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Mid-Atlantic Institutional Research

Bolan’s Bytes
A quick look at the Internet and news moving the market July 9, 2009

Brian Bolan
(312) 345-1534
BBolan@sturdivant-co.com

Investment Summary: ComScore will be publishing search engine market share data in mid-July
and we took a look at what has been published already and where we believe the numbers will end
up. The implications of Bing.com gaining share are addressed as well as a discussion on the
potential spin off of AOL from Time Warner and a combination of Yahoo! and the new AOL. We
also address the key reason, listings growth, that we believe will drive an eBay outperformance
over the next 12 months. Finally we touch on Blue Nile and Amazon.com

Key Points

Bing appears to be taking share from Yahoo! We take a look at the numbers that
ComScore has published recently and look forward to the release in mid July. The market
share release is highly anticipated due to the release of Bing.com and the subsequent market
share gains that were posted in the first two weeks of the month.

Yahoo! still depends on search, but is probably eyeing AOL. Carol Bartz has made
numerous statements about the future of Yahoo!, but we believe that she could be setting up
the company for the return of the portal. The internet has been very cyclical so while this
model has been around for sometime, the traffic from a combined Yahoo! / AOL would be a
dominate force.

eBay listings continue to move higher. We noted that listings were moving higher in our
5/14/09 note to clients, and speculated at that time that the growth would continue. The
company has seen listings move to record highs in the last several months and the lack of an
insertion fee for five items will likely boost that trend going forward.

Amazon.com and Blue Nile avoid the tax man. There has been a lot written about the
Amazon affiliate program and its subsequent cancellation in several states. We note that Blue
Nile and other internet companies have been facing the same issues. We believe that if the
recession continues through the fourth quarter of 2009 that state governments will pass laws
forcing internet companies to collect taxes from online sales.

Important disclosures appear on the inside cover and back of this publication.
STURDIVANT & CO., INC.

FIRST TRUST DOW JONES INTERNET INDEX

7/08/09

Source: BigCharts

Mr. Bolan does not own shares of Yahoo!, Google, eBay, Amazon.com, Blue Nile.

Disclosures
Rating System Definitions
Sturdivant & Co.’s stock ratings system reflects the investment decisions our clients face every day, and is meant to assist clients in making these decisions by recommending a
specific action to take with each stock we cover. All of the ratings correspond to a specific investment action that we recommend taking on the date the research is published. Thus,
“Outperform” (equivalent to “Buy”) ratings are reserved only for stocks that we would be actively buying at the time the research is published. “Marketperform” (equivalent to
“Hold”) ratings are reserved for stocks that we believe are in line with the market’s anticipated performance and we recommend holding. “Underperform” (equivalent to “Sell”)
ratings are assigned to stocks where the analyst anticipates stock price declines relative to the market. Please note also that the price expectations that determine the rating are in
absolute dollar terms, not in terms of relative performance to a sector or an index. Therefore, analysts will not use the “Outperform” rating for stocks that are expected to perform
well relative to their sector but only for stocks that are expected to appreciate in actual dollar returns.
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expressed in the report.
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The senior research analyst(s) certifies that the views expressed in this research report and/or financial model accurately reflect such senior analyst's personal views about the
subject securities or issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the
research report. Mr. Bolan does not own shares of Yahoo!, Google, eBay, Aamazon.com or Blue Nile.. This is not a complete analysis of every material fact regarding any
company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we
consider to be reliable, but we cannot guarantee the accuracy. The Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are examples of unmanaged common stock
indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. A complete listing of all companies covered by
Sturdivant & Co., Inc. and applicable research disclosures can be obtained from the Company.
Price Target Risks
Investment risks associated with the achievement of the price target include, but are not limited to, the company’s failure to achieve our earnings and revenue estimates, unforeseen
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and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the company’s shares, refer to the most recent form 10-Q or 10-K
that the company has filed with the SEC.

