INDUSTRY NOTE
USA | Technology
Internet
April 10, 2013
EQUITY RESEARCH AMERICAS
Internet
Fulfillment / Same-Day: The Next Killer App
Key Takeaway
We believe fulfillment and omni-channel capabilities represent the next high
ground in the eCommerce war. The winners are not clear yet but major players
are investing heavily. For now, Amazon and eBay have the most comprehensive
offerings longer-term but leaders could change any time; more than a few
other players are close behind. We reiterate our Buy ratings on AMZN and EBAY.
Fulfillment is becoming critical for commerce as an impending online sales tax
should soon neutralize any price advantage online retailers had. When this happens, we
believe, fulfillment options will become a differentiating feature for many online (and
offline) retailers. At the same time, Local becomes the new battleground in commerce.
While 90% of all retail still happens in brick-and-mortar stores, 75% of total spending is
within 15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving the
transition to a world where it is expanding commerce beyond conventional stores and
eCommerce websites. In such an omni-channel world consumers have multiple touch
points with a brand / retailer and these have to be well integrated and optimized for a
seamless user experience. We believe the growing importance of fulfillment and omnichannel already drives retailers to explore options beyond free shipping.
With free shipping now available on approximately 50% of orders, retailers
already feel renewed pressure to explore new fulfillment options. Over the past 2-3 years,
competitive pressure and customer expectations have pushed online retailers to offer free /
reduced shipping on an increasing number of orders with constantly shrinking minimum
order requirements. Today, free / reduced shipping is a "must have" in eCommerce and
online retailers are focusing their attention on the next wave of options that could give them
a leg up on competition. Currently, same-day delivery and delivery to local secure
lockers where customers pick up their goods on their own time schedule seem to be
the biggest focus. With most of these services still in beta test, the landscape is constantly
changing but we believe the major contenders have already emerged.
Major players: There are generally three types of players in fulfillment – those that only
fulfill, those that sell and fulfill, and those that source, sell and fulfill. For now, the first
type are largely niche (location based) start-ups that have expanded from running errands
for customers into same-day delivery. The other two types have the highest stakes in the
game and are the ones, we believe, most likely to drive fulfillment into new territories. Key
players here include not only the usual suspects - Amazon and eBay - but also Google,
big national retailers, and the USPS.
Potential winners: While it is not clear yet if consumers are actually ready to pay (and how
much) for same-day delivery and similar services, the competition in fulfillment is on and
major players are already investing. Which aspects of fulfillment (e.g. speed, flexibility, cost)
will prove more important to consumers could determine which of the existing offerings
will survive and thrive. Currently, we believe, Amazon and eBay have the most
compelling offerings. Amazon is a clear leader, based on number of services, global
fulfillment center footprint, and ability to manage demand elasticity through its digital
assets. And while many retailers are wary of using Amazon as a channel, we believe longerterm it could become their best partner, especially for branded products/retailers (selling
exclusive inventory through Amazon). eBay has partnered with top national retailers (while
maintaining neutrality) and, in our view, has the most compelling offering that helps
retailers leverage their own brands and assets to evolve their multi-channel strategies. Its
products enable retailers to address the full opportunity of the converging online and offline
markets. And while most of the other contenders' offerings are still in beta mode (i.e. could
change materially), a few stand out as potentially strong enough to compete with Amazon
and eBay. We believe two to keep an eye on are Walmart and Google.
Jefferies US Internet Team *
Jefferies Equity Research
pitz-fitz@jefferies.com
Brian Pitz *
Equity Analyst
(212) 336-7413 bpitz@jefferies.com
Brian Fitzgerald *
Equity Analyst
(212) 284-2491 bfitzgerald@jefferies.com
Timothy O'Shea *
Equity Associate
(212) 284-3415 toshea@jefferies.com
Sachin Khattar, CFA *
Equity Associate
(212) 323-3381 skhattar@jefferies.com
Stan Velikov, CFA *
Equity Associate
(212) 284-2140 svelikov@jefferies.com
* Jefferies LLC
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies 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.
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 45 to 49 of this report.
Technology
Internet
April 10, 2013
Key Takeaways
Fulfillment is becoming critical for commerce as an impending online sales tax should
soon neutralize any price advantage online retailers had. When this happens, we believe,
fulfillment options will become a differentiating feature for many online (and offline)
retailers. At the same time, Local becomes the new battleground in commerce. While
90% of all retail still happens in brick-and-mortar stores, 75% of total spending is within
15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving the
transition to a world where it is expanding commerce beyond conventional stores and
eCommerce websites.
Reiterating Buy ratings on AMZN and EBAY
In the ongoing eCommerce war, we believe, Amazon and eBay have the most
comprehensive next-gen offerings and seem best positioned to benefit from these
fundamental trends. Amazon is a clear leader, based on number of services, global
fulfillment center footprint, and ability to manage demand elasticity through its digital
assets. And while many retailers are wary of using Amazon as a channel, we believe
longer-term it could become their best partner, especially for branded products / retailers
(selling exclusive inventory through Amazon). eBay, at the same time, has partnered with
top national retailers (while maintaining neutrality) and, in our view, has the most
compelling offering that helps retailers leverage their own brands and assets to evolve
their multi-channel strategies. Its products enable retailers to address the full opportunity
of the converging online and offline markets.
Amazon
Near term, we will likely see a more significant impact to Amazon's CapEx growth as the
company continues to aggressively build out fulfillment centers domestically and
internationally. We expect FC build out for this year to peak in late Q2 into Q3, with a
slowdown just ahead of the 2013 holiday season. So far, Amazon has commitments (part
of state tax agreements) to build 9 new FCs in the US over the next 2 years and we
estimate it could eventually build 5-10 more to rationalize its US footprint. According to
Marc Wulfraat, President of MWPVL International, a supply chain and logistics consulting
firm, having 40-45 facilities in the US is probably sufficient to cover the Top 20 markets for
same-day delivery. However, internationally Amazon could grow its presence materially,
especially in Australia, South America, Eastern Europe, and India. We estimate it could
open another 10-15 within the next 2-3 years.
We continue to expect Amazon to support additional same-day and next-day shipping
tests, as we consistently see with Quidsi and Zappos products in several markets. We
anticipate same-day tests will begin and grow on the core Amazon.com site by year end
in some markets.
Longer term, as Amazon drives same-day and next-day shipping into the top 20 or top
50 US markets (and eventually into the larger international markets), we believe same-day
shipping will drive reaccelerating unit growth; the earliest impact could even begin in Q4
2013, but most likely will have a longer term impact in 2014 and beyond.
page 2 of 49
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Technology
Internet
April 10, 2013
eBay
Near term, eBay may have the performance edge as the Marketplaces / PayPal / GSI
combo, with their combination of front-end and back-end eCommerce and digital
marketing solutions, gives retailers competing against Amazon a real fighting chance.
Further, the very nature of eBay being on the "retailers’ team" and enabling overall omnichannel commerce will likely be a huge selling point for eBay's services, especially among
the offline sellers of commoditized goods.
Longer term, we believe the biggest challenges for eBay will be achieving significant
scale in fulfillment and same-day shipping, though we are in no way counting them out
of the competition.
Over time, as consumers begin to digest and appreciate the value of same-day shipping,
and eventually even start to EXPECT or REQUIRE near instantaneous shipping, we believe
the next leg down for traditional brick-and-mortar could begin... As competing with this
service level will likely be very difficult from a cost perspective.
Offline – who wins, who loses?
Amazon IS indeed a competitor in many product categories – again, namely in consumer
products – with the likes of Best Buy; that is unlikely to change. And we believe that sameday shipping capabilities could provide the next level of pain for the offline retailers in
these categories. If Amazon is successful in its same-day shipping efforts, some of these
retailers could give Amazon exclusive inventory to ship same day, replacing their tradition
fulfillment businesses.
We believe that unique product brands that sell almost exclusively through their own
stores or exclusive channels could win while commodity product sellers of consumer
electronics, media (books, movies, video), etc. would likely lose.
The net of it all...
Amazon may actually become LESS of a competitor to some players in the offline world
over time as larger brands (specialty, luxury, exclusive) decide that "if you can't beat 'em,
join 'em" strategy could actually work and allocate a certain percentage of their inventory
to Amazon's FBA (many already provide eBay with access to exclusive SKUs and
inventory)... Think about it... Why should specialty retailers maintain 1,000's of specialty
stores / fulfillment centers when one could maintain a fraction of those stores as
strategically well-placed "showrooms" to allow consumers to satisfy their need to
occasionally view actual merchandise?
Let's use an example such as the offline retailer Lululemon; once the customer can try on
a pair of yoga pants and determine that she is size small in a flagship store; she can order
new styles and colors directly online - and potentially even have them delivered to her
hotel in a few hours if she forgets them on a business trip. (Note: there isn’t a single
Lululemon product to be found on Amazon’s site). Our sense is that Lululemon would
not pay to actually provide that level of service to their customer direct from their stores,
but why not someday leverage the most efficient supply chain platform in the world in an
exclusive merchandise deal with Amazon? Some 39% of units Amazon sells on its site are
already from third parties. Why, with the success of FBA, shouldn't that number represent
70% of total units? We think it could.
page 3 of 49
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Technology
Internet
April 10, 2013
The Race in eCommerce Fulfillment
Convenience is one of three major components, along with selection and price, which
drive consumers to choose one retailer over another (offline and online alike). And
flexibility or choice of fulfillment options is a critical element of convenience, we believe.
In the early days of eCommerce, free / reduced shipping was the exception and usually
was tied to requirements of minimum order size. Later, the order size requirements began
to shrink and in the past 2-3 years completely disappeared, particularly during the holiday
shopping season. The reasons for this trend, however, were not that retailers were getting
more generous but rather that they were responding to customer and competitive
pressure. According to a January 2013 comScore survey, without free shipping,
54% of consumers would abandon a purchase. Per comScore, the number of
transactions with free shipping continues to increase – from roughly 35% in
2008 to 47% in 2012.
Exhibit 1: Free Shipping Penetration Continues to Grow
65%
35%
58%
57%
54%
53%
42%
43%
46%
47%
2008
2009
2010
Transactions w/ Free Shipping
2011
2012
Transactions w/ Paid Shipping
Source: comScore, Jefferies
Now that free / reduced shipping has pretty much established itself as a
“must have” for online retailers, the battle for customers is moving to new
frontiers in fulfillment, such as same-day delivery and delivery to local secure
lockers where customers pick up their goods on their own time schedule. This
trend is further accelerated by increasing local competition and an impending Internet
sales tax. Amazon has been in this game probably the longest but this fact has not
discouraged a growing list of competitors to enter the field. It is still the first inning of a
game that could take years to play out but we have already seen what happens with
losers – Kozmo and Urbanfetch, two companies that offered free one-hour delivery in the
late 1990’s, crashed and burned spectacularly in the last Internet bubble. Now most
players have more sound and profitable business models or simply are so big that they
could afford to keep a loss leader that builds customer loyalty and doesn’t give
competitors a lot of breathing space.
page 4 of 49
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Technology
Internet
April 10, 2013
Key Players
There are generally three types of players in the fulfillment game – those that only fulfill
(F), those that sell and fulfill (SF), and those that source, sell and fulfill (SSF). Currently,
in addition to Amazon (SSF), major players include eBay (SF), Walmart (SSF) and Google
(SF) – all three of them testing a variation on same-day delivery service (and all three still
in beta). The list of other players includes Barnes & Noble (SSF), Nordstrom (SSF), the US
Postal Service (F) and start-ups such as Exec (F), Instacart (F), Postmates (F), Shutl (F),
TaskRabbit (F), and WunWun (F).
Amazon
Amazon is one of the largest online retailers in the world and currently has one of the
most comprehensive fulfillment offerings; it includes free shipping, same-day delivery,
and delivery to a neighborhood locker.
Amazon Prime offers free twoday shipping on millions of
eligible items with no minimum
order size; for all other items,
standard or no-rush shipping is
also free
Free Shipping
Amazon Prime, the company’s membership program, offers free two-day shipping on
millions of eligible items with no minimum order size; for all other items, standard or norush shipping is also free. Shipping upgrades for expedited delivery in the US are available
too. Prime Members also enjoy unlimited instant streaming of more than 33,000 movies
and TV episodes as well as access to the Kindle Owners’ Lending Library where they can
borrow one Kindle book for free each month. All this for a $79 annual fee. By far, in our
opinion, Amazon Prime has been the gold standard in free / reduced shipping that other
online retailers are trying to match.
Exhibit 2: Amazon Prime
Source: Amazon, Jefferies
Same-Day Delivery
Amazon also offers Local Express Delivery, a same-day delivery service available in 10
metro areas – Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York City (and
parts of New Jersey), Philadelphia, Phoenix, Seattle, and Washington, DC. It costs $3.99
per item for Prime members and $8.99 per shipment + $0.99 per item for non-members
(gift cards $3.99 per shipment). The cut-off times vary from 7am in Chicago and
page 5 of 49
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Technology
Internet
April 10, 2013
Indianapolis to 12pm in Seattle. Orders placed after the deadline are delivered the next
business day with Saturday and Sunday delivery available for certain locations.
Local Express Delivery was launched in October 2009 in seven metro areas – Baltimore,
Boston, Las Vegas, New York City, Philadelphia, Seattle, and Washington, DC. It covered
thousands of items and cost $5.99 per item for Prime members and $15-$20 per item
(based on category) for non-members. By holiday season 2009 it had expanded to
include Chicago, Indianapolis and Phoenix. Customers ordering as late as 10:00am10:30am (1:00pm for Seattle) could get their orders delivered the same day.
Delivery to Neighborhood Locker
Amazon Locker, another shipping service by the company, solves a different problem.
Shoppers who are unable to wait at home for delivery can pick up their Amazon package
from a secure locker at their own convenience. At check-out, for eligible items, users can
select a convenient locker location and, once the package arrives there, they receive an email or text message with instructions and a unique pick-up code. Packages are available
for pick-up for three business days after receipt of notice. Complementary to other
shipping options, Amazon Locker is free and is currently available in Seattle, New York
City, and some shopping centers in the UK. Reportedly, Amazon has signed agreements
with 7-Eleven, RadioShack, Rite Aid, and Staples for hosting its lockers in their national
chain locations.
Exhibit 3: Amazon Locker
Source: Internet, Jefferies
“White Truck” Network for Localized Delivery
Reportedly, for the “last mile” of its services Amazon has engaged several “white truck”
companies that offer local delivery in numerous cities. The list of its partners includes A-1
Express and Dynamex, for Local Express Delivery, and Ensenda, LaserShip, OnTrac,
and Prestige for Prime deliveries. While it’s hard to control the quality of user experience
completely, by leveraging third-party carriers with established infrastructure in major
page 6 of 49
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Technology
Internet
April 10, 2013
markets, Amazon can enter new markets quickly and can spare itself the investment in a
fleet of its own. Later, the company can always decide to bring this aspect of fulfillment
in-house, once demand levels and the economics become clearer.
Online orders can be processed
in as little as 15 min in FCs with
Kiva robots (pictured below) vs.
an average of ~2 hrs for current
Amazon FCs
Excellence in Order Processing
Another piece of Amazon’s fulfillment platform is Kiva Systems, maker of robotic order
fulfillment systems which streamline the process of picking, packing and shipping
eCommerce orders for delivery. Amazon closed the acquisition of Kiva in May 2012 but its
Quidsi (Soap.com and Diapers.com) business had been using Kiva robots since before
2010. While we believe management may not initially plan to retrofit Kiva robots into all
existing FCs (based on existing fulfillment centers’ layout / type), we believe all newlybuilt ones will feature the systems. Kiva’s integrated inventory storage, quality control
and order fulfillment systems not only expedite order processing (2-3x vs. pick-toconveyor and 5-6x vs. manual pick-to-cart / pick-to-pallet environments, according to
MWPVL International) but also improve order accuracy and optimize warehousing. Its
adaptive and dynamic software algorithms are constantly seeking new efficiencies to
improve throughput. Such optimization helps cut costs in more than one way. According
to the two Quidsi co-founders, thanks to Kiva robots, the company was able to offer free
overnight shipping on orders over $25 to customers in about 70% of the US.
