders No No qualify for delivery Island, New Hampshire, New York, New Jersey, pickup fee over $100. Pennsylvania Door to Door Colorado, Delaware, Illinois, Indiana, Kansas, $5 for orders under On orders $75 or Organics 1997 $17.99 No Maryland, Michigan, Missouri, New Jersey, New York, No $75 more (formerly Relay) Ohio, Pennsylvania, Wisconsin, Wyoming $12.95 on orders One time for first Arizona, California, District of Columbia, Maryland, Safeway 2002 $49 under $150, $9.95 on No Yes online order Oregon, Virginia, Washington orders over $150.

$3.50 for orders under SPUD Rewards offers points per Free for orders over SPUD 2011 None $35; $7.95 for SPUD dollar spent, redeemable for Calgary, Edmonton, Vancouver, Victoria Yes $35 express delivery groceries

£2.99-£6.99 for orders SmartPass membership program less than £75. Free On orders over £75 at Ocado 2002 £40 offers free delivery, among other Growing parts of the UK No delievery on orders certain times benefits over £75. Delivery Saver membership program offers free delivery on Varies by product type; With Delivery Saver Tesco 2002 £40 orders over £40. Plans vary from £3- Growing parts of the UK Yes starting from £2 Membership £7 per month depending on delivery times and plan durations. Varies based on time Colorado, Florida, Washington, with Uber delivery in Walmart 2015 $50; $30 for Pick-Up No No Yes slot select additional markets $4.95 for regular pick up orders, $7.99 for Kroger 2014 $50 No HomeShop by King Soopers Colorado, Georgia, Texas, Virginia Yes expedited pick up orders Varies based on size First time customers Target 2015 $10 of order and delivery on orders of at least Through Instacart California, Illinois, Minnesota Yes time $35 Arizona, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Illinois, Indiana, Varies based on size First time customers Massachusetts, Maryland, Maine, Minnesota, Whole foods 2014 $10 of order and delivery on orders of at least Through Instacart Yes Missouri, North Carolina, New Hampshire, New time $35 Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Virginia, Washington Arizona, California, Colorado, District of Columbia, Varies based on size First time customers Florida, Georgia, Illinois, Indiana, Massachusetts, Costco 2014 $10 of order and delivery on orders of at least Through Instacart Maryland, Minnesota, Missouri, North Carolina, New No time $35 Jersey, New York, Oregon, Tennessee, Texas, Virginia, Washington Source: Company reports and Maxim Group

Anecdotal Observations AmazonFresh first came to Fairfield County, CT in March 2016. We signed up for the service soon thereafter and have been using it since. Overall, our experience leads us to believe that Amazon has several kinks to work out to succeed in its efforts to exploit the grocery category. Overall, we did not find the product pricing compelling, especially when considering the premium annual membership fee ($299 vs. $99, initially, revised to $14.99 per month in October 2016) and that, in our area, the company initially only offered one delivery type and time (delivery at our doorstep between 4am-7am, since revised to two times: 7am- 10am and 1pm-4pm). Further, we believe Amazon.com still has a number of challenges to address that are systemic to online grocery delivery, including damage to fragile items, spoilage of frozen products, and the bulk and apparent excess of packaging required to address damage and spoilage. The biggest surprise to us, however, was that the company was solely relying on USPS for delivery to our area. Considering their trucks are not refrigerated, additional work needs to be done to address our/consumers’ concerns on spoilage. Lastly, we believe Amazon has room to significantly improve the quantity of coupons it offers to consumers in the grocery category. To that end, we believe it would be well served to leverage Quotient Technology’s digital couponing efforts to, at the minimum, significantly increase the number of digital promotions for leading consumer packaged goods companies, such as Procter and Gamble (Quotient Technology’s largest customer).

Maxim Group LLC 34 Consumer Internet

HARDWARE

Figure 55. Hardware, June 2017

Source: Company reports and Maxim Group

Conclusions  We believe Amazon’s hardware efforts drive its sales for both digital and physical merchandise.  We expect the company to continue to roll out new devices leveraging Alexa in different ways such as the Echo Look.  With the emergence of Alexa and an early-stage effort in building a significant physical store presence, we expect Amazon to offer another smartphone. Figure 56. Hardware, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Hardware 688 147 <5% Samsung 24.7% 31 Source: Maxim Group Sales Implications We estimate the global market for hardware (PC’s, tablets, and handsets – including smartphones) will be $688B in 2019, based on our own analysis of data from our colleague, Nehal Chokshi, who is Maxim Group’s Enterprise & Consumer Technology Analyst. Each 100 basis points of market share would increase our 2019 sales growth forecast by 147 basis points. We project the company has less than a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Hardware can be a relatively high margin category, as reflected by Samsung’s 24.7% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add 31 basis points to our forecast. However, when considering Amazon.com’s strategy of pricing its hardware at break even, we believe it would be dilutive to our estimate rather than accretive.

Maxim Group LLC 35 Consumer Internet

Figure 57. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Anecdotal Observations Amazon Fire Tablets We have both a first-generation tablet and first-generation children’s tablet. Both have survived the test of time and continue to work well, even today. The first-generation tablet is durable, in its own right, and the children’s tablet is encased to make it even more durable. If we had to complain on either device, the end of the chargers that plug into the tablets are flimsy and we have broken at least one when connecting it to our tablet. Amazon Fire TV While we also own two generations of Apple TVs, we find the Amazon Fire TV experience to be far superior. It is a greater device to stream content, including our expansive library of digital content purchased on Amazon. To our pleasure, the user interface has improved over time as has the quality of content offered by Amazon. Amazon We purchased a new Amazon Fire Phone on eBay in November 2016 for $83.55 and $5.90 shipping. Our primary smartphone is an Apple 6 Plus on the Verizon Wireless network. We have been using the Amazon Fire Phone since then but have not been using it as a phone. Based on our own experience, Amazon clearly tried to differentiate itself with its dynamic screen. The camera on the phone is adequate, but inferior to our Apple iPhone 6 Plus. As you would imagine, the Amazon device is excellent for leveraging the Amazon platform, including ordering movies on Amazon Instant Video versus on the iPhone were the company has limited your ability to purchase content to avoid paying Apple a commission. It is so good at alerting you when packages arrive that we had to hide the phone from our children during the holiday period. The Mayday feature is also a differentiator, though we have had a difficult time using it as our video chat calls are frequently dropped. On more than one occasion, so much so that we were temporarily “banned” from being able to use the service.

Maxim Group LLC 36 Consumer Internet

PHARMACY

Figure 58. Pharmacy, June 2017

Source: Company reports and Maxim Group

Conclusions  We believe Amazon could follow in the footsteps of Costco, Target, and Walmart by expanding into pharmacy as a means to drive sustained revenue growth.  In particular, Amazon’s growing first-party delivery initiatives, such as Prime Now, should position the company well, should it choose to pursue the pharmacy category.  Should the company expand its physical store footprint, including format types outside of book stores, we believe it could open retail stores with pharmacies in them, too, to further penetrate the category. Figure 59. Pharmacy, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Pharmacy 2,022 407 <5% Walgreens Boots 7.3% (48) Source: U.S. Census and Maxim Group Sales Implications We estimate the global pharmacy market will be $2,022B in 2019, based on our analysis of data from the U.S. Census. Each 100 basis points of market share would increase our 2019 sales growth forecast by 407 basis points. We project the company has less than a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Pharmacy is a relatively low margin category, as reflected by Walgreens Boots’ 7.3% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would subtract 48 basis points to our forecast.

