AVG Technologies Market Price: $16.11 as of Dec 21. 2012 Target Price: $17.49 8.6% upside Recommendation: HOLD University of New York in Prague CFA Research Challenge: London April 10. 2013 Business Overview Sources of revenue $100 Internet security provider $90 $80 $70 $60 $50 $40 $30 Subscriptions $20 $10 Business model $0 Platform-derived 2012 Q1 2012 2010 Q42010 Q12011 Q22011 Q32011 Q42011 Q22012 Q32012 Platform-derived (in millions) Subscription 400 357M Distribution Channels $250 272M 300 $200 Revenue ($M) $150 200 Platform-derived $100 Subscription $50 100 $0 2008 2009 2010 2011* 0 Web-based Reseller network 2011 2012E *data for 9 months Target: $17.49 (HOLD) Business Overview Business Overview Share price since IPO (Feb 2, 2012) Market profile 52 Week Range 9.42-16.26 17 Average Daily Vol. 380,363 Beta 0.95 16 Shares Outst. (M) 54.38 15 Free Float 83% Market Cap (M USD) 839.67 14 13 12 EBIT Growth $80 100% 11 $70 $60 10 $50 $40 10% 9 $30 February 3, 2012 April 3, 2012 June 3, 2012 August 3, 2012 October 3, 2012 December 3, 2012 $20 $10 $0 1% Tuck-in $ M&A Further acquisitions EBIT Year-to-Year Growth % Target: $17.49 (HOLD) Business Overview Industry Overview Market Share Q3 2012 Market Share Development AVG 45% 11% 9% 2% AVAST 40% 18% 35% 3% Microsoft 30% 5% Avira 25% ESET 20% 6% 15% Symantec 10% Kaspersky 5% McAfee 0% 10% 14% Trend Micro Panda 2012 Q3 2012 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 11% 2010 Q4 12% Other Microsoft AVAST AVG High Mobile competitive Commoditization Future rivalry ? Target: $17.49 (HOLD) Industry Overview Financial Analysis Decreasing Strong Decreasing Limited market High operating portfolio margins efficiency cash flow share Unsustainable growth EBITDA & EBITDA Growth ROA & ROE $120 120% 25% $100 100% 20% $80 80% 15% $60 60% 10% ROA 5% ROE $40 40% 0% $20 20% AVG Symantec Microsoft Trend Micro -5% $0 0% 2007 2008 2009 2010 2011 2012 -10% Target: $17.49 (HOLD) Financial Analysis Valuation – Discounted Cash Flow Sensitivity Analysis Projected Net Operating Cash Flows $26 $125,000 $24 $120,000 $22 $115,000 $20 $110,000 $18 $105,000 $16 $14 $100,000 $12 $95,000 $10 $90,000 2013E 2014E 2015E 2016E 2017E 1% 4% 7% -8% -5% -2% 10% 13% 16% 19% -14% -20% -17% -11% 29% CAGR CAGR ↓ 10.15% $18.89 4.6% 6.9% 22% Subscription Platform Margins High WACC revenue revenue Target: $17.49 (HOLD) Valuation Valuation – Multiples Stock Price and P/E Ratio Forecasted Revenue Growth $26 $600,000 14% $24 $500,000 12% $22 10% $20 $400,000 $18 8% $300,000 $16 6% $200,000 $14 4% $12 $100,000 $10 2% $8 $0 0% 2013E 2014E 2015E 2016E 2017E Price P/E 70X P/E 60X P/E 40X Multiples Company EV/EBITDA EV/Sales P/E AVG Technologies 8.05 2.54 11.95 Industry average 9.70 3.33 13.30 Target: $17.49 (HOLD) Valuation Valuation – Summary DCF P/E EV/EBITDA EV/Sales $18.89 $13.17 $15.38 $18.79 55% 15% 15% 15% $17.49 Monte Carlo Simulation 900 6% 62% 32% 800 700 600 500 400 Frequency 300 200 100 0 $13 $14 $15 $16 $17 $18 $19 $20 $21 $22 $23 $24 $25 $26 $27 $28 $29 $30 $31 $32 $33 $34 $35 Stock Price Target: $17.49 (HOLD) Valuation Investment Risks Ability to Additional Increasing monetize platform margins mobile derived users contracts Upside potential Upside HOLD $17.49 Strong Difficulties dependency Failure in with on a limited contract monetization product renewals of products Downside risks Downside portfolio Target: $17.49 (HOLD) Investment Risks Investment Risks 22 $21.55 21 33.7% 20 19 18 $17.49 17 8.6% 16 15 14 $13.17 13 -18.25% 12 11 Risk Scenarios 10 9 8 Target: $17.49 (HOLD) Investment Risks Conclusion Financial Health Viral Customer Acquisition Ability To Monetize Customer Base Solid Share in a Risky Industry Commoditization of Antiviruses High Competitive Rivalry Uncertain Future Target: $17.49 (HOLD) Summary & Investment Recommendation .