Kiva began working with companies like Staples and Walgreens in 2004 and today it
counts among its customers more than a dozen of the biggest retailers in the US
including Crate & Barrel, Drugstore.com, Gap, Gilt Groupe, Office Depot, Saks Fifth
Avenue, and Toys “R” Us. Kiva Systems might as well prove the driver behind Amazon’s
Local Express Delivery service as its efficiency is hard to match. Since Kiva does not require
batching and waving of orders, any online order can be processed in as little as 15
minutes (from the time a shopper places the order to when his/her picked, packed and
labeled package is sitting on a delivery truck). This compares to a roughly 2-hour average
processing time in current Amazon fulfillment centers.
Exhibit 4: Kiva Robots in Action at a Warehouse
Source: Internet, Jefferies
While Kiva has many advantages, it may not be well-suited for all fulfillment settings. Kiva
systems sacrifice cubic volume and there is no way to take advantage of warehouse
height. In addition, according to some retailers (Kiva customers), its replenishment
software is not as robust as other applications and it doesn't integrate well with outbound
sortation software of any kind. We believe this is an opportunity for Amazon to improve
page 7 of 49
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April 10, 2013
Kiva’s software stack (Amazon is well known for its expertise) and re-launch its products
in the market. Perhaps this was one reason Amazon bought Kiva in the first place – being
able to re-engineer the product and make it even better.
Digital Content
While it may seem strange, digital content is another weapon in Amazon’s arsenal that
helps the company control shipping costs if not make its fulfillment offerings better than
competitors’. Starting in 2H11, Amazon began offering Prime Members who would agree
to downgrade their shipping (from the standard for Prime 2-day shipping) the option to
earn credit ($1 per order, increased to $3 in 2H12) that can be used for digital downloads
from the Amazon MP3 Store or for a movie from Amazon Instant Video. The new shipping
option, called No-Rush Shipping, allows Amazon to ship orders for delivery in 5-7 days
and thus more effectively balance shipping loads during critical shopping periods.
Exhibit 5: Digital Content as Load Balancer
Source: Amazon, Jefferies
The combination of Prime, Amazon Locker, and Local Express Delivery helps create the
most comprehensive fulfillment service existing today, in our view. How these services fit
into Amazon’s overall strategy can be gleaned, we believe, from the company’s evolving
position on the question of online sales tax and its push for new domestic fulfillment
centers. Until 2011-12, Amazon waged a high-profile war on the issue of eCommerce tax
with populous states such as New York, California, and Texas (note: its New York tax case
is currently in state appeals court); and new fulfillment center locations, we think, may
have been equally based on proximity to customers as well as on state tax laws.
Expanding Domestic Footprint While Striking Advantageous Tax Windows
Then, in late 2011, the company made an abrupt turn and began striking deals with state
and local governments that granted Amazon tax holidays of different length in exchange
for commitments to build new fulfillment centers and employ thousands of people. It also
initiated a campaign to encourage comprehensive resolution of the tax question on the
federal level instead of the piecemeal approach by individual states. This, we believe, was
triggered by Amazon’s insight that 1) the days of no online sales tax were numbered, 2)
fast local delivery can be a great competitive weapon that reinforces an online retailer’s
offline presence, and 3) many state and local governments were willing to sign
accelerated deals given their financial situations. In a matter of 16 months (beginning
with California in September 2011) Amazon reached agreements with 8 states.
While some might argue that an online tax is a potential near-term negative catalyst for
eCommerce stocks, we believe the real impact should be fairly insignificant. Amazon has
been collecting for years punitive VAT in many international locations and this has not
had any discernible impact on international sales growth rates. In fact, as we have seen in
states such as NY, the imposition of sales tax did not really impact sales;
page 8 of 49
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Technology
Internet
April 10, 2013
ultimately – price, selection and service (along with convenience and speed, which are
service-related derivatives) are the main levers that resonate with online shoppers.
In Exhibit 6 below, we take a look at Amazon’s US operational footprint with a tax overlay.
We believe, the company will continue to expand its presence in select states, primarily
those that provide optimal infrastructure and proximity to markets with high
concentration of Amazon.com customers who are most likely to choose same-day
delivery if offered.
Exhibit 6: Current View of Amazon’s US Sales Tax Footprint
●States currently collecting
online sales taxes
(AZ, CA, KS, KY, NY, ND, PA,
TX, WA)
●States collecting online sales
taxes starting in 2H13
(CT, MA, NJ, VA)
●States collecting online sales
taxes starting in 2014
(IN, NV, TN)
●States collecting online sales
taxes starting in 2016
(SC)
●States with an Amazon.com
point-of-presence or affiliated
business -- zappos, woot!,
audible.com, quidsi, etc.
(AZ, CA, DE, GA, IN, KS, KY,
MI, NJ, NV, NH, NY, ND, PA,
SC, TN, TX, VA, WA, WI, WV)
Source: Amazon, Jefferies
Amazon currently collects taxes in 9 states – Arizona, California, Kansas,
Kentucky, New York, North Dakota, Pennsylvania, Texas, and Washington. In
the second half of 2013, the company has agreed to begin collecting taxes in 4 other
states – Connecticut, Massachusetts, New Jersey, and Virginia. Following that, in 2014
Amazon will begin collecting taxes in Indiana, Nevada and Tennessee; and in 2016 it adds
South Carolina to its tax rosters. So that’s 16 states by 2016.
Currently, the company has operations in the following (21) states: Arizona, California,
Delaware, Georgia, Indiana, Kansas, Kentucky, Michigan, New Jersey, Nevada, New
Hampshire, New York, North Dakota, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia, Washington, Wisconsin, and West Virginia. Included here is a mix of both
operational / business headquarters as well as fulfillment (FC) and customer service (CSC)
centers. The following exhibit shows Amazon’s current customer service center footprint.
The company has announced plans to open 1 new CSC in Kentucky in 2013.
page 9 of 49
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Technology
Internet
April 10, 2013
Exhibit 7: Amazon Customer Service Centers
Americas
United States
North Dakota
Washington
West Virginia
Costa Rica
Heredia
San Jose
Europe
United Kingdom
Edinburgh, Scotland
Ireland
Cork
Germany
Berlin
Regensburg
Asia
China
Beijing
India
Hyderabad
Japan
Sapporo
Source: Amazon (http://www.amazon.com/b/?node=239366011), Jefferies
By our estimates, Amazon
operates close to 90 Fulfillment
Centers globally with a total
space in excess of 55MM sq ft
The following exhibit shows what we believe is Amazon’s worldwide fulfillment center
footprint as of 1Q13. By our estimates, excluding Quidsi and Zappos, the company
operates close to 90 fulfillment centers globally with a total space in excess of
55MM square feet. Reportedly, Amazon had plans to open a fulfillment center in
Mumbai, India in 2012 but we couldn’t find a confirmation of this. In addition, we
understand that a new fulfillment center is planned to open in France sometime in 2013.
Exhibit 8: Amazon International Fulfillment Centers
North America
See pages 12-15 for a more
detailed listing of Amazon’s
Global Fulfillment Center
footprint including size,
location, etc.
Europe
Asia
United States
Arizona (4)
California
Delaware (2)
Indiana (5)
Kansas
Kentucky (7)
United Kingdom
Hemel Hempsted, Hertfordshire
Marston Gate, Milton Keynes
Swansea, Wales
Dunfermline, Fife, Scotland
Gourock, Inverclyde, Scotland
Doncaster, South Yorkshire
China
Beijing (2)
Chengdu
Guangzhou
Shenyang
Suzhou
Wuhan
Nevada (2)
New Hampshire
Pennsylvania (6)
South Carolina (2)
Tennessee (5)
Virginia (3)
Washington (2)
Canada
Peterborough, Cambridgeshire
Rugeley, Staffordshire
Germany
Augsburg
Bad Hersfeld (2)
Koblenz
Leipzig
Pforzheim
Xiamen
Xi'ian
HaErbin
Kunshan
Nanning
Tianjin
Japan
Ichikawa
Toronto
Vancouver
Rheinberg
Werne
France
Montelimar
Saran (Orléans)
Sevrey
Italy
Castel San Giovanni
Sakai
Yachiyo
Daito
Kawagoe City
Kawajima
Sayama
Tajimi
Tokoname City
Spain
San Fernando de Henares
Tosu
Yoshinodai
Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies
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Technology
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April 10, 2013
The following exhibit shows Amazon’s current US fulfillment center footprint. The
company operates 41 fulfillment centers with an estimated 33MM square feet of space
and has announced plans for 9 new FCs to open over the next 2 years.
Exhibit 9: Amazon US Fulfillment Centers (Total Number if >1)
State
Arizona
Operational
Planned
Goodyear
Phoenix (3)
California
Ontario / San Bernardino
Patterson
Tracy
Connecticut
TBD
Delaware
Middletown
New Castle
Indiana
Indianapolis
Jeffersonville
Plainfield (2)
Whitestown
Kansas
Coffeyville
Kentucky
Campbellsville
Hebron (3)
Lexington (2)
Louisville
Nevada
Fernley
Las Vegas
New Hampshire
Nashua
New Jersey
Robbinsville
TBD
Pennsylvania
Breinigsville / Allentown (2)
Carlisle (2)
Hazleton
Lewisberry
South Carolina
Cayce / Lexington
Spartanburg
Tennessee
Charleston / Cleveland
Chattanooga
Lebanon (2)
Murfreesboro
Texas
Schertz
Coppell
Haslet
Virginia
Chester
Petersburg
Sterling
Washington
Bellevue
DuPont
Sumner
Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies
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Technology
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April 10, 2013
The continuing build out of fulfillment centers is helping the company manage shipping
costs more effectively. While these costs keep growing (outpacing revenue growth from
4Q10 to 1Q12), the pace is currently decelerating and in 4Q12 reached its lowest point in
over three years.
The following exhibit gives a comprehensive view of Amazon’s global presence from a
geo-spatial perspective. It includes offices, fulfillment centers, customer service centers,
data centers, and software development centers.
Exhibit 10: Amazon Global Locations
Source: Amazon
Table 1: Amazon Worldwide Fulfillment Centers
State / Country
Arizona
Amazon.com Address / Location
Identifier
PHX4
PHX3
PHX6
PHX7
California
ONT2
Delaware
PHL7
PHL1
Indiana
page 12 of 49
Please see important disclosure information on pages 45 - 49 of this report.
IND4
16920 W Commerce Dr
Goodyear, AZ 85338-3620
6835 W Buckeye Rd
Phoenix, AZ 85043-4428
4750 W Mohave St
Phoenix, AZ 85043
800 N 75th Ave
Phoenix, AZ 85043
1910 E Central Ave
San Bernardino, CA 92408
560 Merrimac Ave
Middletown, DE 19709-4652
1 Centerpoint Blvd
New Castle, DE 19720-4172
710 S Girls School Rd
Indianapolis, IN 46231-1132
Opened
Size
Type
Jun '08
1.4MM sq ft
Non-sortable
Sep '07
1.0MM sq ft
Big sortable
Oct '10
1.2MM sq ft
Big sortable
Sep '11
1.2MM sq ft
Oct '12
950K sq ft
Oct '12
1.2MM sq ft
Nov '97
202K sq ft
Jun '11
903K sq ft
Big sortable
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Table 1: Amazon Worldwide Fulfillment Centers
State / Country
Amazon.com Address / Location
Identifier
SDF8
IND2
IND5
IND1
Kansas
TUL1
Kentucky
SDF1
CVG1
CVG2
CVG3
LEX1
LEX2
SDF2
Nevada
RNO1
LAS2
New Hampshire
BOS1
Pennsylvania
ABE2
ABE3
PHL6
PHL4
AVP1
PHL5
South Carolina
CAE1
GSP1
Tennessee
CHA2
CHA1
BNA1
BNA2
BNA3
Virginia
RIC2
RIC1
BWI1
Washington
SEA8
BFI1
Canada
page 13 of 49
Please see important disclosure information on pages 45 - 49 of this report.