Maxim Group LLC 37 Consumer Internet

Figure 60. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime Anecdotal Observations Having had prescriptions filled at numerous pharmacies, including those operated at CVS, Walgreens, Walmart, and at various local, independent pharmacies (depending on where we were living at the time) and having ordered contacts from 1-800 CONTACTS in the past, we would welcome the opportunity to be able to get our prescriptions from Amazon. Additionally, for those occasions where we needed something right away, we would appreciate the opportunity to leverage Prime Now to get the prescriptions within a few hours.

PROFESSIONAL SERVICES

Figure 61. AmazonHomeServices, June 2017

Source: Company reports and Maxim Group

Conclusions  Penetrating professional services could represent a huge opportunity, especially when considering it offers many of the products that could be installed by professionals.  To succeed in home services, Amazon must overcome a significant structural challenge, the best service providers do not need the company to acquire customers.  Anecdotally, we have found the service helpful to find providers for a range of services. Figure 62. Professional Services, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Professional Services 2,757 555 <5% Angie's List 8.5% (50) Source: Research and Markets and Maxim Group Sales Implications We estimate the global market for professional services will be $2,757B in 2019, based on our analysis of data from Research and Markets. Each 100 basis points of market share would increase our 2019 sales growth forecast by 555 basis points. We project the company has less than a 5% chance of achieving an incremental 100 basis points of market share.

Maxim Group LLC 38 Consumer Internet

Margin Implications The market for professional services can be a relatively low margin one, as reflected by Angie’s List’s 8.5% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would subtract 50 basis points from our forecast. Figure 63. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company launched Amazon Home Services in the U.S. in March 2015 with 2.4M unique service offers and more than 700M professional services (?). It also noted than 85M of its customers were shopping for products that could utilize professional services. As part of the offering, Amazon is vetting service providers; guaranteeing satisfaction for consumers (such as by working with consumers and professionals to ensure jobs are done properly); and, to a certain degree, offering fixed prices with built-in price protection (for example, select price matching). For its part, Amazon collects a 20% fee from the service provider for pre-packaged services up to $1K and 15% for the amounts greater than $1K with a lower scale of 15% and 10%, respectively, for customer service offerings and 10% for recurring services. Anecdotal Observations We have used the service on multiple occasions to find service providers for our home from big projects (in the tens of thousands) to smaller ones (in the thousands). On both occasions we were happy with the quality of the service providers we met through the program. Our primary complaint would be that it takes a lot longer to set up appointments to get quotes and to follow-up with service providers on their quotes, when we use Amazon Home Services versus enlisting ones on our own.

PUBLISHING

Figure 64. , June 2017

Source: Company reports and Maxim Group

Conclusions  When considering its origins as a book seller and extensive digital platform, we see Amazon Publishing as a natural extension of its business.  Its budding physical book store effort gives it another means to promote authors on its publishing platform.  When considering its original video content efforts, we believe a natural opportunity for the company would be turn the more successful books on its platform into TV miniseries and, even, feature films.

Maxim Group LLC 39 Consumer Internet

Figure 65. Publishing, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Publishing 364 75 <5% Bertelsmann 15.2% 3 Source: Research and Markets and Maxim Group Sales Implications We estimate the global market for publishing will be $364B in 2019, based on our analysis of data from Research and Markets. Each 100 basis points of market share would increase our 2019 sales growth forecast by 75 basis points. We project the company has less than a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Publishing can be a relatively high margin category, as reflected by Bertelsmann’s 15.2% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add three basis points to our forecast. Figure 66. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company launched Amazon Publishing in 2009 to further penetrate the books category by becoming more vertically integrated. Imprints include AmazonCrossing, AmazonEncore, 47 North, Grand Harbor Press, Jet City Comics, Lake Union Publishing, Little A, Montlake Romance, Skyscape, StoryFront, Thomas & Mercer, Two Lions, and Waterfall Press.

Maxim Group LLC 40 Consumer Internet

RESTAURANTS

Figure 67. Amazon Go, June 2017

Source: Maxim Group Figure 68. Restaurants, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Restaurants 3,638 719 <5% Darden 13.2% (4) Source: Maxim Group Sales Implications We estimate the global market for restaurants will be $3,638B in 2019, based on our analysis of data from our colleague, Steve Anderson, who is Maxim Group’s Restaurant Analyst. Each 100 basis points of market share would increase our 2019 sales growth forecast by 719 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Restaurants can be a relatively high margin category, as reflected by Darden’s 13.2% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would subtract four basis points from our forecast. Figure 69. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company opened its first Amazon Go store, which is located at the ground level of one its office buildings in Seattle, in December 2016. Initially, the store was in beta test

Maxim Group LLC 41 Consumer Internet

and only open to Amazon employees. The company has indicated plans to open the store to consumers in early 2017. Anecdotal Observations We visited the store in early March 2017 as part of our Seattle investor bus tour. As it was still in beta, at that time, we were unable to enter the store. Based on our observations, the small-box format is similar to a Pret A Manger, where consumers are able to purchase pre-made food offerings, such as salads and sandwiches. Consumers can view the kitchen where chefs prepare the food. There is a small amount of in-store seating. What differentiates Amazon Go from Pret A Manger and, essentially, any other traditional retailer is its leveraging of Amazon-designed technology that enables consumers to skip the checkout counter and, in our view, should empower the company to generate superior margins to similarly formatted stores because of its labor-light business model, by eliminating cashiers. Because of the similarities to Pret A Manger we consider Amazon Go to be a restaurant effort but it could just as easily be labeled grocery, akin to a prepared foods section in a Whole Foods.

STORES

Figure 70. Amazon Stores, June 2017

Source: Company reports, Wikimedia, and Maxim Group

Conclusions  We believe Amazon’s physical stores strategy will enable it to maximize its revenue and market share, including by enhancing its efforts in apparel and food & groceries as well as improving its delivery efforts (such as Amazon Prime and Prime Now).  The company’s Amazon Go technology could enable it to generate superior margins to its bricks and mortar peers by empowering it to drive superior sales velocity and reducing its labor expenses.  We expect the company to open additional store formats, including furniture.