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Table of Contents
The much awaited ComScore release 4

The Future of Yahoo! 4

eBay and Listings 5

Blue Nile 5

Taxes 5

Institutional Contacts 6

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STURDIVANT & CO., INC.

The much awaited ComScore release

In a research note published on June 10, 2009, we stated that despite the fact the Bing.com was only a week old, it
looked as though it would continue to gain share from larger rivals Yahoo! and Google. The early returns from
ComScore showed an increase of 200 basis points in search share to 11.1% up from 9.1%. This increase was
buoyed by 1.) early release and subsequent media coverage, 2.) the increased traffic driven by curiosity 3.) the
massive advertising campaign that included a TV ad campaign. We believe that Microsoft will be able to retain
its search share as our research has shown the search interface to be greatly enhanced from the its predecessor Live
Search.

We believed that there was further upside to the 11.1% reported after merely one week in early June. Our
optimism was well founded as ComScore released another increase for Bing.com in the following week.
ComScore numbers are widely received on Wall Street and although other third parties like Compete, Hitwise and
StatCounter produce much the same data trends, they don‘t have the same cache of the monthly ComScore release.
We anticipate the release on July 20, slightly later than normal mid-July date as the market has been anticipating
the report since the release of Bing.com.

We took a look at the core numbers that ComScore has been publishing of late. We should note that the 8% share
Microsoft had in May of 2009 did not included Bing.com and likely did not include all Microsoft searches. Our
estimates indicate that there was growth in the search market, but only one search engine will see any of the
benefit. We should also note that ComScore stated that Microsoft had 12.1% search share as of 6/12/09. We
believe that this was the end of the early growth and the challenge will now be to maintain and grow that share. A
month-over-month decrease for other search providers would not be a surprise as seasonality issues will likely
affect queries but will be offset by an increase in Michael Jackson related searches.

The Future of Yahoo!

A Microsoft increase in search share could signal the beginning of the end for Yahoo! as it will likely focus on
how best to partner with a AOL spin off. AOL is expected to be spun out of Time Warner in the coming months.
LogMeIn’s recent IPO demonstrated that there is demand for new technology entrants, but with market conditions
still weak, Time Warner may continue to delay the spin off. We view the spin off of AOL not as the final step for
company, but rather the first step into the arms of a newer entity that focuses on delivering traffic to content.
Portals were all the rage several years ago, and being a cyclical market, we believe it is time for the model to see a
comeback.

A combination of Yahoo! and AOL could revitalize the need for portals as web continues to draw new content
players who will likely exchange eyeballs for ad placements on a leading portal. Many bloggers have
experimented with new ways to increase traffic, but a proven method of giving some content to a major portal for a
limited time allows readers to return to the original site if the content is engaging. The traffic base of Yahoo! and
AOL would make a merged company a dominate player in the space.
Search Estimates for June 2009 Growth
May‐09 PROJECTED M/M Y/Y
Total Core Search 14,327        14,705 2.6% 27%
Google Sites 9,307           9,205 ‐1.1% 30%
Yahoo! Sites 2,877           2,775 ‐3.5% 15%
Microsoft Sites** 1,149           1,800 56.7% 70%
Ask Network 555 525 ‐5.4% 5%
AOL LLC 438 400 ‐8.7% ‐15%

Google Sites 65.0% 62.6% ‐2.4%


Yahoo! Sites 20.1% 18.9% ‐1.2%
Microsoft Sites** 8.0% 12.2% 4.2%
Ask Network 3.9% 3.6% ‐0.3%
AOL LLC 3.1% 2.7% ‐0.3%

Source: ComScore, Sturdivant & Co Research

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STURDIVANT & CO., INC.

eBay and Listings

eBay has continued to see good growth in listings as the economy remains weak. We believe that while the
conversion rates would be lower, the number of listings remains strong as consumers raise cash by listing items
that have a better chance of selling. We note that a recent count of listings shows the company to be at or near a
record level of approximately 32.5M items. The chart below denotes the growth in listings, which we believe will
continue thanks to lower insertion fees. In late June, a promotion that calls for no insertion fees for five items went
into effect and we are still seeing growth from that initiative.