YYZ1
900 Patrol Rd
Jeffersonville, IN 47130-7761
715 Airtech Pkwy
Plainfield, IN 46168
800 Perry Rd
Plainfield, IN 46168-7637
4255 Anson Blvd
Whitestown, IN 46075-4412
2654 N US Highway 169
Coffeyville, KS 67337-9254
1048 S Columbia Ave
Campbellsville, KY 42718-2454
1155 Worldwide Blvd
Hebron, KY 41048-8648
1600 Worldwide Blvd
Hebron, KY 41048-8640
3680 Langley Dr
Hebron, KY 41048-9135
1850 Mercer Rd
Lexington, KY 40511-1013
172 Trade St
Lexington, KY 40511-2607
4360 Robards Ln
Louisville, KY 40218-4512
1600 Newlands Dr E
Fernley, NV 89408-8903
3837 Bay Lake Trl
North Las Vegas, NV 89030
10 State St
Nashua, NH 03063-1012
705 Boulder Dr
Breinigsville, PA 18031-1533
650 Boulder Dr
Breinigsville, PA 18031-1536
675 Allen Rd
Carlisle, PA 17015-7788
21 Roadway Dr
Carlisle, PA 17015-8806
550 Oakridge Rd
Hazleton, PA 18202-9361
500 McCarthy Dr
Lewisberry, PA 17339-8725
4400 12th Street Ext
Cayce, SC 29172-3300
402 John Dodd Rd
Spartanburg, SC 29303-6312
225 Infinity Dr NW
Charleston, TN 37310-1400
7200 Volkswagen Dr
Chattanooga, TN 37416-1757
14840 Central Pike
Lebanon, TN 37090-8118
500 Duke Dr
Lebanon, TN 37090-8123
2020 Joe B Jackson Pkwy
Murfreesboro, TN 37127-7792
1901 Meadowville Technology Pkwy
Chester, VA 23836-2841
5000 Commerce Way
Petersburg, VA 23803-6917
22630 Dulles Summit Ct
Sterling, VA 20166-9565
1227 124th Ave NE
Bellevue, WA 98005-2111
1800 140th Ave E
Sumner, WA 98390-9624
6363 Millcreek Dr
Mississauga, ON L5N 1L8
450 Derwent Pl
Delta, BC V3M 6H4
Opened
Size
Type
Oct '12
1.0MM sq ft
Oct '08
943K sq ft
Aug '11
926K sq ft
Aug '08
1.0MM sq ft
Big sortable
Apr '99
750K sq ft
Big sortable
May '99
770K sq ft
Big sortable
Jun '05
427K sq ft
Specialty
Dec '05
543K sq ft
Specialty
Jul '07
711K sq ft
Replenishment
Nov '00
604K sq ft
Big sortable
Jun '06
380K sq ft
Returns Center
Sep '05
110K sq ft
Specialty
Jan '99
786K sq ft
Big sortable
Oct '08
284K sq ft
Small sortable
Jul '07
64K sq ft
Small sortable
Jul '10
600K sq ft
Big sortable
Jun '11
997K sq ft
Aug '10
1.2MM sq ft
Non-sortable
Sep '10
559K sq ft
Non-sortable
Jul '08
630K sq ft
Replenishment
Aug '10
750K sq ft
Non-sortable
Oct '11
1.0MM sq ft
Oct '12
1.0MM sq ft
Sep '11
1.2MM sq ft
Sep '11
1.0MM sq ft
Sep '11
449K sq ft
Oct '12
1.0MM sq ft
Oct '12
1.0MM sq ft
Oct '12
1.1MM sq ft
Oct '12
1.0MM sq ft
Oct '10
1.0MM sq ft
Small sortable
Aug '07
313K sq ft
Small sortable
Jun '11
492K sq ft
Feb '11
502K sq ft
Fall '12
194K sq ft
Non-sortable
Big sortable
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Table 1: Amazon Worldwide Fulfillment Centers
State / Country
UK
Amazon.com Address / Location
Identifier
LTN1
GLA1
CWL1
EUK5
LBA1
BHX1
EDI4
LTN2
Germany
FRA1
FRA3
LEJ1
EDE4
DUS2
MUC3
STR1
France
Jul '04
300K sq ft
Apr '08
800K sq ft
Oct '09
500K sq ft
Dec '10
415K sq ft
Aug '11
700K sq ft
Nov '11
1.0MM sq ft
Nov '12
450K sq ft
Aug '99
452K sq ft
Aug '99
1.2MM sq ft
Sep '06
807K sq ft
Sep '11
1.4MM sq ft
Dec '11
1.2MM sq ft
Dec '11
1.2MM sq ft
Sep '12
1.2MM sq ft
1.2MM sq ft
ORY1
Dec '07
753K sq ft
Aug '10
388K sq ft
Sep '12
431K sq ft
Oct '11
269K sq ft
Jul '12
301K sq ft
PEK3
1401 Rue du Champ Rouge, Pole 45
45770 Saran, Loiret
Building 2 Rue Joseph Garde
ZAC Les Portes de Provence
26200 Montelimar
ZAC du Parc d'Activite du Val de Bourgogne
1 Rue Amazon
71100 Sevrey, Burgundy
Parco Logistico Bertola
Via Dogana Po 2
29015 Castel San Giovanni
Avenida de la Astronomia 24
28830 San Fernando de Henares (Madrid)
Yizhuang, Beijing
Apr '04
400K sq ft
SHA1
Suzhou, Jiangsu
Nov '06
500K sq ft
CAN1
Guangzhou, Guangdong
May '07
120K sq ft
CTU1
Chengdu, Sichuan
Nov '09
194K sq ft
PEK5
Tongzhou, Beijing
2010
180K sq ft
XIY1
Xi'an, Shaanxi
Aug '10
WUH1
Wuhan, Hubei
Sep '10
300K sq ft
XMN1
Xiamen, Fujian
Sep '10
17K sq ft
SHE1
Shenyang, Liaoning
Oct '10
SHA2
Kunshan, Jiangsu
Oct '11
TSN2
Tianjin, Tianjin
Jan '12
NNG1
Nanning, Guangxi
Nov '12
538K sq ft
HRB1
Harbin, Heilongjiang
NRT1
Ichikawa, Chiba
Nov '05
670K sq ft
KIX1
Sakai, Osaka
Aug '09
731K sq ft
MXP1
Spain
MAD4
Please see important disclosure information on pages 45 - 49 of this report.
550K sq ft
Nov '12
Italy
page 14 of 49
1998
Amazonstrasse 1 / Am Autobahnkreuz
56072 Koblenz, Rheinland-Pfalz
LYS1
Japan
Size
CGN1
MRS1
China
Marston Gate Distribution Centre
Ridgmont
Milton Keynes, Bedfordshire MK43 0ZA
2 Cloch Road, Faulds Park
Gourock, Inverclyde, Scotland PA19 1BQ
Ffordd Amazon
Crymlyn Burrows
Swansea, South Wales SA1 8QX
Phase Two, Kingston Park
Flaxley Road
Peterborough, Cambridgeshire PE2 9EN
Unit 1, Balby Carr Bank
Doncaster, South Yorkshire DN4 5JS
Towers Business Park
Power Station Road
Rugeley, Staffordshire WS15 1NZ
Amazon Way
Dunfermline, Fife, Scotland KY11 8ST
Boundary Way
Hemel Hempsted, Hertfordshire HP2 7LF
Am Schloss Eichhof 1
36251 Bad Hersfeld, Hessen
Obere Kuehnbach/ Amazonstrasse 1
36251 Bad Hersfeld, Hessen
Amazonstrasse 1
04347 Leipzig, Saxony
Wahrbrink 25
59368 Werne, North Rhine-Westphalia
Amazonstrasse 1
47495 Rheinberg, North Rhine-Westphalia
Amazonstrasse 1
86863 Graben, Bavaria
Amazonstrasse 1 / Bauschlotter Strasse
75177 Pforzheim, Baden-Wurttemberg
Opened
Type
1.3MM sq ft
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Table 1: Amazon Worldwide Fulfillment Centers
State / Country
India
Amazon.com Address / Location
Identifier
Opened
Size
NRT2
Yachiyo, Chiba
Oct '07
367K sq ft
NRT5
Kawagoe City, Saitama
Jul '10
419K sq ft
KIX2
Daito, Osaka
Nov '10
271K sq ft
HND1
Yoshinodai, Saitama
2011
HND2
Sayama, Saitama
2011
HND3
Kawajima, Saitama
NGO1
Tokoname City, Aichi
Apr '11
HSG1
Tosu, Saga
Jul '12
244K sq ft
Tajimi, Gifu
Dec '12
861K sq ft
BOM1
Mumbai, Maharashtra
Type
2011
2012
Source: MWPVL International; Amazon, FCC.gov, Google, Foursquare, Jefferies
page 15 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
eBay
eBay is one of the biggest eCommerce platforms in the world and currently offers a
compelling suite of products and services that facilitate omni-channel commerce.
Same-Day Delivery
At this time, the company offers eBay Now, its same-day delivery service, only in San
Francisco, San Jose and parts of New York City. It works directly with hundreds of local
stores (those available on its Milo platform) including retailers such as Babies “R” Us, Best
Buy, Free People, GNC, Guitar Center, Home Depot, Macy's, Office Depot, Radio Shack,
Target, Toys “R” Us, Urban Outfitters, and Walgreens, thus circumventing the
warehousing issue. The service costs $5 per order while in beta and the minimum order is
$25 which can go up in periods of peak demand. Currently, eBay Now is available
through its mobile website (now.ebay.com) and an iOS app and users log in with their
eBay user ID. Shoppers fill their carts with items from participating retailers and place the
order by clicking a “Bring It!” button. Delivery takes about an hour depending on order
size, traffic, proximity of store(s), how busy stores are, and seasonal factors. The app
allows users to track the progress of their order by following the shopping valet who is
assigned to that order. Once they deliver the item, valets can help the shopper through
the checkout process (using PayPal Here on their cell phone). Accepted payment methods
include PayPal and major credit cards, no cash.
Exhibit 11: Screenshots of eBay Now App
Source: App Annie, Jefferies
The service launched in exclusive beta in Aug 2012 in San Francisco and expanded to
New York City and San Jose by early 2013. Beta testers were offered $15 off their first
order and the $5 delivery fee was waived on their first three orders. eBay continues to
work on the offering and this summer it will expand it to two new cities – Chicago and
Dallas. The company also plans to introduce a new feature – Scheduled Delivery – which
has been requested the most by current users.
While eBay doesn’t have Amazon’s fulfillment capabilities, its same-day delivery service
has a fighting chance of success, in our view, because the company can leverage several
of its strengths. First, its local shopping platform Milo, acquired in December 2010 for
$75MM, pulls real-time product inventory data from national retailers and local small
businesses. It thus gives users up-to-the-minute info which is crucial for same-day delivery
orders (reducing the number of instances when a shopper finds something in search
results only to discover on the merchant’s website that the item is out of stock). Second,
combining eBay Now with PayPal Here for the checkout makes the service that much
page 16 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
more desirable for small local businesses that would likely choose PayPal over other
payment services if that comes with being able to list their inventory in the eBay Now
database. Third, eBay’s no conflict of interest could be another strong magnet for national
and local retailers. Theoretically, as it gathers enough data over time, eBay may decide to
start sourcing and selling the most popular products itself but we believe this is very
unlikely to happen as it runs against the company’s credo. Fourth, eBay offers local and
national retailers access to 60MM+ monthly shoppers (avg. monthly unique visitors in
2012) which only a few other players could match (i.e. Google and Amazon). And lastly,
eBay already has 150,000 stores on eBay Local.
Omni-Channel Capabilities
As the lines between online and offline commerce are blurring, we believe it is important
for retailers of all sizes to embrace omni-channel in order to grow their business and stay
ahead. Today's consumers expect an omni-channel experience, but retailers still think and
operate in terms of multiple channels – the digital store, the physical store, the
wholesalers, their outlets, and the resellers, among others. eBay, through GSI Commerce
and PayPal / Marketplaces, helps retailers respond by enabling them to have a meaningful
online presence. eBay’s product line helps these retailers leverage their own brands and
assets to evolve their multi-channel strategies to seamlessly meet the increasing demands
of the omni-channel consumer.
GSI’s products enable retailers to address the full opportunity of the online and offline
markets. It has built solutions to help clients attract, engage, convert, and retain their
customers through a combination of demand generation, commerce technology, and
multichannel operations. By leveraging GSI’s full omni-channel portfolio, retailers are able
to 1) attract, engage, and retain customers through demand generation and digital
marketing; 2) deliver a seamless brand experience through eCommerce technology and
multichannel operations; and 3) offer a highly-functional Web store, order management,
fulfillment, and customer service. The combination of GSI and eBay extends eBay’s open
commerce platform capabilities and helps retailers win in a connected environment,
allowing them to grow faster and more profitably than on their own.
page 17 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Two Omni-Channel Case Studies: Dick’s Sporting Goods and Fifth & Pacific /
Kate Spade
#1 Dick’s Sporting Goods is a good example of a leading retailer trying to optimize
omni-channel. Some of its key pain points include:
1) be where customers want to be 24/7 (in store, online, on a smartphone or
tablet);
2) offer fast and free shipping to customers;
3) leverage better physical stores and employees;
4) enable ship-from-store;
5) enable in-store pick-up for online orders;
6) engage and convert more shoppers across all channels and 500+ physical
stores.
The results (powered by GSI products): Leveraging multi-channel solutions,
including Web-enabled store associate ordering system, ship-from-store, and in-store
pick-up technologies, Dick's has created a virtual distribution network closer to their
customers, enabling fast and free shipping. The company also improved optimization of
inventory across its network, making inventory more productive, reducing out-of-stock
items, and capturing incremental sales.
#2 Fifth & Pacific / Kate Spade provide another example of how GSI, in combination
with PayPal / eBay, is producing results. The relationship with Kate Spade evolved from
being a single-solution provider to being a strategy and innovation partner – developing
solutions for a connected consumer that win. The pain points for Kate Spade include:
1) transition from brick and mortar-only to truly omni-channel;
2) enable overnight ship capability with 9pm cutoff time;
3) use stores to drive more demand to the web and use the web to drive more
demand to the stores;
4) drive more users, deeper loyalty, more transactions, higher transaction value,
and grow the brand.
The results (powered by GSI / PayPal / Marketplaces): eBay Marketplaces has
evolved into a way to source new users into the Kate Spade NY franchise (rather than
being a clearance vehicle to get rid of excess inventory). Kate Spade is in the process of
rolling out an entirely new POS system (incorporating PayPal) to every store in the world,
driven by the need to have a system in the store to support true multi-channel marketing
and sales. Across all three brands, multi-channel customers are more loyal, more
committed, and LTV is meaningfully higher than for single-channel customers.
page 18 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Google
While Google is known as the world’s leading search engine and one of the largest
players in online advertising, the company’s presence in eCommerce fulfillment should
not be surprising – shopping is one of its key advertising verticals.
Same-Day Delivery
Another one of the big players – Google – has been reportedly testing in private a sameday delivery service in San Francisco since October 2012. The company just announced
last week the new service officially and opened it to a limited number of external testers
for a trial period of six months. Google Shopping Express, as the service is called, allows a
user to search for and purchase in-stock items from local retailers without leaving the
Google page. Then the user can select a delivery window and a Google courier delivers
the goods in one of the company-inscribed vans.
Exhibit 12: Google Shopping Express
Source: Google, Jefferies
The service, as it currently exists, will require Google to partner with local or national
retailers but it frees the company from investing in physical fulfillment centers. Current
Beta Testers of the service are given a free six-month membership for unlimited same-day
delivery with the following reputable brands and local retailers: American Eagle Outfitters,
Blue Bottle Coffee, Office Depot, Palo Alto Sport Shop & Toy World, Raley’s Nob Hill,
Staples, Target, Toys “R” Us / Babies “R” Us, and Walgreens. The company plans to add
more merchants over the next six months. Reportedly, participating retailers do pay
Google for the leads and, we believe, at rates that likely exceed traditional CPC given the
transaction is immediately consummated. While it is expected that users would be paying
for the service too, after the trial period, Google is still evaluating the economics and
pricing is not available; the company is supposedly considering either an annual fee ($64
or $69) or a per-delivery per-store shipping charge ($4.99). Note, it is still early and both
the implementation and pricing are likely to change.
page 19 of 49
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Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 13: Google Shopping Express Screenshot / Flash
Source: Google, Jefferies
Given the fact that Google remains a prime starting point for many product searches, it
seems natural that the company would like to monetize these users as they progress all
the way down the conversion funnel, rather than sending traffic to competing
eCommerce sites to complete the transaction. Google has already taken steps in this
direction by recently enhancing Product Listing Ads (PLA) with rich product information
(image of product, size & color options, etc.), making Google Shopping appear more like
Amazon. With Google Shopping Express, Google is furthering its commerce ambitions.
If Google rolls out Google Shopping Express more broadly, we would expect deep
integration with other Google services like Wallet, Maps, Zavers, and obviously the
broader Google Shopping / Search product. Google Shopping recently started
requiring retailers to upload additional inventory information. This is a step in the right
direction as Google will now face the challenge of maintaining precise, up-to-the-minute
inventory levels across all its Google Shopping Express partners.
Delivery to Neighborhood Locker
Following in Amazon’s footsteps, Google seems to be considering a local delivery service
as well – one very similar to Amazon Locker. In November 2012, the company acquired
BufferBox, a provider of temporary lockers for the delivery of packages. As a Google
spokesperson put it, with the purchase of BufferBox the company is trying “to remove as
much friction as possible from the shopping experience, while helping consumers save
time and money.” We tend to agree that giving users a choice of delivery options that
offer convenience and speed at reasonable / subsidized price should help minimize
friction in online shopping. Google has not announced any services yet leveraging its
BufferBox acquisition but we believe it’s a question of time.
page 20 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 14: BufferBox Locker
Source: Google, Jefferies
Currently, BufferBox operates in Canada only and particularly in the Greater Toronto Area.
