1. Social Media, the Economy, and Shifts in Consumer Behavior Keynote Address at Social Media Insider Summit August 18, 2011 Jordan Rohan, Managing Director, Equity Research Internet and Digital Media jrohan@stifel.com 212-271-3765; @jordanrohan Stifel Nicolaus does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 25-27 of this report.
3. What Does It Mean To Peak? Microsoft has peaked, despite continued record profits. Apple continues upward with Innovative products, consumer imagination…(and record profits) Now is Facebook’s Moment in the Sun… … but moments in the sun can be so fleeting. Source: Apple’s “Get a Mac” campaign from 2006-2010 3
4. Internet Companies Have Cycles of Popularity Nasdaq Peak in 2000 Source: FactSet, StifelNicolaus estimates 4
5. Is This a Peak? December 2010 Source: TIME Magazine 5
6. TIME Magazine Has a Strong Record of Calling Peaks 6 Netscape Marc Andreessen February 1996 Microsoft (peak?) Apple (trough?) Investment in Apple August 1997 Intel Andy Grove Man of the Year December 1997 AOL Time Warner “The Merger” January 2000 Source: TIME Magazine
7. Magazine Covers Do Not Always Mark Peaks in a Company 7 Apple Continues to Innovate Amazon Executes Amazon’s Jeff Bezos Person of the Year December 1999 Apple iPod October 2005 Apple iPhone November 2007 Apple iPad April 2010 Source: TIME Magazine
12. In the U.S., the Fed is running out of stimulative actions: Low GDP growth despite three years of zero interest rates, which are now pegged at zero through 2013. Stubbornly high unemployment.
13. Europe cleaning up (or holding together) the mess in Italy, Spain, Portugal, Ireland, Greece. Potential reorganization of the Euro Zone would be a destabilizing force. 9
14. More on the Economy – Leverage Remains High Nominal Home Mortgage Debt as a % of Nominal GDP Peak 1Q 2009 at 75.5% ‘91 – ‘97 Source: FactSet, Federal Reserve, StifelNicolaus. 10
15. We Have Been in Secular Bear Market Since 2000 Source: Dow Jones, U.S. Census, StifelNicolaus format. 11
16. After Adjusting for Inflation, the Last 12 Years Has Been Painful Source: FactSet. 12
17. Last Few Weeks Have Seen Extreme Volatility VIX (Fear) Index Spikes Up S&P rallies on QE2 Source: FactSet 13
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20. Chuck Capps, Nissan dealership owner, used to spend $25,000 monthly on weekly newspaper, radio and TV advertising. Now he's only spending money online, with $8,000 monthly to TK Carsites.Source: Automotive News, USA Today, August 2011 14
27. U.S. Monetization 3-6x higher than International, on averageNote: Estimates for LinkedIn and AOL are approximate and based on Consensus. AOL 2001 US Unique Visitors estimate represents 70% of Worldwide, we estimate international revenue was 20% in 2001 and 5% in 2011E. AOL Revenues based on Consensus figures. Facebook revenue estimates based on gigaom.com tied to WSJ and NYT. Yahoo assume 70% US revenue based on historical breakout as are gross margin assumptions. Facebook we assume 65% of $5bn total revenue derived from US and we estimate 85% gross margins. Google revenue estimates based on Gross Revenue percentage splits. Amazon US are representative of North America reported data. Source: Company Reports, ComScore, gigaom.com, FactSet, ThompsonONE, Stifel Nicolaus Estimates 17
28. All Things Considered, Facebook Remains Dominant Platform …Visitor data shows no peak-like characteristics Source: comScore, StifelNicolaus Estimates 18
29. Despite Facebook’s Popularity, Consumer Sentiment is Mixed Facebook is the only Internet brand to rank among “Most-Hated” Why? Source: American Customer Satisfaction Index (ACSI) July 2011 19
30. Successful Launch of Google+ Toward the end of July G+ is close to 30mn Unique Visitors… Source: comScore, StifelNicolaus Estimates 20
48. Facebook may prefer to have Twitter as an independent competitor22 Source: *Google offer for Twitter reported by Fortune Magazine April 14, 2011
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50. But there were reports of a sale by Interpublic this week at implied $66 billion (-23%)Did Facebook’s “real” valuation tick down with overall equity markets? Source: SecondShares, FactSet, Financial Times, StifelNicolaus Estimates 23
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52. Facebook will peak some day. Consumers prefer choice and open platforms. Facebook has some shortcomings, including a declining signal-to-noise ratio in its stream. It also needs to improve monetization without alienating its core user base.
53. Technology and the shaky macro economy / stock markets could disrupt Facebook’sparty as well, even if there is very little direct impact on social media’s fundamentals. The potential sale of Twitter could alter the competitive landscape.
54. We continue to monitor the economy and the social media metrics closely, and welcome feedback and perspectives. jrohan@stifel.com 24