Maxim Group LLC 42 Consumer Internet

Figure 71. Stores, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Stores 22,869 3,152 <5% Walmart 6.8% (324) Source: eMarketer and Maxim Group Sales Implications We estimate the global market for stores will be $22,869B in 2019, based on our analysis of data from eMarketer. Each 100 basis points of market share would increase our 2019 sales growth forecast by 3,152 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Stores can be a relatively low margin category, as reflected by Walmart’s 6.8% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would subtract 324 basis points to our forecast. Figure 72. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

Amazon is experimenting with multiple physical store formats. It seeks to offer a differentiated approach from its bricks and mortar peers. It opened its first book store in Seattle in November 2015. Today it operates six book stores and has announced plans to open six more. Its store portfolio also includes its Amazon Go location, campus pick- up points, and kiosks in malls to drive hardware trial usage. Professor Bell views Amazon’s burgeoning physical store effort as inspired. He added that the world was never going to be “online only” and if Amazon wants to continue to expand in retail it needs to be offline (but not in the same manner as old stores that did not properly integrate logistics/fulfillment and information functionality of multiple channels). Regarding the potential for additional formats beyond those already disclosed by the company, Professor Bell believes Amazon will open those to advance its efforts to sell its own unique merchandise, such as consumer electronics and its proprietary hardware. The goal will be to get its product into consumers’ hands so they become addicted to it and enamored with Amazon. The challenge for Amazon is that it needs to find $10B opportunities in order to have meaningful impact on its business. Even big-box retailers are not that large. For example, sales at Dick’s Sporting Goods are $8B and Barnes & Noble is even smaller at $4B. Therefore, it seems unlikely to Ms. Mulpuru that Amazon would be able to develop even a chain of retail stores that generate more than $10B in annual revenue. For that reason, Ms. Mulpuru foresees Amazon getting distracted by other, larger opportunities and ultimately pivoting away from a major retail store expansion. That said, Ms. Mulpuru commented that it is possible the company could operate a handful of stores that throw off significant cash flow (akin to some of the best-performing Apple locations) and that could enable the company to sustain the high multiple for its shares, which could result in a creating a 200-store footprint. Regarding format types, Ms. Mulpuru believes Amazon is just experimenting to try different formats. Overall, Remodista commented that Amazon is using physical stores as a component of its overarching effort to build a digital engaged and connected world. For example, it is

Maxim Group LLC 43 Consumer Internet

experimenting with artificial intelligence and the Internet of Things to improve consumers’ experiences in digital (online) and physical (offline) environments. In-store Tech at Scale (Beyond Flagship Locations) When discussing Amazon’s physical store efforts, Remodista noted that it has the potential to use technologies, such as those enabling consumers to skip the checkout counter and digital mirrors, at a scale other retailers have not achieved, as most of their advanced uses of technology have been limited to their flagship stores. Further, Remodista believes the company’s vision for its Amazon Go technology extends well beyond prepared food stores/restaurants. Profitable R&D? One of the things that Remodista appreciates about Amazon’s approach to its physical stores is the way it leverages communities, including its own employees, to test products. For example, by opening its Amazon Go store to employees before the public, at large, it is able to test its store concept before rolling it out and when considering it does not offer the merchandise free to employees, it is, in some regards, operating a profitable R&D effort, and practically funding its own development efforts. The company opened its first book store, dubbed , in the University Village neighborhood in Seattle in March 2016. Today, it operates six locations in six states. The company has indicated plans to open six stores in 2017. For example, it rolled out a pricing strategy whereby Prime members pay the same price for items in store as they would online and consumers who are not Prime members pay the same price on Amazon branded hardware but are charged list price on all other items.

Apparel Stores In the future, we believe Amazon will sell apparel in its existing physical stores and/or open dedicated apparel stores as part of its efforts to expand its sales in the category. Further, we believe Amazon could make an acquisition to advance its apparel efforts, including purchasing a retailer with an existing store base, such as American Apparel, or one with a limited physical footprint, Everlane.

Furniture Stores According to an industry source, Amazon has forged an agreement with XPO to use six of its fulfillment centers across the U.S. to advance its sales in the home category because its own fulfillment centers are not built for large, bulky items. In addition, it intends to open small-footprint stores that use augmented reality to enable consumers to see a much broader assortment than the limited inventory held at the store level. Grocery Stores

In the future, we believe Amazon will open dedicated stores to sell groceries as part of its efforts to expand its sales in the category. Further, we believe Amazon could make an acquisition to advance its grocery efforts, including purchasing a grocer with an existing store base and/or one with a convenience store, including gas stations, physical footprint, such as BJ’s Warehouse Club (which has been speculated in the press).

Anecdotal Observations Book Stores We visited the University Village store in early March 2016 and March 2017 as part of our Seattle investor bus tours. Versus our initial expectations, the store footprint was smaller than we anticipated. At 7,400 square feet with 5K-6K SKUs (according to Internet Retailer) it is much smaller than the average Barnes & Noble. Based on our own observations, the company increased the square footage space in the middle of the store used to showcase its hardware, between March 2016 and March 2017. Versus our initial expectations, we were surprised the store hours were only 9:30am-9pm Mondays to Saturdays; especially when compared to Apple, which operates a number of stores open 24x7, 365 days a year, such as its flagship 5th Avenue location in New York.

Maxim Group LLC 44 Consumer Internet

TRAVEL

Figure 73. Travel, June 2017

Source: Company reports and Maxim Group

Conclusions  Similar to Credit, we see Travel as a low-hanging type fruit opportunity for Amazon given its long customer list and extensive consumer purchase behavior data.  At the minimum, the company should be able to mirror Costco’s efforts, providing Amazon Prime members discounts on cruises, hotels, and rental cars.  Considering the success of its third-party retail sales effort, we believe the company could operate a travel business that included inventory from consumers, such as Airbnb’s. Figure 74. Travel, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Travel 1,466 304 <5% Priceline 38.5% 144 Source: Phocuswright and Maxim Group Sales Implications We estimate the global market for travel will be $1,466B in 2019, based on our analysis of data from Phocuswright. Each 100 basis points of market share would increase our 2019 sales growth forecast by 304 basis points. We project the company has a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Travel can be a high margin category, as reflected by Priceline’s 38.5% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add 144 basis points to our forecast. Figure 75. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Anecdotal Observations Given our favorable experiences using Costco Travel for a range of services from booking a resort for our honeymoon to renting cars for vacations, we believe Amazon could, at the minimum, mirror Costco’s efforts for its Prime members.

Maxim Group LLC 45 Consumer Internet

VIDEO CONTENT

Figure 76. Amazon Studios, June 2017

Source: Company reports and Maxim Group

Conclusions  To date, Amazon Studios has been an effective means for the company to drive signups and retention for Amazon Prime; in the future, we see tremendous potential for it to drive significant revenue including from blockbuster movies and licensed merchandise.  Amazon Studios has the potential to become Amazon’s fourth pillar beyond Marketplace, Amazon Prime, and AWS.  We believe Amazon Studios has the long-term potential to develop a blockbuster film that also was able to exploit the licensing market by selling products based off characters in the film (a la Disney). Figure 77. Video Content, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Video Content 107 24 <25% Lionsgate 17.0% 2 Source: Motion Picture Assn. of America, LIMA, Markets and Markets, and Maxim Group Sales Implications We estimate the global market for video content (comprising box office, streaming rights, and merchandise licensing rights) will be $107B in 2019, based on our analysis of data from the Motion Picture Association of America, LIMA, and Markets and Markets. Each 100 basis points of market share would increase our 2019 sales growth forecast by 24 basis points. We project the company has less than a 25% chance of achieving an incremental 100 basis points of market share. Margin Implications Video content can be a relatively high margin category, as reflected by Lionsgate’s 17.0% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add two basis points to our forecast.