Pick-up stations are located at about 20 locations in GO Stations and 7-Eleven and Sobeys
stores. Users can register on the BufferBox website and receive a BufferBox Shipping
Address. At the check-out of any online retailer, they can enter that address for shipping
and get the goods deliver to a nearby BufferBox location. Once delivered, the user
receives a PIN that opens the door of the locker containing their package. Users have 72
hours (excluding Sundays and holidays) to pick up their packages. After that, packages
are removed to a warehouse and, if not requested for re-delivery within seven days,
shipped back to the sender. In cases when the BufferBox is full, the service holds the
package until space opens for delivery. Deliveries requiring signature or tax / duty
payment (COD) are accepted too. BufferBox signs for the parcel or covers any fees and
bills the user (including a 9% processing fee for the latter) before sending the PIN email.
page 21 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Walmart
On the other end of the spectrum, Walmart already has the storage capacity and ships
directly from its stores (just over 4,000 in the US). Its service, Walmart To Go, is available
in San Jose / San Francisco, Northern Virginia (outside Washington D.C.), Philadelphia,
Minneapolis, and Denver. The delivery fee varies by region and by day of the week / time
of day as does the minimum order size. Currently, a Californian can get a delivery for $6-9
(two-hour delivery slot) or $5 (four-hour delivery slot) on a minimum order of $45. The
categories eligible for this service include most grocery items, electronics & home office,
home & furniture, sports & fitness, and toys & video games.
Exhibit 15: Walmart To Go
Source: Walmart, Jefferies
Walmart To Go started in April 2010 in San Jose / San Francisco as a home delivery service
for online grocery purchases. In October 2012, the company began a test of same-day
delivery for the holiday season. Priced at $10 per order (regardless of number of items /
no minimum requirement), it was available in Minneapolis, Northern Virginia (outside
Washington D.C.), Philadelphia, and San Jose / San Francisco. Selection of goods was
specific to a user’s location (likely limited to items available in local stores) and included
approximately 5,000 items from the 1MM+ in Walmart’s online catalog. Customers could
place an order until 12pm local time and then choose a four-hour window (i.e., 4-8pm, 59pm, 6-10pm) for delivery the same day. The company had not specified a particular end
date and currently it is not clear if the test is over or it has been extended into a
permanent offering.
Executives at Walmart have said that as it ramps digital online investments, it is serving
both high-income consumers as well as its in-store shoppers ($30-60K average annual
page 22 of 49
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Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
income). Interestingly, we note that the proportion of people who had shopped online in
the previous three months rose steadily from 62% among households with annual
household income <$25K to 84% among those with $100K+. And the company is quick
to highlight that its shoppers also purchase from its website, often on smartphones rather
than computers. Walmart expects its online sales to exceed $9B this year (<2% of total).
Walmart believes its ability to combine digital assets with local points of presence give it a
clear advantage as it could potentially use its 4,000+ US stores as warehouses to fulfill
online orders quickly. Walmart also announced that later this year it would begin testing
its own self-service lockers that customers can use to receive online orders (initial tests are
scheduled in roughly a dozen stores).
Jefferies Broadline & Hardline Retail Analyst Dan Binder believes that Walmart (and
eventually Target) may use their stores as fulfillment centers at some point. However, he
expects longer-term Walmart will have to charge a fee for same-day delivery, so the
market opportunity will probably be small. After all, Walmart’s customers aren’t exactly
Nordstrom’s customers where money is less of an issue. In addition to testing same-day
delivery in 4 cities, Walmart is already offering in-store pick-up for online orders.
Binder also believes that players like BestBuy are very unlikely to ever use Amazon for
fulfillment. He thinks that scale matters and Amazon’s offerings may work for small
businesses but for big businesses and especially for big competitors (such as BestBuy), it
doesn’t seem very logical. We do not agree entirely here as we believe that using Amazon
as a channel could work for branded products / retailers. While Amazon might compete
with 3P merchants that sell commoditized products, we don’t think it does for branded
ones. Thus brands / specialty retailers can benefit from being able to leverage Amazon’s
platform by offering limited / exclusive SKUs. Perhaps over time this would enable these
retailers to lower overhead and still maintain their brands.
Jefferies Specialty Retail team think that while many of the mature specialty retailers are
rationalizing square footage after being “over-stored” when the recession hit (and also
probably in some part due to a shift to online sales), further acceleration of store closures
is unlikely. Most of these retailers still view the store environment as a key marketing tool
for the brand and an important aspect of the user experience (i.e. as a venue for shoppers
to actually try on apparel and view apparel/accessories in person before buying). In
addition, most specialty retailers have begun making significant investments to improve
their in-house e-commerce platforms and make the brands more omni-channel.
We largely agree but believe that costs may outweigh the value longer term – especially
as the high value proposition of same-day delivery begins to take off among consumers
(who did not realize they “needed” it until they had it). Further, since specialty retailers
would not be able to provide such level of service, why wouldn’t they shift some
percentage of inventory to Amazon or eBay if they don’t compete with them?
page 23 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Nordstrom
Nordstrom is another national retailer that offers same-day delivery in select markets.
Launched in November 2011, the service is available every day of the week (including
Saturday and Sunday) and costs $15 per order. Orders placed by 1pm Pacific time are
delivered by 7pm the same day to addresses in over 100 zip codes in Seattle, WA,
Bellevue, WA, and La Jolla, CA.
Exhibit 16: Same-Day Delivery by Nordstrom
Source: Nordstrom, Jefferies
page 24 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Barnes & Noble
A same-day delivery option in Manhattan, NY has been available to Barnes & Noble.com
shoppers since May 2000. Currently, it is free for orders above $25 and for B&N
Members. Orders with all Items marked "Usually ships within 24 hours – Same Day
Delivery in Manhattan" are eligible for this service. Generally, this is merchandise in stock
in New Jersey warehouses of the company and its affiliates. Orders must be placed by
11am, Monday through Friday, to qualify and are delivered by 7pm. Orders placed on
New Year's Day, Good Friday, Thanksgiving, and Christmas are not eligible.
Exhibit 17: Same-Day Delivery in Manhattan by Barnes & Noble
Source: Barnes & Noble.com, Jefferies
Other Independent Merchants
In addition, some local brick-and-mortar retailers are reportedly testing paid deliveries
within a 3-mile store radius to build competitive advantage, loyalty and market share. We
believe, these retailers will ultimately decide to engage the services of some of the bigger
players (Amazon, eBay, Google, even USPS) as scale does play a major role in the cost of
such an offering.
page 25 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
USPS
The US Postal Service began a 1-year experiment in December 2012 for same-day delivery
of in-store and online purchases from participating retailers in San Francisco, CA. While in
beta, the USPS will work with a maximum of 10 retailers with at least 10 physical locations
nationally (one or more within defined major metro areas). Orders completed by 2pm get
picked up after 3pm and delivered between 4pm and 8pm the same day. While pricing is
up to the participating retailer, the regulatory filing for the service states that USPS will be
charging in excess of $2.90 per delivery / package. Only residential addresses are covered
in the test and there are some restrictions on weight and size but they are the same as for
other USPS services. Users can check delivery status through USPS’ Track and Confirm
tool. For returns, merchandise can be returned to the store or sent back with USPS (pickup can be scheduled online). According to the USPS website, the service would be
available eventually through its mobile app too. While the experiment started with a
single retailer (1-800-FLOWERS.COM), new ones were in late-stage negotiations as of
January 2013, according to a USPS spokesperson. If the test is successful, the service will
be expanded to other big metro areas such as Boston, Chicago, Los Angeles, and New
York.
Exhibit 18: Metro Post by USPS
Source: USPS, Jefferies
page 26 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Postmates
Get It Now is a one-hour delivery service available in San Francisco since May 2012 and in
Seattle since March 2013. Users, who have downloaded the iOS app, can place an order
between 8am and midnight every day of the week. The order gets assigned to the best
courier for the job seconds after being placed. Then the courier, called Postmate,
purchases the ordered goods on behalf of the user and delivers them to a drop-off
address. During this time, users can track their delivery from the app in real-time and can
contact the Postmate if a change is needed (e.g. add or cancel an item, change delivery
address, etc.). However, such changes get forwarded to HQ as they might require a fee
adjustment. The delivery fee, currently starting at $4.99, is determined dynamically by an
algorithm that accounts for the distance, time required and effort involved in the delivery.
Exhibit 19: Screenshots of Postmates’ Get It Now App
Source: App Annie, Jefferies
While Postmates (the company) is still managing the inventory of items that users can
order through the service (currently from ~4,000 different locations in San Francisco and
1,000+ in Seattle), it plans to offer a self-serve platform that will allow local businesses to
take control of their venue’s listings and update inventory themselves. In addition, users
can simply prepare a shopping list of items (if the merchant’s inventory is not listed in the
app) and the Postmate will purchase them. Technically, users can order from any retail
store or merchant in the city that accepts credit cards. Another feature in the app (a
nearby tab) allows users to browse stores close to their current location. It updates
dynamically and is powered by Foursquare.
Postmates has been running on-demand same-day deliveries in San Francisco and vicinity
since December 2011. It launched its one-hour delivery service Get It Now in closed beta
in March 2012 and officially in May 2012. The Seattle beta launch happened in February
2013 with the official launch in March. We believe the next city in the company’s
expansion plan is New York (based on its application form for prospective Postmates). The
delivery fee has declined over time to the current $4.99+ but it was $6.99+ when the
service first started. Postmates currently has nearly 200 couriers in San Francisco and just
over 40 in Seattle.
page 27 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exec
Exec is an errand-running service, similar to TaskRabbit, which provides companies and
individuals access to on-demand personal assistants for delivery, furniture assembly, and
other errands. Once users post what they need, an in-house trained Exec gets assigned on
the task within 10 minutes. Users can track the progress of their errand and stay in touch
with the Exec through messages. The service gets everything done for $25/hour and is
available from 9am to 9pm. The company and its services are currently based in San
Francisco.
Exhibit 20: Exec Errands
Source: Exec, Jefferies
page 28 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Instacart
Instacart is a unique same-day delivery service, which focuses solely on same-day grocery
delivery from Trader Joe’s, Safeway and Whole Foods. Customers can shop directly from
their iPhones from 10am to 9pm every day. The company has a one-hour or a three-hour
promised delivery window for a flat $9.99 and $3.99, respectively. The service is currently
live in San Francisco, Palo Alto and Mountain View. The company has plans to expand
into other verticals.
Exhibit 21: Screenshots of Instacart App
Source: App Annie, Jefferies
Shutl
Shutl is another start-up that provides same-day delivery in the Bay Area, with ambitions
to launch soon in New York City, Chicago, Miami, and several other metro areas in the
US. The company’s technology integrates with online retailers and connects them with a
network of local, same-day carriers, which purportedly provide faster, more flexible
delivery options than the traditional delivery providers such as UPS and FedEx.
Exhibit 22: Shutl
Source: Shutl, Jefferies
page 29 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
TaskRabbit
TaskRabbit, one of the original errand outsourcing services, recently launched a Deliver
Now feature, where customers can have same-day delivery from any local business.
Deliver Now costs $10 and is currently only available in San Francisco, while TaskRabbit
itself is based in 9 metro areas. The feature allows regular users to solicit same-day
deliveries for orders from local businesses such as restaurants and stores that do not
themselves provide a delivery service.
Exhibit 23: Screenshots of TaskRabbit App
Source: App Annie, Jefferies
WunWun
WunWun is a product / service similar to TaskRabbit and Exec with a twist. WunWun has
an on-demand network of Helpers. Once your request is received, a Helper is designated
to see it through. When a request requires a specialized provider, WunWun acts as a
personal concierge service. For deliveries, it’s a flat $15 fee and $2 for every 5 minutes of
other services. Currently, WunWun is in beta in New York City.
Exhibit 24: Screenshots of WunWun App
Source: App Annie, Jefferies
page 30 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Potential Winners
Whether same-day delivery will become prevalent over time or remain a high-touch addon service is not clear yet. Some recent studies reveal that free delivery and lower prices
are much more important to shoppers. According to a BCG survey, conducted in
November 2012, only 9% of participants cited same-day delivery as a top factor that
would improve their online shopping experience. Overwhelmingly more, 74% and 50%
cited free delivery and lower prices, respectively, as top factors. However, that same
survey showed that affluent millennials (18 to 34-year olds with household income in
excess of $150K) were willing to pay up to $10 for same-day delivery vs. up to $6 by
other consumers. The affluent millennial cohort is also spending online about 2 times
more than the average US consumer. Only time will show if millennials again will drive a
change in eCommerce fulfillment as they did with other aspects of everyday life already.
While it is not clear yet if consumers are actually ready to pay (and how much) for such
services, the competition in fulfillment is already on and major players are investing.
Which aspects of fulfillment (e.g. speed, flexibility, cost) will prove more important to
consumers could determine which of the existing offerings will survive and thrive.
We believe that the most compelling offerings, for now, come from Amazon, eBay and
Walmart as each dwells on a competitive strength. However, Amazon is currently the
undisputed leader as it appears to have perfected the logistics function and is likely to
start building new fulfillment centers closer to customers, now that it has signed tax
agreements with a host of states. We also think that the proceeds of its November 2012
debt offering of $3B will be used for fulfillment center build-out, to a large extent. eBay
seems to have solved the inventory / warehousing problem and built scale by partnering
with top national retailers while maintaining neutrality. It also has the most compelling
offering that helps retailers leverage their own brands and assets to evolve their multichannel strategies to seamlessly meet the increasing demands of the omni-channel
consumer. Its products enable retailers to address the full opportunity of the converging
online and offline markets. And finally, Walmart has already established a presence in all
key markets and needs only to master the “last mile” or partner with / acquire someone
with the logistics acumen.
We believe Google is another one to keep an eye on as it remains a prime starting point
for many product searches. The company has already taken steps to monetize these
better by enhancing its Product Listing Ads with rich product information (product image,
size & color options, etc.). If Google rolls out Google Shopping Express more broadly, we
would expect deep integration with its other services like Wallet, Maps, Zavers, and
obviously the broader Google Shopping / Search product.