Blue Nile Source: Medved.net

The temptation to expand into other channels may become a concern for Blue Nile in the near future. At a recent
investor conference, management stated a toll free number has been delivering a revenue run rate of $600 per call.
We see this as too tempting of a channel for Blue Nile. While the toll free number is not a stressed channel, we
believe that the company will continue to attempt draw more sales via alternative channels. This could change
investors views on the company as less of a pure e-commerce play, which could potentially lower its multiples
relative to its brick and mortar piers.

Taxes

Amazon.com has cancelled affiliate programs in at least four states including North Carolina, Rhode Island,
Hawaii as well as a seeing a return of a 2007 tax issue with Amazon Japan. The company will likely continue to
limit any tax liability. Blue Nile has followed in lock step with Amazon.com as governments that face significant
deficits continue to search for new sources of revenue. We believe that if the recession continues through the
fourth quarter that state governments will pass laws that will require online retailers to collect a sales tax. This
would not effect the margin structure of the companies, but would certainly affect shopping habits of consumers.

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STURDIVANT & CO., INC.

Sturdivant & Co.’s


Businessman’s Approach to Value Philosophy

Sturdivant & Co. uses the businessman’s approach to evaluating stocks. This philosophy is predicated on looking at a
company as a prudent man would were he to consider making a reasoned investment in a business. We focus on a
company’s strategy, the competitive position a company has versus its peers, quality of management, risk factors, its
prospect for growth, as well as critical catalysts and milestones as evidence of progress. Finally, of course, we look at a
company’s valuation to determine where we feel the stock is priced attractively.

Chairman

Albert A. Sturdivant
Asturdivant@sturdivant-co.com
856-751-1331 ext. 108

Fundamental Research

Richard A. Verdi Beth Ann Loewy, CFA Brian Bolan


Rverdi@sturdivant-co.com Bloewy@sturdivant-co.com Bbolan@sturdivant-co.com
856-751-1331 ext. 109 856-751-1331 ext. 114 312-345-1534
Industrials Food Technology
Consumer Staples
Retail

Institutional Sales

Carl R. Gibbs, Jr. Terry Williams


Cgibbs@sturdivant-co.com Twilliams@sturdivant-co.com
856-751-1331 ext. 107 856-751-1331 ext. 101

Institutional Trading

Harvey R. de Krafft Debra L. Bailey James Campanella


Hdekrafft@sturdivant-co.com Dbailey@sturdivant-co.com Jcampanella@sturdivant-co.com
800-486-1515 or 800-486-1515 or 800-486-1515 or
856-751-1331 ext. 112 856-751-1331 ext. 110 856-751-1331 ext. 115

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STURDIVANT & CO., INC.

Total Internet Group

Outperform Marketperform Underperform

40% 60% 00%


Investment Banking Relationship

Outperform Marketperform Underperform

0% 0% 0%

US-Technology Group

Investment Rating Company Ticker Symbol Initial Coverage Date Research Analyst
Market Outperform
Google GOOG 10/7/2008 Brian Bolan
eBay EBAY 1/22/2009 Brian Bolan

Market Perform
Yahoo YHOO 12/10/2008 Brian Bolan
Blue Nile NILE 3/25/2009 Brian Bolan
Amazon.com Inc. AMZN 11/17/2008 Brian Bolan

Market Underperform

Member: FINRA and SIPC

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consider reliable, but we do not represent that it is accurate or complete, and it
should not be relied upon as such. Opinions expressed are our current opinions
as of the date appearing on this material only. While we endeavor to update on
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regulatory, compliance or other reasons that prevent us from doing so. We and
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(including options) thereof, of companies mentioned herein. Sturdivant & Co.
has not received compensation from this company in the past 12 months and
this company is not an investment banking client.

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