Maxim Group LLC 46 Consumer Internet

Figure 78. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group

What started as a crowdsourced model in 2010, Amazon Studios has evolved to become more about being in the studio game and having a Hollywood presence. Revenue from Amazon Studios may be constrained to the extent that Amazon does not pay the studio streaming rights, such as for the Amazon Studios movie Chirac. Mr. Bezos commented on the Prime Video, including the company’s original content efforts in the October 2016 interview with Charlie Rose at the Economic Club in New York, indicating the following keys to Amazon’s strategy:  Prime Video’s humble beginnings – the service initially featured 10K-20K shows that Amazon licensed, which almost entirely reruns, such as Gilligan’s Island and it was less significant benefit for membership in Amazon Prime than it is today.  Prime Video’s evolution – its service is much more substantial today as it includes Amazon’s original content, some of which has won Emmy’s and Golden Globes; however, there is no additional charge to the consumer beyond the annual Prime Membership fee.  More targeted content – as mentioned previously, the company seeks to offer services and sell products to consumers in a manner that is different and better than the competition. For video content, it means making content that targets a relatively smaller audience and can be economically successful when compared against the larger audience required for a broadcast TV show to succeed.  Attracting creative talent – the company is able to attract top storyteller talent because of its willingness to target smaller audiences versus the requirement of making shows that need to have much broader appeal.  Exploiting industry tailwinds – additionally, the success of HBO and Netflix has enabled Amazon to attract top storyteller talent because the stigma of serialized TV has been removed.  Economic benefits of Prime Video – Prime members spend more than consumers who are not members and Prime Video is an effective means for the company to drive memberships, including renewals (consumers who use Prime Video have a greater propensity to convert trial memberships to paid ones and to renew existing memberships).  Fourth pillar? – Amazon Studios has the potential to be the fourth pillar for Amazon, beyond Marketplace, Amazon Prime, and AWS.

Ms. Mulpuru considers Amazon’s proprietary video content to be brilliant as the company has pulled the rug out from under Hollywood by proving you can use science and hire talented screen writers to create viable streaming content and have distribution and that it is not as difficult and expensive as Hollywood makes it seem to create great content. She considers the company to now be in the dialogue to potentially be as big as Disney and Warner Brothers as Amazon has proven it is a contender in Hollywood distribution. She believes Amazon is currently giving it away by including it as a benefit of Amazon Prime membership but that it will ultimately become a reason to inspire consumers to remain members and perhaps, one day, pay even more for it. Regarding the potential for Amazon to sell licensed merchandise from one of its blockbuster movies, Ms. Mulpuru pointed out, on one hand, how many companies rode the Star Wars wave this year and, on the other hand, in history how many movies have been as successful, in that regard, as Star Wars, as those types of megahits are few and far between. Ms. Mulpuru experienced this phenomenon first hard, during her time at Disney when it languished after The Lion King as movie after movie failed to resonate.

Maxim Group LLC 47 Consumer Internet

She noted that it is much easier for a studio to create a sleeper hit, such as Amazon Studios’ Transparent, which only required an audience of 5M-10M to be considered successful versus a movie that succeeds in generating more than $200M in revenue at the U.S. box office. Professor Bell considers Amazon’s content efforts to be truly inspired because he believes the future of commerce involves content and because content for entertainment is a huge category, which is increasingly enabled by technology and Amazon is a tech company, after all. The future of retail and commerce will be driven by technology and a brand stack and who is better positioned for that than Amazon? Further, it is another way to make Amazon’s brand seem more “cool” and endearing to consumers. Additionally, Professor Bell sees content as part of Amazon and Jeff Bezos’ strategy of creating not just the “everything store” but “EVERYTHING, EVERYTHING.” Anecdotal Observations Among the Amazon Studios films, Gleason, the documentary of the former New Orleans Saints football player who suffers from ALS, is by far our favorite. We thought Manchester By the Sea was a very good movie, and that Casey Affleck deserved his Best Actor Oscar, but we are still wondering what happened at the ending (i.e. we did not like the ending of the movie). While we hold Spike Lee in the highest regard, we thought Chirac was only an average movie, despite an impressive, all-star cast. On the TV side, we have watched the pilots of a number of its original shows, including Bosch, Man in the High Castle, The Patriot, and Transparency, but are not hooked to the same way we are for Netflix’s House of Cards or Showtime’s Homeland.

VIDEO GAMES

Figure 79. Video Games, June 2017

Source: Company reports and Maxim Group

Conclusions  Amazon is exploiting the market by selling hardware and software, developing games, and via its video game network.  It also leverages Twitch for another “flavor” of its Amazon Prime membership offering.

Maxim Group LLC 48 Consumer Internet

Figure 80. Video Games, Incremental Sales and Profitability Projections 2019 2019 2019E Sales Odds of Margin Total Lift from Achieving 2016 Lift/(Drag) Addressable 1% Market 1% Market Large Adj. from $1B Market Share Share Market EBITDA Sales ($B) (bps) in 2019 Player Margin (bps) Video Games 119 26 <5% Activision Blizzard 37.2% 12 Source: Newzoo and Maxim Group Sales Implications We estimate the global market for video games will be $119B in 2019, based on our analysis of data from Newzoo. Each 100 basis points of market share would increase our 2019 sales growth forecast by 26 basis points. We project the company has less than a 5% chance of achieving an incremental 100 basis points of market share. Margin Implications Video games can be a high margin category, as reflected by Activision Blizzard’s 37.2% adj. EBITDA margin in 2016. We estimate that should Amazon penetrate the market by 100 basis points in 2019 it would add 12 basis points to our forecast. Figure 81. Emerging Opportunities – Global Footprint, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Advertising yes yes yes yes yes yes yes yes yes yes yes yes yes yes Apparel yes yes yes yes yes yes yes yes yes yes yes yes yes yes B2B E-Commerce yes yes yes no no no yes no no yes no no no no Cloud Computing yes yes yes yes yes yes yes yes yes yes no no no no Consumer Internet of Things yes yes yes yes yes yes yes yes yes yes yes yes yes yes Credit no no no no no no no no no no no no no no Delivery yes yes yes yes yes yes yes yes yes yes yes yes yes yes Gas Stations no no no no no no no no no no no no no no Grocery yes yes no no yes no no no no no no no no no Hardware yes yes yes yes yes yes yes yes yes yes yes yes yes yes Pharmacy no no no no no no no no no no no no no no Professional Services yes no no no no no no no no no no no no no Publishing yes yes yes yes yes yes yes yes yes yes yes yes yes yes Restaurants no no no no no no no no no no no no no no Stores yes no no no no no no no no no no no no no Travel no no no no no no no no no no no no no no Video Content yes yes yes yes yes no yes yes yes yes yes* yes* yes* yes* Video Games no no no no no no no no no no no no no no Source: Company reports and Maxim Group Note: (*) indicates it is not included in Amazon Prime

The company launched Amazon Game Studios in 2014. It acquired Twitch in 2014. COMPETITION

In the following table, we compare Amazon against a set of companies that we believe represents its most significant competition in the future.