Among the other players, we believe the ones that manage to remain retailer-neutral, to
offer the highest flexibility (accepting orders 24/7 at the extreme), and to remain
competitive on pricing without going bust, are the most likely to succeed. And we do
believe it is not a winner-take-all game. Smaller / local / niche players should be able to
find a place on the table among the bigger players too.
page 31 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Appendix
A. Jefferies US eCommerce Model
B. Amazon Model
C. eBay Model
D. Google Model
page 32 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
A. Jefferies US eCommerce Model
Exhibit 25: Jefferies US eCommerce Model ($ in Millions)
F2012
Q1 12A
Total US Retail Sales*
% Y/Y Growth
Total US Retail eCommerce Sales*
% Y/Y Growth
eCommerce Penetration - % of Retail
Y/Y Penetration Increases (bps)
Online Travel**
% Y/Y Growth
Q2 12A
F2013
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
2011A
2012A
2013E
$1,080,064
6.2%
$53,091
15.3%
$1,076,950
4.3%
$54,936
15.5%
$1,091,897
4.6%
$57,034
17.4%
$1,106,823
4.0%
$59,545
15.6%
$1,121,106
3.8%
$60,490
13.9%
$1,118,951
3.9%
$61,554
12.0%
$1,137,757
4.2%
$63,753
11.8%
$1,152,147
4.1%
$65,913
10.7%
$4,157,173
8.3%
$193,722
15.1%
$4,355,734
4.8%
$224,606
15.9%
$4,529,962
4.0%
$251,710
12.1%
4.9%
5.1%
5.2%
5.4%
5.4%
5.5%
5.6%
5.7%
4.7%
5.2%
5.6%
0.38%
0.49%
0.57%
0.54%
0.48%
0.40%
0.38%
0.34%
0.28%
0.50%
0.40%
$25,614
$28,023
$26,292
$23,021
$27,893
$30,630
$28,659
$25,035
$94,485
$102,951
$112,216
10.3%
8.7%
8.9%
7.8%
8.9%
9.3%
9.0%
8.7%
11.0%
9.0%
9.0%
$2,968
$2,883
$2,809
$2,890
$3,043
$3,048
$3,114
$3,295
$11,556
$11,524
$12,497
% Fixed Price vs. Auction Format
61.0%
62.0%
64.0%
66.0%
65.0%
65.5%
66.0%
67.4%
59.3%
63.4%
66.0%
% Y/Y Growth
-1.4%
-1.8%
0.2%
2.8%
2.5%
5.7%
10.8%
14.0%
1.2%
-0.3%
8.4%
$81,673
$85,842
$86,136
$85,456
$91,426
$95,232
$95,526
$94,242
$299,763
$339,081
$376,423
13.0%
12.5%
14.0%
12.9%
11.9%
10.9%
10.9%
10.3%
13.1%
13.1%
11.0%
7.4%
7.7%
7.7%
7.5%
7.9%
8.3%
8.2%
8.0%
7.0%
7.6%
8.1%
0.43%
0.56%
0.63%
0.59%
0.57%
0.51%
0.48%
0.44%
0.30%
0.55%
0.50%
eBay US Auctions GMV
US eCommerce Sales (Adjusted)
% Y/Y Growth
eCommerce Penetration (Adj) - % of Retail
Y/Y Penetration Increase
*US Department of Commerce; Does not include auctions, travel, financial services, or event ticket sales -- http://www.census.gov/mrts/www/ecomm.html
**comScore
Source: US Department of Commerce, comScore, Jefferies
page 33 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
B. Amazon Model
Exhibit 26: Amazon - Income Statement ($000s)
F2012
Net Revenue
F2013
Q1 12A
Q2 12A
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
$13,185,000
$12,834,000
$13,806,000
$21,268,000
$16,271,675
$16,006,550
$17,351,585
$27,103,649
$61,093,000
$76,733,459
$96,334,698
North America Net Revenue
7,427,000
7,326,000
7,884,000
12,175,000
9,171,631
9,166,226
9,959,790
15,704,269
34,812,000
44,001,916
55,616,677
International Net Revenue
5,758,000
5,508,000
5,922,000
9,093,000
7,100,044
6,840,324
7,391,795
11,399,380
26,281,000
32,731,543
40,718,021
% Y/Y Growth
29%
27%
25%
26%
27%
26%
(24)
34%
(3)
8
54
(23)
(2)
8
56
--
--
--
Cost of Net Revenue
10,027,000
9,488,000
10,319,000
16,136,000
12,182,149
11,671,457
12,786,070
20,316,006
45,970,000
56,955,683
71,037,101
Total Gross Profit
% Margin
$3,158,000
24.0%
$3,487,000
25.3%
$5,132,000
24.1%
$4,089,526
25.1%
$4,335,093
27.1%
$4,565,514
26.3%
$6,787,643
25.0%
% Q/Q Growth
Fulfillment
Marketing
Technology & Content
General & Administrative
1,258,000
468,000
860,000
174,000
$3,346,000
26.1%
1,298,000
521,000
970,000
197,000
GAAP Operating Income / (Loss) incl Stock Comp192,000
& Amort. of Intangibles
107,000
% Margin
1.5%
0.8%
% Y/Y Growth
(40)
(47)
% Q/Q Growth
(26)
(44)
EBITDA
% Margin
% Y/Y Growth
% Q/Q Growth
$855,000
6.5%
28
4
Net Interest (Income) and Other (Income)
Adjusted Pre-Tax Profit / (Loss)
% Effective Tax Rate
108,000
$290,000
33%
Provision / (Benefit) for Income Taxes
Tax Adjustments for Non-GAAP Items
Minority Interest
Operating Net Income / (Loss)
% Margin
% Y/Y Growth
% Q/Q Growth
43,000
51,500
(89,000)
$284,500
2.2%
(8)
(13)
Other Operating Expense/Amortization of Intangibles
Stock-Based Compensation
Tax Effect of Non-GAAP Entries
Reported GAAP Net Income / (Loss)
% Margin
% Y/Y Growth
% Q/Q Growth
Weighted Avg. Diluted Shares Outstanding
46,000
160,000
(51,500)
$130,000
1.0%
(35)
(27)
460,000
$845,000
6.6%
34
(1)
(39,000)
22%
23%
1,454,000
524,000
1,080,000
197,000
2,196,000
833,000
1,221,000
204,000
1,643,626
678,446
1,128,000
222,000
(28,000)
(0.2%)
(135)
(126)
405,000
1.9%
56
--
142,255
0.9%
(26)
(65)
77,374
0.5%
(28)
(46)
$1,340,000
6.3%
63
70
$1,079,217
6.6%
26
(19)
$1,067,880
6.7%
26
(1)
$786,000
5.7%
46
(7)
56,233
0.3%
-(27)
716,054
2.6%
77
1,173
676,000
1.1%
(22)
--
991,917
1.3%
47
--
2,183,096
2.3%
120
--
$1,024,144
5.9%
30
(4)
$1,694,852
6.3%
26
65
$3,826,000
6.3%
44
--
$4,866,092
6.3%
27
--
$6,582,224
6.8%
35
--
60,477
$356,978
30.7%
$453,838
36.5%
$397,188
30.7%
$1,013,328
44.7%
109,000
63,250
30,000
83,000
65,000
169,000
194,000
68,250
46,000
40,889
68,800
35,000
78,013
87,455
35,000
38,543
83,238
35,000
366,755
86,625
35,000
32,000
221,000
(63,250)
$7,000
0.1%
(96)
(95)
458,000
43,000
217,000
(65,000)
($274,000)
(2.0%)
(535)
(4,014)
460,000
$253,369
1.6%
29
19
(8,005)
$240,408
1.4%
-(5)
38,000
235,000
(68,250)
40,000
235,200
(68,800)
36,000
313,820
(87,455)
40,000
292,950
(83,238)
$97,000
0.5%
(45)
--
$5,889
0.0%
(95)
(94)
($8,996)
(0.1%)
(229)
(253)
($9,305)
(0.1%)
---
462,659
462,781
461,000
462,613
$25,297,597
26.3%
7,953,365
3,127,025
5,397,000
1,004,000
68,000
$212,289
1.3%
(25)
(30)
$19,777,776
25.8%
6,206,000
2,346,000
4,131,000
772,000
$610,000
43%
$301,750
1.4%
(8)
--
$15,123,000
24.8%
26%
2,803,973
1,075,116
1,578,000
268,000
$238,000
62%
($79,000)
(0.6%)
(140)
(140)
(26,644)
1,830,879
672,452
1,413,000
260,000
$399,000
43%
$196,750
1.5%
(40)
(31)
(6,000)
1,674,887
701,012
1,278,000
254,000
27%
49,226
$524,947
1.9%
74
118
41,000
305,500
(86,625)
131,000
$1,537,000
44%
429,000
248,000
156,000
$704,000
1.2%
(40)
--
75,055
$2,221,332
38%
524,201
326,118
140,000
$1,231,014
1.6%
75
--
159,000
833,000
(248,000)
157,000
1,147,470
(326,118)
$265,072
1.0%
173
--
($40,000)
(0.1%)
(106)
--
$252,661
0.3%
---
463,092
453,000
Operating EPS
% Y/Y Growth
% Q/Q Growth
$0.62
(8%)
(13)
$0.43
(40%)
(31)
($0.17)
(140%)
(140)
$0.65
(8%)
--
$0.46
(26%)
(30)
$0.55
27%
19
$0.52
-(5)
$1.13
73%
118
$1.55
(39%)
--
Reported GAAP EPS
% Y/Y Growth
% Q/Q Growth
$0.28
(35%)
(26)
$0.02
(96%)
(95)
($0.60)
(536%)
(3,997)
$0.21
(45%)
--
$0.01
(95%)
(94)
($0.02)
(227%)
(253)
($0.02)
---
$0.57
172%
--
($0.09)
(106%)
--
462,786
10,033,186
3,973,978
6,297,000
1,224,000
36,887
$3,732,546
36%
944,332
396,584
126,000
$2,265,630
2.4%
84
-152,000
1,434,338
(396,584)
$1,075,877
1.1%
326
-462,344
$2.66
71%
--
$4.90
84%
--
$0.55
---
$2.33
326%
--
Source: Company data, Jefferies estimates
page 34 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 27: Amazon - Revenue Build ($000s)
F2012
Q1 12A
Total Revenue
% Y/Y Growth
% Q/Q Growth
Ex-FX Total Revenue
% Y/Y Growth ex-FX
Media
% Y/Y Growth
% of Total Revenue
Electronics and Other General Merchandise
% Y/Y Growth
% of Total Revenue
Other
% Y/Y Growth
% of Total Revenue
Total North America Revenue
% Y/Y Growth
% Q/Q Growth
% of Total Revenue
Media
% Y/Y Growth
% of North America Revenue
Electronics and Other General Merchandise
% Y/Y Growth
% Y/Y Growth (Organic)
% of North America Revenue
Zappos contribution
% Y/Y Growth
Other
% Y/Y Growth
% of North America Revenue
AWS
% Y/Y Growth
% Q/Q Growth
Total International Revenue
% Y/Y Growth
% of Total Revenue
Ex-FX International Revenue
% Y/Y Growth ex-FX
FX Growth
Media
% Y/Y Growth
% Y/Y Growth ex-FX
% of International Revenue
Electronics and Other General Merchandise
% Y/Y Growth
% Y/Y Growth ex-FX
% of International Revenue
Other
% Y/Y Growth
% of International Revenue
Q2 12A
$13,185,000
34%
(24)
13,224,440
34%
F2013
Q3 12A
$12,834,000
29%
(3)
13,094,960
32%
Q4 12A
$13,806,000
27%
8
14,162,880
30%
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
$21,268,000
$16,271,675
$16,006,550
$17,351,585
$27,103,649
22%
23%
25%
26%
27%
54
(23)
(2)
8
56
21,435,670
16,394,167
16,061,613
17,340,984
27,246,540
23%
24%
25%
26%
28%
F2013E
F2014E
$61,093,000
$76,733,459
27%
26%
--61,917,950
77,043,304
29%
26%
$96,334,698
26%
-55,616,677
-28%
$4,710,000
19%
36
$7,975,000
43%
60
$500,000
61%
4
$4,119,000
13%
32
$8,161,000
38%
64
$554,000
54%
4
$4,600,000
11%
33
$8,558,000
35%
62
$648,000
59%
5
$6,514,000
8%
31
$13,934,000
28%
66
$820,000
61%
4
$5,275,772
12%
32
$10,272,073
29%
63
$723,830
45%
4
$4,628,738
12%
29
$10,560,805
29%
66
$817,007
47%
5
$5,201,930
13%
30
$11,201,815
31%
65
$947,840
46%
5
$7,519,706
15%
28
$18,378,863
32%
68
$1,205,080
47%
4
$19,943,000
12%
33
$38,628,000
35%
63
$2,522,000
59%
4
$22,626,146
13%
29
$50,413,556
31%
66
$3,693,757
46%
5
$25,769,254
14%
27
$65,586,143
30%
68
$4,979,302
35%
5
$7,427,000
36%
(25)
56
$7,326,000
36%
(1)
57
$7,884,000
33%
8
57
$12,175,000
23%
54
57
$9,171,631
23%
(25)
56
$9,166,226
25%
(0)
57
$9,959,790
26%
9
57
$15,704,269
29%
58
58
$34,812,000
30%
-57
$44,001,916
26%
-57
$55,616,677
26%
-58
$2,197,000
16.6%
30
$4,772,000
44.5%
35.1%
64
$1,874,000
18.2%
26
$4,937,000
41.2%
31.1%
67
$2,215,000
14.9%
28
$5,061,000
39.2%
27.9%
64
$2,903,000
13.3%
24
$8,503,000
23.6%
15.8%
70
$2,526,550
15.0%
28
$5,967,241
25.0%
17.1%
65
$2,168,218
15.7%
24
$6,224,525
26.1%
17.4%
68
$308,316
25%
$354,121
25%
$412,201
25%
$535,116
23%
$379,229
23%
$428,487
21%
$498,763
21%
$458,000
65.3%
6
$515,000
58.5%
7
$608,000
64.3%
8
$769,000
67.5%
6
$677,840
48.0%
7
$773,483
50.2%
8
$902,880
48.5%
9
$412,200
65%
(0)
$463,500
58%
12
$547,200
64%
18
$692,100
68%
26
$610,056
48%
(12)
$696,135
50%
14
$812,592
49%
17
$1,032,613
49%
27
$5,758,000
31.1%
44
$5,797,440
32%
-1%
$2,513,000
21.2%
22%
44
$3,203,000
40.2%
42%
56
$42,000
24%
1
$5,508,000
22.2%
43
$5,768,960
28%
-5%
$2,245,000
8.2%
12%
41
$3,224,000
34.4%
42%
59
$39,000
15%
1
$5,922,000
19.8%
43
$6,278,880
27%
-6%
$2,385,000
7.1%
12%
40
$3,497,000
30.4%
42%
59
$40,000
8%
1
$9,093,000
20.8%
43
$9,260,670
23%
-2%
$3,611,000
4.8%
7%
40
$5,431,000
34.7%
37%
60
$51,000
2%
1
$7,100,044
23.3%
44
$7,222,536
25%
-2%
$2,749,222
7.5%
9%
39
$4,304,832
32.1%
34%
61
$45,990
10%
1
$6,840,324
24.2%
43
$6,895,387
25%
-1%
$2,460,520
8.7%
10%
36
$4,336,280
33.4%
35%
63
$43,524
12%
1
$2,576,045
16.3%
26
$6,480,865
28.1%
18.2%
65
$3,428,443
18.1%
22
$11,128,478
30.9%
23.3%
71
$9,189,000
15%
26
$23,273,000
34%
25%
67
$10,699,256
16%
24
$29,801,109
28%
20%
68
$644,279
20%
$1,609,754
24%
$1,950,758
21%
$1,147,348
49.2%
7
$2,350,000
64%
7
$3,501,551
49%
8
$4,762,109
36%
9
$2,115,000
64%
--
$3,151,396
49%
--
$4,285,898
36%
--
$7,391,795
$11,399,380
24.8%
25.4%
43
42
$7,381,194
$11,542,271
25%
27%
0%
-1%
$2,625,885