Figure 82. Amazon vs. Alibaba, Alphabet, Apple, Facebook, Microsoft, and Wal- Mart, June 2017 Company Amazon.com Alibaba Alphabet Apple Facebook Microsoft Wal-Mart Ticker AMZN BABA GOOGL AAPL FB MSFT WMT Market Cap ($B) 489.0 310.0 693.2 814.9 451.8 571.7 242.3 Founded 1994 1999 1998 1977 2004 1975 1945 Headquarters Seattle, WA Hangzhou, China Mountain View, CA Cupertino, CA Menlo Park, CA Redmond, WA Bentonville, AR CEO Jeff Bezos Daniel Zhang Sundar Pichai Tim Cook Mark Zuckerberg Satya Nadella Doug McMillon Sales ($B) FY14 89.0 76.2 66.0 182.8 12.5 86.8 485.7 FY15 107.0 101.1 75.0 233.7 17.9 93.6 482.1 FY16 136.0 156.0 90.3 215.6 27.6 92.0 485.9 FY17E 167.4 204.2 106.2 227.7 37.7 96.5 494.7 FY18E 205.3 260.1 122.9 244.5 47.8 103.8 507.0 Adj. EBITDA Margin FY14 7.2% 53.5% 38.9% 33.1% 65.2% 38.0% 7.6% FY15 9.9% 51.7% 39.5% 35.3% 62.6% 34.6% 7.1% FY16 11.2% 46.5% 40.5% 32.7% 65.4% 37.6% 6.7% FY17E 12.1% 45.0% 40.7% 32.2% 62.0% 37.8% 6.5% FY18E 12.8% 45.2% 40.8% 32.8% 62.0% 39.4% 6.5% Capital Expenditures ($B) FY14 4.9 4.8 11.0 9.6 1.8 5.5 12.2 FY15 5.6 10.8 9.9 11.2 2.5 5.9 11.5 FY16 6.7 12.2 10.2 12.7 4.5 8.3 10.6 FY17E 7.6 19.7 11.3 13.4 7.0 9.1 11.0 FY18E 7.8 24.6 13.1 14.3 8.0 9.6 10.9 Balance Sheet (2/17) ($M) Cash & Equivalents 15,890 19,298 12,918 16,371 8,903 8,468 5,939 Debt 7,694 13,081 3,935 77,056 280 84,371 43,526 Net Cash 18,287 6,865 82,398 (16,604) 29,169 38,410 (37,587) Debt/Total Capital 28.5% 22.9% 2.8% 36.8% 4.7% 55.1% 35.1% Source: Company reports and Maxim Group

Maxim Group LLC 49 Consumer Internet

WILD CARDS

While our wild card is that Amazon will operate gas stations in the future, we asked our sources for their own wild cards.

Ms. Mulpuru offered space travel as a potential wild card for Amazon. She considers Jeff Bezos to be more opportunistic than Elon Musk, when contrasting two business leaders who are trying the change the world in different ways. She believes the focus will be on disrupting categories, as they already have in media, and, to that end, she thinks the company is not finished experimenting with smartphones. She noted that while Google failed with fiber, another company may pursue the balloon connectivity opportunity at mass, which could disrupt AT&T and Comcast and other companies in the online connectivity market. In some regards, the sky is literally the limit for Amazon, as Ms. Mulpuru suggested the company could get into the business of managing the weather (by cloud seeding) if it suited Amazon. To further that thought, it could do something with temperature control and vertical farming to reduce the cost of organic produce, or it could take a stab at developing an alternative fuel—there is nothing she would put past Amazon as she believes the company would focus on any opportunity where there is a possibility for revenue, disruption, and margin to be had.

Remodista believes a large majority of retailers in the future will capitulate and hand over their e-commerce operations to Amazon rather than handling them in-house, such as what Target did before it took over its e-commerce efforts. While the focus today is on retailers closing physical stores, suggesting their real estate is their largest impediment to their long-term success, Remodista believes it is their technology that is their biggest challenge. Integrating e-commerce into the legacy systems of long-standing retailers is incredibly painful. The biggest challenge to their long-term health is technology—not excessive square footage. Further, it is difficult for retailers to scale down their technological efforts to a more efficient model because of all the channels they use to sell merchandise. As mentioned in the credit section, Professor Bell’s wild card is that Amazon becomes more deeply involved in banking and finance. When considering the huge dollars flowing through the company, why wouldn’t the company do more with them, such as take on lending functions?

WHO SURVIVES AN AMAZON-LED NUCLEAR WINTER IN RETAIL?

For numerous reasons, including its own imperfections and an unwillingness to enter categories that are either too small or where it is unable to come up with a differentiated offering, Amazon cannot and will not do EVERYTHING in the future. For example, as much as we would like Amazon to create the Amazon of the airline industry, we do not believe it would pursue that opportunity. Additionally, lest you get the wrong idea, we know that Amazon is flawed. Anecdotally, over the course of ONE WEEK, Amazon failed us on many levels: It failed to keep its two-day promise when we ordered rosemary shampoo during a lice outbreak at our children’s school. It delivered our groceries via AmazonFresh but without the sliced turkey for our children’s lunches because it was out of stock after we ordered it. It failed to keep its two-day promise on snacks for our children’s lunch ordered on Amazon Prime. It did not deliver an AmazonFresh order during the three-hour window as promised, and, when we called customer service, we were told it already had been delivered. Our order was refunded and yet the AmazonFresh bags mysteriously showed up in our driveway hours later suggesting to us that the USPS had delivered them to the wrong address. Therefore, we believe its own flaws will enable other companies to survive in the future.

When it comes to predicting nuclear winter survivors, Ms. Mulpuru commented that while it is easier to suggest who will not survive, her list of survivors would include drug stores, Kroger, and Walmart. In general, the survivors will be the companies able to pivot their business models. In the 1980s and 1990s retailers did not need to diversify, but in 2017 that is no longer the case.

Remodista believes the survivors will be the other companies that operate global marketplaces, such as Flipkart and Walmart. Additionally, those companies, including brands, that are customer-centric and customer-focused have a better chance of surviving.

Maxim Group LLC 50 Consumer Internet

Professor Bell believes the nuclear winter survivors will be the brands that customer still love and bond with. To that end, he does see himself purchasing Amazon’s private label apparel any time soon. Further, the Internet (and the consumer) could still love the “specialist” over the generalist, but only time will tell. Figure 83. Burberry Leveraging Technology to Drive Sales, June 2017

Source: Company reports and Maxim Group

Burberry We consider Burberry to be one of the best brick-and-mortar retailers at leveraging technology to drive sales. So much so, that we were not surprised when Apple hired its former CEO, Angela Ahrendts, to lead its online and offline retail efforts. In the future, we believe Burberry will leverage the Amazon platform to a much greater degree than it does today (mainly to sell its fragrances). For example, it uses Alibaba’s Tmall to a greater extent, although the primary motivation is to limit grey goods from being sold on the Internet.

Figure 84. eBay June 2017

Source: Company reports and Maxim Group

eBay Under the leadership of CEO Devin Weinig, eBay has refocused on its competitive strengths that, we believe, should enable it to compete against Amazon for the long haul. For example, the large amount of merchandise on its platform that is both not available on Amazon (including used products) and is priced at a discount to Amazon.

Maxim Group LLC 51 Consumer Internet

Figure 85. Video Retailing, June 2017

Source: Company reports and Maxim Group

EVINE Live, HSN, and QVC We mainly believe the video retailers (EVINE Live, HSN, and QVC) will be able to compete against Amazon over the long haul because a large portion of items they sell cannot be found on Amazon. Further, while there is an increasing amount of video content on Amazon (including its Zappos effort), it pales in comparison to the product video libraries that the video retailers have amassed in terms of production quality and depth.

Figure 86. Etsy, June 2017

Source: Company reports and Maxim Group

Etsy At its core, we do not see Amazon Handmade as a product killer for Etsy because Amazon has trained the consumer to purchase what is cheapest on its website and often enough to matter, the least expensive merchandise is not coming from an artisan or Etsy seller who also leverages Amazon’s large audience.

Maxim Group LLC 52 Consumer Internet

Figure 87. Groupon, June 2017

Source: Company reports and Maxim Group

Groupon While less clear to us than the others, should the company succeed in rightsizing its international operations and making the necessary adjustments to improve the profitability of its goods efforts, Groupon may have what it takes to compete against Amazon over the long term, given the extreme challenges in exploiting the local online market.

Figure 88. GrubHub, June 2017

Source: Company reports, YouTube, and Maxim Group

GrubHub We see the online restaurant delivery category as large enough for multiple winners, including Amazon, GrubHub, and UberEats. That GrubHub’s service is integrate into Alexa is further proof for our viewpoint.

Maxim Group LLC 53 Consumer Internet

Figure 89. Nordstrom Leverages Technology to Drive Sales, June 2017

Source: Company reports and Maxim Group

Nordstrom We consider Amazon and Nordstrom to be brothers in arms to the extent that both put the customer in the center. For Nordstrom, it services the customer with a compelling combination of full-price (its full-line stores and Nordstrom.com) and off-price offerings (NordstromRack and Hautelook/NordstromRack.com). Compared to its department store peers, it has a healthy physical footprint with limited upcoming expansion (mainly increasing its store count in Canada, where it has gotten off to a strong start and its upcoming New York City flagship location.

Figure 90. Overstock, June 2017

Source: Company reports and Maxim Group

Overstock Amazon’s efforts to expand in the home category could prove beneficial to Overstock as historically, Amazon has turned new categories into commodities, and we view Overstock to be the price leader and lowest cost operator in the home goods category.

Figure 91. Quotient Technology – Digital Coupons and Retailer iQ, June 2017

Source: Company reports and Maxim Group

Maxim Group LLC 54 Consumer Internet

Quotient Technology As noted previously, we see an opportunity for Amazon to leverage Quotient Technology’s market leadership in the digital couponing business as a means to improve its own couponing program for its own grocery sales. Should it expand its physical footprint meaningfully in the future, Quotient Technology’s Retailer iQ platform, integrated at the POS level, could also come in handy for Amazon, in our view.

Figure 92. Shopify Ecosystem: Increasing Its Value and Stickiness, June 2017

Source: Company reports and Maxim Group

Shopify Because of its ability to enable small-to-medium-sized enterprises to sell online, including leveraging Amazon’s own ecosystem, we consider Shopify to be a suitable long-term provider of the tools needed for businesses to sell online.

Figure 93. Wayfair, June 2017

Source: Maxim Group

Maxim Group LLC 55 Consumer Internet

Wayfair Our overriding thesis for the Consumer Technology category is that technology, alone, cannot sell an inferior product. That said, we consider Wayfair to be even superior to Amazon in leveraging technology to drive its sales in the home category, including an easier shopping experience (for consumers that arrive at its website without clarity of the exact item they want to purchase) and leveraging virtual reality to show what different products would look like in a consumer’s home.

Figure 94. Zulily, June 2017

Source: Company reports and Maxim Group Zulily (part of QVCA Group) B oth the best in breed player and perhaps the last man standing in the flash sales category, Zulily sells thousands of products consumers cannot find on Amazon and, on comparable merchandise, offers products at lower prices than Amazon.

Maxim Group LLC 56 Consumer Internet

Figure 95. Yelp, June 2017

Source: Company reports and Maxim Group

Yelp While Amazon does well for itself to leverage user-generated content for product reviews on its website, we see the local online marketplace as challenging enough to penetrate that it may prevent Amazon from pursuing it too heavily over the long haul. For its party, Yelp’s success in driving transaction on its own platform, rather than away from it, could enable it to remain a long-term participant in the local Internet category, which is hard for all to penetrate, including Amazon.

COMPANY MILESTONES

Milestones  Entered Germany and the UK in 1998  Enabled third-party retailers to sell merchandise on its website in 1999  Entered France and Japan in 2000  Entered Canada in 2002  Entered China in 2004  Launched its Amazon Prime “free” shipping annual membership program in 2005  Sold its first Kindle e-reader in 2007  Started its AmazonFresh online grocery delivery effort in Seattle in 2007  Began its cloud computing effort, Amazon Web Services (AWS), in 2006  Acquired Zappos in 2009  Acquired Quidsi (including Diapers.com) in 2010  Entered Italy in 2010  Formed Amazon Studios in 2010. (Premiered first pilots–Alpha House and Betas–in 2013; won first Emmy–Transparent–in 2015).  Sold its first Kindle Fire tablet in 2011  Launched Amazon Instant Video service in 2011  Entered Spain in 2011  Started its effort in London, New York, and Seattle in 2011  Acquired Kiva in 2012  Entered India in 2013  Initiated its Prime Now fast delivery effort in New York City in 2014  Launched Prime Music service in 2014  Sold its first branded smartphone (Fire Phone) in 2014

Maxim Group LLC 57 Consumer Internet

 Entered Mexico in 2015  Opened its first physical book store in Seattle in 2015  Opened its first pick-up location at Purdue University in 2015  Opened Amazon Go store in Seattle in 2016  Amazon Studios’ Manchester by the Sea wins Best Actor Oscar in 2017  Announced intent to acquire Souq.com in 2017  Opened pickup point for Amazon Fresh in Seattle in 2017

PERFORMANCE AGAINST GUIDANCE

Figure 96. Amazon.com Performance Against Guidance – 1Q14-2Q17E Date Provided 1/29/15 4/23/15 7/23/15 10/22/15 1/28/16 4/28/16 7/28/16 10/27/16 2/2/17 4/27/17

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 Sales ($M) Low 20,900 20,600 23,300 33,500 26,500 28,000 31,000 42,000 33,250 35,250 High 22,900 22,800 25,500 36,750 29,000 30,500 33,500 45,500 35,750 37,750 Maxim NA NA NA NA NA 28,929 31,930 44,341 34,681 36,976 Consensus 22,391 22,392 24,908 35,934 27,979 29,556 32,687 44,677 35,313 37,151 Actual 22,717 23,185 25,358 35,747 29,128 30,404 32,714 43,741 35,714 NA