$4,091,263
10.3%
11.9%
10%
13%
36
36
$4,720,950
$7,250,385
35.2%
31.8%
35%
34%
64
64
$44,960
$57,732
12%
13%
1
1
$26,281,000
$32,731,543
23%
25%
43
43
$27,105,950
$33,041,388
27%
26%
-3%
-1%
$10,754,000
$11,926,890
10%
11%
13%
12%
41
36
$15,355,000
$20,612,447
35%
34%
39%
36%
58
63
$172,000
$192,206
11%
12%
1
1
$12,411,137
16%
22
$38,443,431
29%
29%
69
$40,718,021
24%
42
$13,358,117
12%
33
$27,142,712
32%
67
$217,193
13%
1
Source: Company data, Jefferies estimates
Exhibit 28: Amazon - Balance Sheet ($000s)
F2012
Q1 12A
Cash & Cash Equivalents
Short-Term Marketable Securities
Q2 12A
F2013
Q3 12A
Q4 12A
Q1 13E
$2,288,000
$2,335,000
$2,980,000
$8,084,000
Q2 13E
$4,214,493
Q3 13E
$4,116,288
Q4 13E
$4,792,110
F2012A
F2013E
$9,506,579
$8,084,000
F2014E
$9,506,579
$13,927,426
3,427,000
2,635,000
2,268,000
3,364,000
3,364,000
3,364,000
3,364,000
3,364,000
3,364,000
3,364,000
Accounts Receivable
1,813,000
2,035,000
2,392,000
3,364,000
2,142,512
2,380,371
2,652,653
3,847,326
3,364,000
3,847,326
4,830,109
Inventories
4,255,000
4,380,000
5,065,000
6,031,000
5,239,993
5,608,695
6,550,672
8,419,601
6,031,000
8,419,601
10,501,219
Other Current Assets
3,364,000
371,000
408,000
413,000
453,000
418,616
468,948
501,160
550,567
453,000
550,567
678,019
$12,154,000
$11,793,000
$13,118,000
$21,296,000
$15,379,614
$15,938,302
$17,860,595
$25,688,074
$21,296,000
$25,688,074
$33,300,772
Property and Equipment
4,653,000
5,097,000
5,662,000
7,060,000
6,829,518
6,869,612
7,017,652
7,104,374
7,060,000
7,104,374
7,193,213
Goodwill
1,970,000
2,521,000
2,540,000
2,552,000
2,552,000
2,552,000
2,552,000
2,552,000
2,552,000
2,552,000
2,552,000
Current Assets
Deferred Tax Assets
Other Assets
Total Assets
Accounts Payable
Accrued Expenses & Other Liabilities
Unearned Revenue
Short-Term Debt
27,000
26,000
38,000
123,000
123,000
123,000
123,000
123,000
123,000
123,000
1,535,000
1,585,000
1,476,000
1,524,000
2,452,943
2,563,581
2,338,745
3,553,407
1,524,000
3,553,407
4,375,987
$20,339,000
$21,022,000
$22,834,000
$32,555,000
$27,337,076
$28,046,496
$29,891,992
$39,020,855
$32,555,000
$39,020,855
$47,544,971
123,000
$6,886,000
$7,072,000
$8,369,000
$13,318,000
$8,397,339
$8,620,890
$10,088,735
$15,509,792
$13,318,000
$15,509,792
$19,344,350
3,498,000
3,813,000
4,182,000
5,684,000
4,259,602
4,486,268
4,644,080
6,519,730
5,684,000
6,519,730
8,028,985
0
0
0
0
114,814
178,965
261,720
504,647
0
504,647
1,301,197
104,000
79,000
54,000
0
0
0
0
0
0
0
771,000
$10,488,000
$10,964,000
$12,605,000
$19,002,000
$12,771,756
$13,286,122
$14,994,535
$22,534,169
$19,002,000
$22,534,169
$29,445,532
0.65% Unsecured Notes due Nov 2015
0
0
0
771,000
771,000
771,000
771,000
771,000
771,000
771,000
0
1.20% Unsecured Notes due Nov 2017
0
0
0
1,028,000
1,028,000
1,028,000
1,028,000
1,028,000
1,028,000
1,028,000
1,028,000
Total Current Liabilities
2.50% Unsecured Notes due Nov 2022
Other LT Liabilities
Total Liabilities
Additional Paid-In Capital
255,000
255,000
255,000
1,285,000
1,285,000
1,285,000
1,285,000
1,285,000
1,285,000
1,285,000
1,285,000
2,325,000
2,298,000
2,421,000
2,277,000
3,275,487
3,470,214
3,608,350
4,920,972
2,277,000
4,920,972
6,060,130
$13,068,000
$13,517,000
$15,281,000
$24,363,000
$19,131,243
$19,840,336
$21,686,885
$30,539,141
$24,363,000
$30,539,141
$37,944,661
7,197,000
7,578,000
7,868,000
8,352,000
8,359,943
8,369,266
8,377,518
8,389,053
8,352,000
8,389,053
8,431,772
Retained Earnings (Accumulated Deficit)
2,085,000
2,092,000
1,818,000
1,916,000
1,921,889
1,912,894
1,903,589
2,168,661
1,916,000
2,168,661
3,244,538
Treasury Stock
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(1,837,000)
(174,000)
(328,000)
(296,000)
(239,000)
(239,000)
(239,000)
(239,000)
(239,000)
(239,000)
(239,000)
Accumulated Other Comprehensive Income
Shareholders' Equity
Liabilities & Shareholders' Equity
(239,000)
$7,271,000
$7,505,000
$7,553,000
$8,192,000
$8,205,832
$8,206,160
$8,205,107
$8,481,714
$8,192,000
$8,481,714
$9,600,310
$20,339,000
$21,022,000
$22,834,000
$32,555,000
$27,337,076
$28,046,496
$29,891,992
$39,020,855
$32,555,000
$39,020,855
$47,544,971
Source: Company data, Jefferies estimates
page 35 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 29: Amazon - Cash Flow Statement ($000s)
F2012
Q1 12A
Net Income
Q2 12A
F2013
Q3 12A
Q4 12A
$130,000
$7,000
Depreciation
457,000
485,000
Tax Benefit from Stock Options
(40,000)
(85,000)
Stock-Based Compensation
160,000
217,000
235,000
Deferred Taxes
(38,000)
(43,000)
(36,000)
(148,000)
(2,000)
(2,000)
(4,000)
(1,000)
(Gain) / Loss on Sale of Securities
Other Non-Cash Charges
Funds From Operations
(Inc.) Dec. in Accounts Receivable and Other
(Inc.) Dec. in Inventories
Inc. (Dec.) in Accounts Payable
9,975
235,200
313,820
292,950
305,500
0
0
0
0
(265,000)
0
0
0
0
(9,000)
0
(430,000)
833,000
2,569,706
2,812,790
30,801
34,786
1,147,470
1,434,338
0
0
0
0
0
407,000
0
0
$925,293
$1,212,845
$2,654,000
$4,000,638
$5,483,791
746,000
(166,000)
747,000
(124,000)
180,000
(416,000)
(1,024,000)
(647,000)
(974,000)
326,929
(398,829)
791,007
(368,702)
(79,658)
(2,458,742)
(941,977)
(1,868,930)
(860,000)
(2,610,301)
(1,932,814)
(998,000)
(2,388,601)
(2,081,617)
1,223,000
4,926,000
(4,920,661)
223,551
1,467,845
5,421,057
2,071,000
59,000
96,000
1,412,000
(425,910)
421,392
295,949
3,188,271
382,000
472,000
545,000
509,788
487,998
544,833
754,577
$594,000
(394,973)
(423,848)
$355,000
(373,000)
$4,339,000
(546,000)
($4,113,821)
($58,439)
$943,000
$5,081,000
($3,204,590)
$894,831
(431,280)
(462,077)
(511,650)
2,191,792
3,834,558
1,038,000
3,479,702
2,648,412
1,796,000
2,297,196
3,241,913
(1,521,000)
(1,792,549)
(2,445,363)
$824,915
$4,524,584
$1,526,000
$1,177,239
$3,265,089
$1,750,208
$5,737,429
$4,180,000
$5,177,877
$8,748,880
(386,000)
(657,000)
(716,000)
(2,025,000)
(50,000)
(624,000)
(37,000)
(35,000)
0
0
0
0
(746,000)
0
(680,780)
(783,000)
(719,020)
(3,784,000)
(2,614,080)
(565,000)
(358,000)
(1,528,000)
(2,901,629)
0
0
0
0
0
(3,303,000)
0
1,738,000
1,251,000
742,000
506,000
0
0
0
0
4,237,000
0
0
$450,000
($595,000)
($369,000)
($3,082,000)
($431,280)
($680,780)
($783,000)
($719,020)
($3,596,000)
($2,614,080)
($2,901,629)
(18,000)
(144,000)
2,927,000
0
2,680,000
(85,000)
0
109,000
0
0
0
(233,636)
0
(312,256)
(291,386)
(303,940)
0
0
(851,000)
0
(1,141,218)
(1,426,404)
40,000
85,000
66,000
239,000
0
0
0
0
430,000
0
0
($1,005,000)
$67,000
$31,000
$3,166,000
($233,636)
($312,256)
($291,386)
($303,940)
$2,259,000
($1,141,218)
($1,426,404)
0
0
0
0
($3,869,507)
($98,205)
$675,822
$4,714,469
Effect of Exchange Rate Changes
12,000
Inc. (Dec.) in Cash and Cash Equivalents
632,297
6,688
0
(960,000)
Excess Tax Benefit from Stock Options
634,961
7,759
$953,270
(852,000)
Net Cash Provided by Financing Activities
640,686
6,380
0
($2,438,000)
Proceeds from / (Repurchase of) Common Stock
661,762
2,158,000
$1,075,877
$909,231
Cash Flow from Operations
Debt Issuance / (Repayment)
F2014E
$252,661
136,000
(333,000)
Net Cash Used in Investing Activities
F2013E
($40,000)
$742,000
($2,000)
Proceeds from Sales of Securities and Investments
(239,000)
F2012A
$265,072
197,000
(269,000)
Purchases of Securities and Investments
662,000
(66,000)
Q4 13E
($9,305)
$588,000
($3,166,000)
Acquisitions, Net of Cash Acquired
554,000
Q3 13E
($8,996)
13,000
Change in Net Working Capital
Capital Expenditures
$5,889
$596,000
397,000
Amortization of Unearned Revenue
$97,000
61,000
(529,000)
Addition to Unearned Revenue
Q2 13E
$728,000
(4,258,000)
Inc. (Dec.) in Accrued Expenses and Other
221,000
($274,000)
Q1 13E
($2,981,000)
Beginning Cash and Cash Equivalents
Ending Cash and Cash Equivalents
(19,000)
$47,000
40,000
$645,000
(61,000)
$5,104,000
(28,000)
$2,815,000
0
0
$1,422,579
$4,420,847
5,269,000
2,288,000
2,335,000
2,980,000
8,084,000
4,214,493
4,116,288
4,792,110
5,269,000
8,084,000
9,506,579
$2,288,000
$2,335,000
$2,980,000
$8,084,000
$4,214,493
$4,116,288
$4,792,110
$9,506,579
$8,084,000
$9,506,579
$13,927,426
Source: Company data, Jefferies estimates
Exhibit 30: Amazon - DCF Analysis ($MM)
2012A
Revenue
$61,093
% Y/Y Growth
27%
EBITDA
$3,826
% Margin
6%
% Y/Y Growth
44
Implied Taxes on Operations
($1,685)
% Effective Tax Rate
44%
Capital Expenditures
($3,784)
% Y/Y Growth
109%
Change in Net Working Capital
$1,526
Tax Benefit from NOL Carryforwards
0
Acquisitions Not Yet Reflected on Balance Sheet -Unlevered Free Cash Flow
($117)
NPV at 12/31/12 Valuation Date and 12.0% WACC
Q1 13E
$16,272
23%
$1,079
7%
26
($332)
31%
($431)
12%
($4,114)
0
0
($3,797)
($3,693)
2013
Q2 13E
Q3 13E
$16,007
$17,352
25%
26%
$1,068
$1,024
7%
6%
26
30
($389)
($314)
36%
31%
($681)
($783)
4%
9%
($58)
$825
0
0
0
0
($61)
($57)
$752
$691
Q4 13E
$27,104
27%
$1,695
6%
26
($758)
45%
($719)
(64%)
$4,525
0
0
2014E
$96,335
26%
$6,582
7%
35
($2,365)
36%
($2,902)
11%
$3,265
0
0
$4,742
$4,234
$4,581
$3,865
2015E
$118,214
23%
$7,878
7%
20
($2,617)
33%
($3,192)
10%
$4,618
0
0
2016E
$141,503
20%
$9,724
7%
23
($3,240)
33%
($3,511)
10%
$5,402
0
0
$6,688
$5,038
$8,374
$5,631
Perpetuity Growth Rate / Terminal Value at 12.0% WACC
3.0%
3.5%
4.0%
4.5%
5.0%
$248,663
$264,568
$282,462
$302,741
$325,917
Median DCF Valuation at 12/31/12 Valuation Date
NPV of Cash Flows and Terminal Value
$142,144
Plus: Net Cash
10,677
Implied Equity Value
$152,821
Implied Fully Diluted Shares Outstanding (MM)
463
Implied Equity Value per Share
$330
2017E
$165,423
17%
$11,747
7%
21
($3,931)
33%
($3,862)
10%
$6,306
0
0
2018E
$189,981
15%
$14,126
7%
20
($4,782)
34%
($4,248)
10%
$7,262
0
0
2019E
$214,453
13%
$16,460
8%
17
($5,615)
34%
($4,461)
5%
$8,098
0
0
2020E
$238,738
11%
$18,864
8%
15
($6,472)
34%
($4,684)
5%
$8,758
0
0
2021E
$261,865
10%
$21,336
8%
13
($7,352)
34%
($4,918)
5%
$9,047
0
0
2022E
$287,156
10%
$24,118
8%
13
($8,342)
35%
($5,164)
5%
$9,649
0
0
$10,260
$6,159
$12,357
$6,624
$14,481
$6,930
$16,466
$7,034
$18,113
$6,908
$20,260
$6,899
Implied Terminal Value / Terminal EBITDA Multiple
10.3x
11.0x
11.7x
12.6x
13.5x
$248,663
$264,568
$282,462
$302,741
$325,917
WACC
10%
11%
12%
13%
14%
$355
331
308
287
268
Equity Value per Share
$368
$382
$398
342
355
369
318
330
343
297
307
320
277
287
298
$416
386
358
333
310
Source: Company data, Jefferies estimates
page 36 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
C. eBay Model
Exhibit 31: eBay - Income Statement ($000s)
F2012
Q1 12A
Net Revenues
% Y/Y Growth
Q2 12A
$3,277,000
29%
Cost of Net Revenues
F2013
Q3 12A
$3,398,000
23%
$3,404,000
15%
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
$3,992,000
18%
$3,749,989
14%
$3,956,527
16%
$4,012,053
18%
$4,768,613
19%
$14,071,000
21%
$16,487,182
17%
$19,523,884
18%
948,000
954,000
989,000
1,192,000
1,090,455
1,118,722
1,173,688
1,426,054
4,083,000
4,808,919
5,694,653
$2,329,000
71.1%
$2,444,000
71.9%
$2,415,000
70.9%
$2,800,000
70.1%
$2,659,534
70.9%
$2,837,806
71.7%
$2,838,365
70.7%
$3,342,559
70.1%
$9,988,000
71.0%
$11,678,263
70.8%
$13,829,231
70.8%
647,000
344,000
321,000
134,000