Sales Growth Low 6.0% 7.0% 13.0% 14.0% 17.0% 21.0% 22.0% 17.0% 14.0% 16.0% High 16.0% 18.0% 24.0% 25.0% 28.0% 32.0% 32.0% 27.0% 23.0% 24.0% Actual 15.1% 19.9% 23.2% 21.9% 28.2% 31.1% 29.0% 22.4% 22.6% NA

FX Impact (Basis Points) (460) (750) (620) (340) (130) 70 30 60 (250) (240)

Sales Growth (FX Neutral) Low 10.6% 14.5% 19.2% 17.4% 18.3% 20.3% 21.7% 16.4% 16.5% 18.4% High 20.6% 25.5% 30.2% 28.4% 29.3% 31.3% 31.7% 26.4% 25.5% 26.4%

Operating Income ($M) Low (450) (500) (480) 80 100 375 50 0 250 425 High 50 50 70 1,280 700 975 650 1,250 900 1,075 Actual 255 464 406 1,108 1,071 1,285 575 1,255 1,005 NA

SBC and Amort. of Int. ($M) 450 600 580 620 600 825 NA NA NA NA

Adj. Operating Income ($M) Low 0 100 100 700 700 1,200 NA NA NA NA High 500 650 650 1,900 1,300 1,800 NA NA NA NA Source: Company reports, Thomson, and Maxim Group

Maxim Group LLC 58 Consumer Internet

APPENDIX

Figure 97. Apple Stores, June 2017 State No. of Locations State No. of Locations Alabama 2 Oregon 3 Alaska 1 Pennsylvania 9 Arizona 6 Rhode Island 1 Arkansas 1 South Carolina 2 California 53 Tennessee 4 Colorado 6 Texas 18 Connecticut 7 Utah 3 Delaware 1 Virginia 9 District of Columbia 1 Washington 6 Florida 17 Wisconsin 3 Georgia 6 Total US Store Count 270 Hawaii 3 Idaho 1 Illinois 9 Country No. of Locations Indiana 2 Australia 22 Iowa 1 Belgium 1 Kansas 1 Brazil 2 Kentucky 2 Canada 29 Louisiana 2 China 39 Maine 1 France 20 Maryland 5 Germany 14 Massachusetts 11 Hong Kong 6 Michigan 6 Italy 16 Minnesota 5 Japan 8 Mississippi 1 Macao 1 Missouri 3 Mexico 1 Nebraska 1 Netherlands 3 Nevada 5 Spain 11 New Hampshire 3 Sweden 3 New Jersey 12 Switzerland 4 New Mexico 1 Turkey 2 New York 21 United Arab Emirates 2 North Carolina 5 United Kingdom 38 Ohio 8 Oklahoma 2 Total Store Count 492 Source: Company reports and Maxim Group

Figure 98. Microsoft Stores, June 2017 State No. of Locations State No. of Locations Arizona 2 New Jersey 4 California 13 New York 7 Colorado 3 North Carolina 2 Connecticut 2 Ohio 3 Delaware 1 Oklahoma 2 Florida 8 Oregon 2 Georgia 2 Pennsylvania 2 Hawaii 1 Rhode Island 1 Illinois 3 Tennessee 2 Indiana 1 Texas 8 Iowa 1 Utah 2 Kansas 1 Virginia 2 Kentucky 2 Washington 5 Louisiana 1 Wisconsin 1 Maine 1 Australia 1 Maryland 3 Alberta 2 Massachusetts 3 British Columbia 2 Michigan 2 Ontario 3 Minnesota 1 Puerto Rico 1 Missouri 1 Nevada 1 New Hampshire 1 Total Store Count 106 Source: Company reports and Maxim Group

Maxim Group LLC 59 Consumer Internet

Figure 99. Amazon Commission Rates by Category, June 2007 Commission Category Rate 3D Printed Products 12% Amazon Device Accessories 45% 15% Automotive & Powersports 12% Baby Products 15% Beauty 15% Books 15% Camera and Photo 8% Cell Phone Devices 8% Clothing & Accessories 15% Collectibe Coins 15% Consumer Electronics 8% Electronics Accessories 15% Entertainment Collectibles 20% Furniture & Décor 15% Health & Personal Care 15% Home & Garden (incl. Pet Supplies) 15% Independent Design 25% Industrial & Scientific 12% Jewelry 20% Kitchen 15% Luggage & Travel Accessories 15% Major Appliances 15% Music 15% Musical Instruments 15% Office Products 15% Outdoors 15% Personal Computers 6% Shoes, Handbags and Sunglasses 15% Software & Computer/Video Games 15% Sports 15% Sports Collectibles 20% Tools & Home Improvement 15% Toys & Games 15% Video & DVD 15% Video Games 15% Video Game Consoles 8% Watches 16% Everything Else 15%

Range 6%-45% Median 15% Average 15% Source: Company reports and Maxim Group

Maxim Group LLC 60 Consumer Internet

Figure 100. Amazon State Taxes, June 2017 Year Amazon Began Collecting City State Sales Tax Tax Montgomery Alabama 2015 10.000% Junea Alaska 5.000% Phoenix Arizona 2013 8.600% Little Rock Arkansas 2017 9.000% Sacramento California 2012 8.250% Denver Colorado 2016 7.650% Hartford Connecticut 2013 6.350% Dover Delaware 0.000% Tallahassee Florida 2014 7.500% Atlanta Georgia 2013 8.900% Honolulu Hawaii 2017 4.500% Boise Idaho 2017 6.000% Springfield Illinois 2015 8.500% Indianapolis Indiana 2014 7.000% Des Moines Iowa 2017 6.000% Topeka Kansas 2004 9.150% Frankfort Kentucky 2005 6.000% Baton Rouge Louisiana 2017 10.000% Augusta Maine 2017 5.500% Annapolis Maryland 2014 6.000% Boston Massachusetts 2013 6.250% Lansing Michigan 2015 6.000% St. Paul Minnesota 2014 7.625% Jackson Mississippi 2017 8.000% Jefferson City Missouri 2017 7.725% Helena Montana 0.000% Lincoln Nebraska 2017 7.250% Carson City Nevada 2014 7.600% Concord New Hampshire 0.000% Trenton New Jersey 2013 6.875% Satna Fe New Mexico 2017 8.313% Albany New York 2008 8.000% Raleigh North Carolina 2014 7.250% Bismarck North Dakota 2001 6.500% Columbus Ohio 2015 7.500% Oklahoma City Oklahoma 2017 8.375% Salem Oregon 0.000% Harrisburg Pennsylvania 2012 6.000% Providence Rhode Island 2017 7.000% Columbia South Carolina 2016 8.000% Pierre South Dakota 2017 6.500% Nashville Tennessee 2014 9.250% Austin Texas 2012 8.250% Salt Lake City Utah 2017 6.850% Montpelier Vermont 2017 6.000% Richmond Virginia 2013 5.300% Olympia Washington 2008 8.800% Charleston West Virginia 2013 7.000% Madison Wisconsin 2013 5.500% Cheyenne Wyoming 2017 5.000% Washington D.C. 2016 5.750% Source: Company reports and Maxim Group