683,000
357,000
346,000
131,000
691,000
355,000
326,000
148,000
757,000
379,000
391,000
168,000
723,510
386,000
369,000
144,375
789,330
411,000
382,000
147,183
806,409
429,000
390,000
169,435
897,046
447,000
405,000
190,745
2,778,000
1,435,000
1,384,000
581,000
3,216,294
1,673,000
1,546,000
651,736
3,759,879
1,973,000
1,726,000
757,527
Adjusted Operating Income / (Loss)
$883,000
% Margin
26.9%
% Y/Y Growth
(9)
EBITDA
$1,059,000
% Margin
32.3%
% Y/Y Growth
(7)
$927,000
27.3%
5
$1,114,000
32.8%
5
$895,000
26.3%
(3)
$1,103,000
32.4%
(1)
$1,105,000
27.7%
23
$1,323,000
33.1%
20
$1,036,649
27.6%
(6)
$1,254,367
33.4%
(5)
$1,108,294
28.0%
7
$1,321,475
33.4%
5
$1,043,522
26.0%
(6)
$1,256,780
31.3%
(5)
$1,402,769
29.4%
34
$1,618,235
33.9%
29
$3,810,000
27.1%
20
$4,599,000
32.7%
21
$4,591,232
27.8%
21
$5,450,857
33.1%
19
$5,612,825
28.7%
22
$6,713,098
34.4%
23
Total Gross Profit
% Margin
Sales and Marketing
Product Development
General and Administrative
Provision for Transaction & Loan Losses
Net Interest (Income) and Other (Income)
Adjusted Pre-Tax Profit / (Loss)
% Effective Tax Rate
4,513
3,084
2,152
$908,000
20%
(25,000)
$960,000
24%
$894,000
20%
$1,134,000
18%
$1,032,135
21%
$1,105,209
22%
$1,041,370
22%
$1,493,859
21%
$3,896,000
20%
$4,672,574
22%
$5,703,368
22%
114,000
69,000
159,000
71,000
75,000
101,000
126,000
81,000
168,325
47,020
199,254
48,394
185,583
47,328
266,797
48,556
474,000
322,000
819,960
191,298
1,083,927
180,020
$725,000
22%
(8)
$730,000
21%
1
$718,000
21%
(2)
$927,000
23%
29
$816,790
22%
(12)
$857,561
22%
5
$808,459
20%
(6)
$1,178,506
25%
46
$3,100,000
22%
16
$3,661,316
22%
18
$4,439,422
23%
21
Provision / (Benefit) for Income Taxes
Tax Adjustments for Non-GAAP Items
Operating Net Income / (Loss)
% Margin
% Y/Y Growth
(33,000)
Amortization of Acquired Intagible Assets
105,000
Stock-Based Compensation
111,000
Employer Payroll Taxes on Stock Options Gains 14,000
1x Charges
0
(Gain) / Loss on Sale of Investments
(6,000)
Tax Effect of Non-GAAP Entries
103,000
127,000
2,000
(5,000)
(118,000)
(69,000)
Reported GAAP Net Income / (Loss)
% Margin
% Y/Y Growth
Weighted Avg. Diluted Shares Outstanding
1,000
(29,000)
103,000
122,000
3,000
(2,000)
(4,000)
(71,000)
101,000
127,000
3,000
30,000
(4,000)
(101,000)
$0
100,000
121,101
14,000
0
(35,000)
(81,000)
98,000
140,970
3,000
0
(35,000)
(47,020)
(91,091)
97,000
136,640
3,000
0
(35,000)
(48,394)
95,000
144,780
3,000
0
(35,000)
(47,328)
(48,556)
(86,000)
412,000
487,000
22,000
23,000
(132,000)
(322,000)
(81,341)
390,000
543,491
23,000
0
(140,000)
(191,298)
(90,544)
300,000
576,100
24,000
0
(120,000)
(180,020)
$570,000
17%
(71)
$692,000
20%
21
$597,000
18%
(14)
$751,000
19%
26
$663,709
18%
(12)
$698,985
18%
5
$654,147
16%
(6)
$1,019,282
21%
56
$2,610,000
19%
(19)
$3,036,123
18%
16
$3,839,341
20%
26
1,308,000
1,309,000
1,314,000
1,318,000
1,327,162
1,328,233
1,329,681
1,332,031
1,312,250
1,329,277
1,337,219
Operating EPS
% Q/Q Growth
$0.55
(8%)
$0.56
1%
$0.55
(2%)
$0.70
29%
$0.62
(12%)
$0.65
5%
$0.61
(6%)
$0.88
46%
$2.36
16%
$2.75
17%
$3.32
21%
Reported GAAP EPS
% Q/Q Growth
$0.44
(71%)
$0.53
21%
$0.45
(14%)
$0.57
25%
$0.50
(12%)
$0.53
5%
$0.49
(7%)
$0.77
56%
$1.99
(19%)
$2.28
15%
$2.87
26%
Source: Company data, Jefferies estimates
Exhibit 32: eBay - Revenue Build ($000s)
F2012
Q1 12A
Total Net Revenues
% Y/Y Growth
Marketplaces
% Y/Y Growth
% of Total Net Revenues
$3,277,000
28.7%
F2013
Q2 12A
$3,398,000
23.1%
Q3 12A
$3,404,000
14.8%
Q4 12A
$3,992,000
18.1%
Q1 13E
$3,749,989
14.4%
Q2 13E
$3,956,527
16.4%
Q3 13E
$4,012,053
17.9%
Q4 13E
$4,768,613
19.5%
F2012A
$14,071,000
20.8%
F2013E
F2014E
$16,487,182
17.2%
$19,523,884
18.4%
1,728,000
11.2%
52.7%
1,814,000
9.1%
53.4%
1,806,000
9.3%
53.1%
2,050,000
15.7%
51.4%
1,909,221
10.5%
50.9%
2,023,710
11.6%
51.1%
2,026,036
12.2%
50.5%
2,337,864
14.0%
49.0%
7,398,000
11.4%
52.6%
8,296,831
12.1%
50.3%
9,539,188
15.0%
48.9%
1,425,000
10.9%
1,491,000
10.5%
1,490,000
10.1%
1,672,000
15.8%
1,588,950
11.5%
1,667,118
11.8%
1,674,960
12.4%
1,916,016
14.6%
6,078,000
11.9%
6,847,044
12.7%
7,935,724
15.9%
Marketing Services & Other Revenues 303,000
% Y/Y Growth
12.8%
323,000
2.9%
316,000
5.6%
378,000
14.9%
320,271
5.7%
356,592
10.4%
351,076
11.1%
421,848
11.6%
1,320,000
9.0%
1,449,787
9.8%
1,603,464
10.6%
1,309,000
31.9%
39.9%
1,357,000
26.5%
39.9%
1,366,600
23.4%
40.1%
1,541,000
24.3%
38.6%
1,593,768
21.8%
42.5%
1,689,817
24.5%
42.7%
1,736,017
27.0%
43.3%
1,963,749
27.4%
41.2%
5,573,600
26.3%
39.6%
6,983,351
25.3%
42.4%
8,592,211
23.0%
44.0%
1,216,000
29.0%
1,234,000
24.5%
1,264,400
22.4%
1,432,000
23.8%
1,482,912
22.0%
1,538,798
24.7%
1,603,259
26.8%
1,821,504
27.2%
5,146,400
24.8%
6,446,473
25.3%
7,935,609
23.1%
93,000
87.4%
123,000
50.2%
102,200
37.4%
109,000
31.4%
110,856
19.2%
151,019
22.8%
132,758
29.9%
142,245
30.5%
427,200
47.9%
536,878
25.7%
656,602
22.3%
3,000
6,000
5,400
77.9%
3,000
-35.5%
5,000
66.7%
5,000
-16.7%
5,000
-7.4%
5,000
66.7%
17,400
126.4%
20,000
14.9%
21,500
7.5%
237,000
15.0%
7.2%
221,000
9.0%
6.5%
226,000
11.5%
6.6%
398,000
9.5%
10.0%
242,000
2.1%
6.5%
238,000
7.7%
6.0%
245,000
8.4%
6.1%
462,000
16.1%
9.7%
1,082,000
83.4%
7.7%
1,187,000
9.7%
7.2%
1,370,985
15.5%
7.0%
Transaction Revenues
% Y/Y Growth
Payments
% Y/Y Growth
% of Total Net Revenues
Transaction Revenues
% Y/Y Growth
Marketing Services & Other Revenues
% Y/Y Growth
Other Revenue
% Y/Y Growth
GSI Commerce
% Y/Y Growth
% of Total Net Revenues
Source: Company data, Jefferies estimates
page 37 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 33: eBay - Metrics ($000s)
F2012
Q1 12A
F2013
Q2 12A
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
$75,376,000
$85,617,237
$98,753,917
Marketplaces Metrics
Gross Merchandise Volume (GMV) $18,077,000
% Y/Y Growth
US GMV
% Y/Y Growth
% of Total GMV
International GMV
% Y/Y Growth
Mobile GMV
% Y/Y Growth
Mobile as % of Total
Fixed-Price GMV (excl Vehicles)
$18,192,000
$18,275,000
$20,832,000
$20,222,000
$20,548,113
$20,815,612
$24,031,512
9.3%
7.5%
8.7%
13.5%
11.9%
13.0%
13.9%
15.4%
$7,610,417
$7,586,064
$7,803,425
$8,499,456
$8,695,460
$8,835,689
$9,158,869
$10,093,235
$31,499,362
$36,783,253
$42,760,446
8.7%
8.6%
11.3%
14.9%
14.3%
16.5%
17.4%
18.8%
10.9%
16.8%
16.2%
42%
43%
42%
42%
43%
41%
43%
43%
44%
42%
9.8%
13.6%
15.3%
43%
$10,466,583
$10,605,936
$10,471,575
$12,332,544
$11,526,540
$11,712,425
$11,656,743
$13,938,277
$43,876,638
$48,833,984
$55,993,471
9.6%
6.8%
6.8%
12.6%
10.1%
10.4%
11.3%
13.0%
9.0%
11.3%
14.7%
$1,950,000
$2,350,000
$3,250,000
$5,350,000
$3,500,000
$3,700,000
$5,050,000
$7,800,000
$12,900,000
$20,050,000
$27,067,500
169.0%
161.1%
160.0%
170.9%
79.5%
57.4%
55.4%
45.8%
166.0%
55.4%
35.0%
10.8%
12.9%
17.8%
25.7%
17.3%
18.0%
24.3%
32.5%
17.1%
23.4%
27.4%
$11,100,000
$11,300,000
$11,700,000
$13,700,000
$13,144,300
$13,459,014
$13,738,304
$16,187,206
$47,800,000
$56,528,824
$67,152,664
16.8%
15.3%
15.8%
21.2%
18.4%
19.1%
17.4%
18.2%
17.4%
18.3%
18.8%
Fixed-Price as % of Total GMV
61%
62%
64%
66%
65%
66%
66%
67%
63.4%
66.0%
68.0%
Fixed-Price as % of Non-Vehicle GMV
68%
70%
72%
72%
70%
72%
72%
73%
71%
72%
73%
Marketplaces Transaction Revenue ($'000)
$1,425,000
$1,491,000
$1,490,000
$1,672,000
$1,588,950
$1,667,118
$1,674,960
$1,916,016
$6,078,000
$6,847,044
$7,935,724
10.5%
10.1%
15.8%
11.5%
11.8%
12.4%
14.6%
11.9%
12.7%
15.9%
6,241,000
13.7%
-2.0%
34.3%
6,479,000
15.9%
3.8%
35.5%
7,338,000
19.2%
13.3%
35.2%
7,359,096
15.6%
0.3%
36.4%
7,252,042
16.2%
-1.5%
35.3%
7,606,346
17.4%
4.9%
36.5%
8,592,798
17.1%
13.0%
35.8%
$26,424,000
15.6%
-35.1%
$30,810,282
16.6%
-36.0%
$35,770,737
16.1%
-36.2%
9,930,000
8.0%
16.0%
0.9%
54.6%
9,801,000
8.0%
15.0%
-1.3%
53.6%
11,767,000
13.9%
11,296,320
14.8%
11,439,360
15.2%
11,349,558
15.8%
13,673,254
16.2%
$41,338,000
10.3%
$47,758,492
15.5%
$56,402,779
18.1%
20.1%
56.5%
-4.0%
55.9%
1.3%
55.7%
-0.8%
54.5%
20.5%
56.9%
-54.8%
-55.8%
-57.1%
2,021,000
-9.7%
-7.0%
8.0%
11.1%
1,994,000
-7.2%
-5.0%
-1.3%
10.9%
1,727,000
-7.3%
1,566,584
-16.3%
1,856,711
-8.1%
1,859,708
-6.7%
1,765,460
2.2%
$7,613,000
-8.3%
$7,048,463
-7.4%
$6,580,401
-6.6%
-13.4%
8.3%
-9.3%
7.7%
18.5%
9.0%
0.2%
8.9%
-5.1%
7.3%
-10.1%
-8.2%
-6.7%
102,400
6.8%
104,800
7.8%
108,300
9.7%
112,300
11.9%
112,128
9.5%
114,756
9.5%
118,589
9.5%
122,969
9.5%
112,300
12%
122,969
10%
$33,857,000
$34,451,000
$35,159,000
$41,471,000
$43,487,155
$45,126,041
$46,606,372
$53,260,351
$144,938,000
$188,479,919
23.7%
19.9%
20.1%
24.3%
28.4%
31.0%
32.6%
28.4%
22.0%
30.0%
24.9%
$11,424,000
$11,337,000
$11,455,000
$13,444,000
$14,792,591
$14,869,031
$15,209,990
$17,322,440
$47,660,000
$62,194,051
$77,707,739
% Y/Y Growth
16.6%
14.7%
14.9%
17.8%
29.5%
31.2%
32.8%
28.8%
16.1%
30.5%
24.9%
% Y/Y Growth (FX-Neutral)
18.0%
18.0%
18.0%
18.0%
% Y/Y Growth
% Y/Y Growth
10.9%
US Marketplaces, ex-Vehicles
US GMV ex-Vehicles
6,366,000
Y/Y Growth
13.1%
Q/Q Growth
3.4%
% of Total
35.2%
International Marketplaces, ex-Vehicles
Int'l GMV ex-Vehicles
9,840,000
Y/Y Growth
11.0%
FX-neutral Y/Y Growth
13.0%
Q/Q Growth
-4.8%
% of Total
54.4%
Global Marketplaces, Vehicles
Vehicles GMV
1,871,000
Y/Y Growth
-8.7%
FX-neutral Y/Y Growth
-8.0%
Q/Q Growth
0.4%
% of Total
10.4%
Active Users ('000)
% Y/Y Growth
Payments Metrics
Total Payment Volume ($'000)
% Y/Y Growth
On-eBay Volume
% of Total Payment Volume
Merchant Services (Off-eBay) Volume
33.7%
32.9%
32.6%
32.4%
34.0%
33.0%
32.6%
32.5%
32.9%
33.0%
$235,477,997
33.0%
$22,433,000
$23,114,000
$23,704,000
$28,027,000
$28,694,565
$30,257,011
$31,396,383
$35,937,911
$97,278,000
$126,285,868
$157,770,258
% Y/Y Growth
27.7%
22.5%
22.7%
27.6%
27.9%
30.9%
32.5%
28.2%
25.2%
29.8%
24.9%
% Y/Y Growth (FX-Neutral)
28.0%
26.0%
26.0%
28.0%
$650,000
$696,000
$775,000
$1,034,000
$927,756
$1,027,992
$1,154,750
$1,558,238
$3,155,000
$4,668,736
$6,256,106
50.8%
39.5%
36.9%
30.9%
42.7%
47.7%
49.0%
50.7%
38.0%
48.0%
34.0%
$1,825,000
$2,625,000
$3,525,000
$5,750,000
$4,100,000
$4,250,000
$4,900,000
$6,772,500
$13,725,000
$20,022,500
$27,030,375
247.6%
238.7%
235.7%
228.6%
124.7%
61.9%
39.0%
17.8%
234.8%
45.9%
35.0%
5.4%
7.6%
10.0%
13.9%
9.4%
9.4%
10.5%
12.7%
9.5%
10.6%
11.5%
3.87%
3.94%
3.89%
3.72%
150,633
Bill Me Later TPV
% Y/Y Growth
Mobile TPV
% Y/Y Growth
Mobile as % of Total
Transaction Take Rate
Transaction Expense Rate
1.07%
1.07%
1.07%
1.03%
Transaction Loss Rate
0.26%
0.26%
0.30%
0.28%
Transaction Margin
65.6%
66.3%
64.8%
64.7%
Active Registered Accounts ('000)
% Y/Y Growth
Net Number of Payments ('000)
% Y/Y Growth
Transaction Average Size
% Y/Y Growth
109,800
113,200
117,400
122,700
123,470
126,841
130,373
136,320
122,700
136,320
12.4%
12.9%
14.0%
15.4%
12.5%
12.1%
11.1%
11.1%
15.4%
11.1%
10.5%
555,700
564,800
589,200
691,700
711,296
720,685
741,803
851,483
2,401,400
3,025,266
3,678,468
30.9%
30.7%
28.3%
26.2%
28.0%
$60.93
$61.00
$59.67
$59.96
$61.14
27.6%
$62.62
25.9%
$62.83
23.1%
28.8%
26.0%
$62.55
$60.36
$62.30
21.6%
$64.02
-5.5%
-8.3%
-6.4%
-1.5%
0.3%
2.7%
5.3%