Maxim Group LLC 61 Consumer Internet

U.S. Figure 101. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Canada Figure 102. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

UK Figure 103. Categories By Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Germany Figure 104. Categories By Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Maxim Group LLC 62 Consumer Internet

Japan Figure 105. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

China Figure 106. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

India Figure 107. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Italy Figure 108. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Maxim Group LLC 63 Consumer Internet

Spain Figure 109. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Mexico Figure 110. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

France Figure 111. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group

Egypt Figure 112. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group Note: (*) indicates it is reflected in Souq.com acquisition

Maxim Group LLC 64 Consumer Internet

Saudi Arabia Figure 113. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group Note: (*) indicates it is reflected in Souq.com acquisition

UAE Figure 114. Categories by Country, June 2017 Category U.S. U.K. Germany France Japan China Canada Italy Spain India Mexico Egypt Saudi Arabia UAE Physical Media 1995 1998 1998 2000 2000 2004 2002 2010 2011 2013 2015 2017* 2017* 2017* Electronics 1999 2001 2001 2005 2003 2004 2008 2010 2011 2013 2015 2017* 2017* 2017* Toys 1999 2001 2004 2007 2004 2004 2013 2011 2011 2013 2015 2017* 2017* 2017* Baby 1999 2007 2007 2007 2007 2006 2012 2012 2012 2013 2015 2017* 2017* 2017* Tools & Hardware 1999 2004 2004 2012 2009 2009 2011 2013 2013 2013 2015 2017* 2017* 2017* Home & Garden 2000 2004 2004 2007 2003 2006 2009 2010 2011 2013 2015 2017* 2017* 2017* Apparel 2002 2008 2008 2010 2007 2010 2015 2014 2014 2014 2016 2017* 2017* 2017* Sports & Outdoors 2003 2007 2006 2010 2005 2006 2010 2011 2014 2014 2015 2017* 2017* 2017* Jewelry & Watches 2003 2007 2007 2007 2007 2006 2010 2010 2011 2013 2015 2017* 2017* 2017* Health & Personal Care 2003 2008 2007 2009 2006 2006 2013 2014 2011 2013 2015 2017* 2017* 2017* Beauty 2004 2008 2008 2009 2008 2006 2013 2015 2015 2013 2015 2017* 2017* 2017* Shoes & Accessories 2005 2007 2007 2009 2007 2009 2015 2011 2012 2014 2016 2017* 2017* 2017* Dry Goods 2006 2010 2010 2015 2008 2010 2013 2015 2015 NA NA 2017* 2017* 2017* Auto Parts & Accessories 2006 2009 2008 2013 2009 2009 2013 2013 2013 2015 2016 2017* 2017* 2017* Kindle Device & Store 2007 2010 2011 2011 2012 2012 2013 2011 2011 2013 2015 2017* 2017* 2017* Office Supplies 2008 2009 2009 2009 2010 2010 2013 2014 2014 2014 2015 2017* 2017* 2017* Source: Company reports and Maxim Group Note: (*) indicates it is reflected in Souq.com acquisition

Maxim Group LLC 65 Consumer Internet

Related Companies Mentioned in this Report Price Company Ticker Rating 06/05/17 Burberry Group PLC BURBY $23.41 Buy eBay Inc. EBAY $35.55 Buy Etsy, Inc. ETSY $13.54 Buy EVINE Live Inc. EVLV $1.24 Buy Groupon, Inc. GRPN $3.05 Buy GrubHub Inc. GRUB $44.52 Hold HSN, Inc. HSNI $32.45 Buy Nordstrom Inc. JWN $41.65 Buy Overstock.com, Inc. OSTK $14.55 Buy Quotient Technology Inc. QUOT $11.60 Buy QVC Group QVCA $24.02 Buy Shopify Inc. SHOP $97.48 Hold Wayfair Inc. W $68.59 Buy Yelp Inc. YELP $30.09 Buy

DISCLOSURES

To receive full disclosures for the companies under Maxim Group coverage that are mentioned in this report, please send your request to: Maxim Group c/o Mitchell J. Speiser, CFA; 405 Lexington Avenue, 2nd Floor, New York, NY 10174

I, Tom Forte, CFA, attest that the views expressed in this research report accurately reflect my personal views about the subject security and issuer. Furthermore, no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report. The research analyst(s) primarily responsible for the preparation of this research report have received compensation based upon various factors, including the firm’s total revenues, a portion of which is generated by investment banking activities.

DISCLAIMERS

Some companies that Maxim Group LLC follows are emerging growth companies whose securities typically involve a higher degree of risk and more volatility than the securities of more established companies. The securities discussed in Maxim Group LLC research reports may not be suitable for some investors. Investors must make their own determination as to the appropriateness of an investment in any securities referred to herein, based on their specific investment objectives, financial status and risk tolerance. This communication is neither an offer to sell nor a solicitation of an offer to buy any securities mentioned herein. This publication is confidential for the information of the addressee only and may not be reproduced in whole or in part, copies circulated, or disclosed to another party, without the prior written consent of Maxim Group, LLC (“Maxim”). Information and opinions presented in this report have been obtained or derived from sources believed by Maxim to be reliable, but Maxim makes no representation as to their accuracy or completeness. The aforementioned sentence does not apply to the disclosures required by FINRA Rule 2241. Maxim accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to Maxim. This report is not to be relied upon in substitution for the exercise of independent judgment. Maxim may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and Maxim is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by Maxim and are subject to change without notice. The price, value of and income from any of the securities mentioned in this report can fall as well as rise. The value of securities is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk. Securities recommended, offered or sold by Maxim: (1) are not insured by the Federal Deposit Insurance Company; (2) are not deposits or other obligations of any insured depository institution; and (3) are subject to investment risks, including the possible loss of principal invested. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support these losses.

ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

Maxim Group LLC 66 Corporate Headquarters

The Chrysler Building nd 405 Lexington Ave., 2 FL New York, NY 10174 Tel: 212-895-3500 Tel: 212-895-3500

Capital Markets/Syndicate: 212-895-3695 Global Equity Trading: 212-895-3623 Corporate Finance: 212-895-3811 Institutional Sales: 212-895-3745 Equity/Options Trading: 212-895-3790 Institutional Sales Trading: 212-895-3873 Equity Research: 212-895-3736 Prime Brokerage: 212-895-3755 Event Driven/Risk Arb Group: 212-895-3878 Wealth Management: 212-895-3624 Fixed Income Trading: 212-895-3875

Woodbury, Long Island Red Bank, New Jersey 20 Crossways Park Drive North 246 Maple Avenue Suite 304 Red Bank, NJ 07701 Woodbury, NY 11797 Tel: 732-784-1900 Tel: 516-393-8300

San Francisco, Bay Area Boca Raton, Florida Lafayette, California 7900 Glades Road 3732 Mt. Diablo Blvd Suite 505 Suite 158 Boca Raton, FL 33434 , CA Lafayette 94549 Tel: 561-465-2605 Tel: 415-762-0114