4.3%
-5.3%
3.2%
2.8%
Payments Transaction Revenue ($'000)
$1,216,000
$1,234,000
$1,264,400
$1,432,000
$1,482,912
$1,538,798
$1,603,259
$1,821,504
$5,146,400
$6,446,473
$7,935,609
% Y/Y Growth
29.0%
24.5%
22.4%
23.8%
21.9%
24.7%
26.8%
27.2%
24.8%
25.3%
23.1%
Payments Take Rate
3.59%
3.58%
3.60%
3.45%
3.41%
3.41%
3.44%
3.42%
3.55%
3.42%
3.37%
Source: Company data, Jefferies estimates
page 38 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 34: eBay - Balance Sheet ($000s)
F2012
Q1 12A
Q2 12A
F2013
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
Cash & Cash Equivalents
Short-Term Marketable Securities
Accounts Receivable
Funds Receivable
Other Current Assets
Current Assets
$4,164,000
1,707,000
633,000
5,857,000
728,000
$13,089,000
$4,038,000
1,716,000
648,000
5,916,000
960,000
$13,278,000
$7,331,000
1,804,000
694,000
6,599,000
982,000
$17,410,000
$6,817,000
2,591,000
822,000
10,254,000
1,099,000
$21,583,000
$8,370,032
2,591,000
764,381
7,271,979
680,313
$19,677,705
$9,103,123
2,591,000
806,915
7,674,872
723,628
$20,899,538
$9,861,897
2,591,000
818,679
7,784,988
749,526
$21,806,090
$10,235,729
2,591,000
973,493
9,256,599
810,627
$23,867,448
$6,817,000
2,591,000
822,000
10,254,000
1,099,000
$21,583,000
$10,235,729
2,591,000
973,493
9,256,599
810,627
$23,867,448
$14,198,683
2,591,000
1,152,796
10,961,532
939,807
$29,843,818
Property and Equipment
Long-Term Investments
Goodwill
Other Intangibles
Other Assets
Total Assets
2,109,000
2,861,000
8,440,000
1,316,000
392,000
$28,207,000
2,238,000
2,630,000
8,417,000
1,272,000
423,000
$28,258,000
2,393,000
2,500,000
8,492,000
1,234,000
473,000
$32,502,000
2,491,000
3,044,000
8,537,000
1,128,000
491,000
$37,274,000
2,539,530
3,053,000
8,537,000
1,028,000
504,068
$35,339,304
2,725,958
3,062,000
8,537,000
930,000
536,149
$36,690,645
2,933,966
3,071,000
8,537,000
833,000
555,324
$37,736,380
3,174,727
3,172,000
8,537,000
738,000
600,606
$40,089,781
2,491,000
3,044,000
8,537,000
1,128,000
491,000
$37,274,000
3,174,727
3,172,000
8,537,000
738,000
600,606
$40,089,781
3,863,020
3,292,000
8,537,000
438,000
696,317
$46,670,155
Accounts Payable
Funds Payable & Amounts Due to Customers
Accrued Expenses & Other Liabilities
Deferred Revenue
Short-Term Debt
Income Taxes Payable
Total Current Liabilities
$325,000
4,340,000
1,530,000
135,000
564,000
71,000
$6,965,000
$257,000
4,295,000
1,468,000
137,000
564,000
79,000
$6,800,000
$271,000
4,807,000
1,776,000
132,000
12,000
63,000
$7,061,000
$301,000
8,094,000
2,058,000
137,000
413,000
63,000
$11,066,000
$299,472
5,296,484
2,038,606
145,500
413,000
228,524
$8,421,586
$307,970
5,589,782
2,163,794
153,513
413,000
258,149
$8,886,208
$323,874
5,669,833
2,260,068
155,668
413,000
238,408
$9,060,850
$394,729
6,742,912
2,452,263
185,160
13,000
316,041
$10,104,104
$301,000
8,094,000
2,058,000
137,000
413,000
63,000
$11,066,000
$394,729
6,742,912
2,452,263
185,160
13,000
316,041
$10,104,104
$467,432
7,984,859
2,843,051
219,264
861,000
395,012
$12,770,618
Long-Term Debt
Deferred Tax Liabilities
Other Liabilities
Total Liabilities
1,521,000
946,000
66,000
$9,498,000
1,518,000
956,000
72,000
$9,346,000
4,506,000
945,000
77,000
$12,589,000
4,106,000
1,020,000
207,000
$16,399,000
4,106,000
1,020,000
90,882
$13,638,468
4,106,000
1,020,000
106,538
$14,118,746
4,106,000
1,020,000
120,613
$14,307,463
4,106,000
1,020,000
187,372
$15,417,476
4,106,000
1,020,000
207,000
$16,399,000
4,106,000
1,020,000
187,372
$15,417,476
3,258,000
1,020,000
217,231
$17,265,849
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Treasury Stock
Accumulated Other Comprehensive Income
Shareholders' Equity
11,281,000
13,959,000
(7,395,000)
864,000
$18,709,000
11,547,000
14,651,000
(7,750,000)
464,000
$18,912,000
11,813,000
15,248,000
(7,797,000)
649,000
$19,913,000
12,059,000
16,220,000
(8,053,000)
649,000
$20,875,000
12,076,752
17,028,084
(8,053,000)
649,000
$21,700,836
12,101,647
17,874,251
(8,053,000)
649,000
$22,571,899
12,135,084
18,697,833
(8,053,000)
649,000
$23,428,917
12,168,445
19,907,860
(8,053,000)
649,000
$24,672,305
12,059,000
16,220,000
(8,053,000)
649,000
$20,875,000
12,168,445
19,907,860
(8,053,000)
649,000
$24,672,305
12,303,579
24,504,728
(8,053,000)
649,000
$29,404,307
Liabilities & Shareholders' Equity
$28,207,000
$28,258,000
$32,502,000
$37,274,000
$35,339,304
$36,690,645
$37,736,380
$40,089,781
$37,274,000
$40,089,781
$46,670,155
Source: Company data, Jefferies estimates
Exhibit 35: eBay - Cash Flow Statement ($000s)
F2012
Q1 12A
Net Income
Depreciation
Amortization
Tax Benefit from Stock Options
Stock-Based Compensation
Earnings in Unconsolidated Equity Interests
Provision for Transaction Losses
Other Non-Cash Charges
Funds From Operations
(Inc.) Dec. in Accounts Receivable
(Inc.) Dec. in Funds Receivable
(Inc.) Dec. in Other Current Assets
(Inc.) Dec. in Other Long-Term Assets
Inc. (Dec.) in Accounts Payable
Inc. (Dec.) in Funds Payable
Inc. (Dec.) in Accrued and Other Liabilities
Inc. (Dec.) in Deferred Revenue
Inc. (Dec.) in Income Taxes Payable
Change in Net Working Capital
Cash Flow from Operations
$570,000
176,000
105,000
0
111,000
0
134,000
0
$1,096,000
Q2 12A
$692,000
187,000
103,000
0
127,000
0
131,000
(118,000)
$1,122,000
0
0
0
0
0
0
0
0
0
($565,000)
0
0
0
0
0
0
0
0
0
($354,000)
F2013
Q3 12A
Q4 12A
$597,000
208,000
103,000
0
122,000
0
148,000
0
$1,178,000
$751,000
218,000
101,000
0
127,000
0
168,000
9,000
$1,374,000
$663,709
217,719
100,000
8,986
121,101
(9,000)
144,375
0
$1,246,890
$698,985
213,181
98,000
8,210
140,970
(9,000)
147,183
0
$1,297,529
$654,147
213,258
97,000
5,941
136,640
(9,000)
169,435
0
$1,267,421
$1,019,282
215,467
95,000
5,749
144,780
(101,000)
190,745
0
$1,570,023
$2,610,000
789,000
412,000
0
487,000
0
581,000
(109,000)
$4,770,000
$3,036,123
859,625
390,000
28,887
543,491
(128,000)
651,736
0
$5,381,862
$3,839,341
1,100,273
300,000
26,041
576,100
(120,000)
757,527
0
$6,479,282
0
0
0
0
0
0
0
0
0
$12,000
57,619
2,982,021
418,687
(13,068)
(1,528)
(2,797,516)
(135,512)
8,500
165,524
$684,726
(42,533)
(402,893)
(43,315)
(32,081)
8,498
293,297
140,845
8,014
29,624
($40,543)
(11,764)
(110,116)
(25,898)
(19,176)
15,903
80,051
110,349
2,154
(19,741)
$21,763
(154,814)
(1,471,612)
(61,101)
(45,281)
70,855
1,073,078
258,953
29,492
77,634
($222,795)
0
0
0
0
0
0
0
0
0
($931,000)
(151,493)
997,401
288,373
(109,606)
93,729
(1,351,088)
374,634
48,160
253,041
$443,151
(179,303)
(1,704,932)
(129,180)
(95,711)
72,703
1,241,947
420,647
34,104
78,971
($260,755)
0
0
0
0
0
0
0
0
0
($24,000)
$531,000
$768,000
Capital Expenditures
Acquisitions, Net of Cash Acquired
Purchases of Securities and Investments
Proceeds from Divested Business / Sales of PP&E
Proceeds from Sales of Securities and Investments
Other
Net Cash Used in Investing Activities
(242,000)
(3,000)
(1,051,000)
0
408,000
(5,000)
($893,000)
(357,000)
(130,000)
(328,000)
144,000
221,000
(131,000)
($581,000)
Debt Issuance / (Repayment)
Proceeds from / (Repurchase of) Common Stock
Excess Tax Benefit from Stock Options
Other
Net Cash Provided by Financing Activities
0
(155,000)
54,000
(118,000)
($219,000)
0
(215,000)
14,000
(14,000)
($215,000)
2,426,000
87,000
27,000
(24,000)
$2,516,000
0
(132,000)
35,000
(34,000)
($131,000)
Effect of Exchange Rate Changes
Inc. (Dec.) in Cash and Cash Equivalents
54,000
($527,000)
(98,000)
($126,000)
53,000
$3,293,000
90,000
($514,000)
Beginning Cash and Cash Equivalents
Ending Cash and Cash Equivalents
4,691,000
$4,164,000
4,164,000
$4,038,000
$1,154,000
$1,386,000
(362,000)
(296,000)
(10,000)
0
(126,000)
(1,658,000)
0
0
309,000
483,000
(241,000)
(388,000)
($430,000) ($1,859,000)
4,038,000
$7,331,000
7,331,000
$6,817,000
Q1 13E
$1,931,616
Q2 13E
$1,256,985
Q3 13E
$1,289,184
Q4 13E
$1,347,227
F2012A
F2013E
F2014E
$3,839,000
$5,825,013
$6,218,528
(266,249)
0
0
0
0
0
($266,249)
(399,609)
0
0
0
0
0
($399,609)
(421,266)
0
0
0
0
0
($421,266)
(456,227)
0
0
0
0
0
($456,227)
(1,257,000)
(143,000)
(3,163,000)
144,000
1,421,000
(765,000)
($3,763,000)
(1,543,351)
0
0
0
0
0
($1,543,351)
(1,788,567)
0
0
0
0
0
($1,788,567)
0
(112,335)
0
0
($112,335)
0
(124,285)
0
0
($124,285)
0
(109,145)
0
0
($109,145)
(400,000)
(117,168)
0
0
($517,168)
2,426,000
(415,000)
130,000
(190,000)
$1,951,000
(400,000)
(462,932)
0
0
($862,932)
0
(467,007)
0
0
($467,007)
0
$1,553,032
0
$733,091
0
$758,773
0
$373,832
99,000
$2,126,000
0
$3,418,729
0
$3,962,954
6,817,000
$8,370,032
8,370,032
$9,103,123
9,103,123
9,861,897
$9,861,897 $10,235,729
4,691,000
$6,817,000
6,817,000
$10,235,729
10,235,729
$14,198,683
Source: Company data, Jefferies estimates
page 39 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 36: eBay - DCF Analysis ($MM)
Revenue
% Y/Y Growth
2012A
$14,071
21%
Q1 13E
$3,750
14%
2013
Q2 13E
Q3 13E
$3,957
$4,012
16%
18%
Q4 13E
$4,769
19%
2014E
$19,524
18%
2015E
$23,310
19%
2016E
$27,135
16%
2017E
$30,813
14%
2018E
$34,319
11%
2019E
$37,615
10%
2020E
$40,535
8%
2021E
$42,944
6%
2022E
$45,110
5%
EBITDA
% Margin
% Y/Y Growth
$4,599
33%
21
$1,254
33%
18
$1,321
33%
19
$1,257
31%
14
$1,618
34%
22
$6,713
34%
23
$8,209
35%
22
$9,859
36%
20
$11,545
37%
17
$13,292
39%
15
$15,060
40%
13
$16,816
41%
12
$18,392
43%
9
$19,901
44%
8
($940)
20%
($262)
21%
($296)
22%
($281)
22%
($342)
21%
($1,488)
22%
($1,831)
22%
($2,203)
22%
($2,582)
22%
($2,971)
22%
($3,365)
22%
($3,754)
22%
($4,097)
22%
($4,423)
22%
Capital Expenditures
($1,257)
% Y/Y Growth
30%
Change in Net Working Capital
($931)
Tax Benefit from NOL Carryforwards
0
Acquisitions Not Yet Reflected on Balance Sheet--
($266)
10%
$685
0
0
($400)
12%
($41)
0
0
($421)
18%
$22
0
0
($456)
54%
($223)
0
0
($1,789)
16%
($261)
0
0
($2,089)
17%
($335)
0
0
($2,377)
14%
($350)
0
0
($2,638)
11%
($344)
0
0
($2,869)
9%
($337)
0
0
($3,070)
7%
($324)
0
0
($3,227)
5%
($295)
0
0
($3,333)
3%
($248)
0
0
($3,411)
2%
($229)
0
0
$585
$552
$576
$528
$598
$532
$3,955
$2,959
$4,929
$3,283
$5,982
$3,548
$7,114
$3,758
Implied Taxes on Operations
% Effective Tax Rate
Unlevered Free Cash Flow
$1,471
NPV at 12/31/12 Valuation Date and 12.3% WACC
$1,411
$1,371
$3,176
$2,669
Perpetuity Growth Rate / Terminal Value at 12.3% WACC
3.0%
3.5%
4.0%
4.5%
5.0%
$138,851
$147,452
$157,090
$167,964
$180,327
Median DCF Valuation at 12/31/12 Valuation Date
NPV of Cash Flows and Terminal Value
$81,463
Plus: Cash and Equivalents
7,933
Implied Equity Value
$89,396
Implied Fully Diluted Shares Outstanding (MM)
1,353
Implied Equity Value per Share
$66
$8,301
$3,904
$9,540
$3,994
$10,714
$3,994
$11,838
$3,930
Implied Terminal Value / Terminal EBITDA Multiple
7.0x
7.4x
7.9x
8.4x
9.1x
$138,851
$147,452
$157,090
$167,964
$180,327
WACC
10%
11%
12%
13%
14%
$71
66
62
58
55
Equity Value per Share
$73
$76
$78
68
71
73
64
66
68
60
62
64
56
58
60
$82
76
71
66
62
Source: Company data, Jefferies estimates
page 40 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
D. Google Model
Exhibit 37: Google - Income Statement ($000s)
F2012
Q1 12A
Reported Gross Revenue (incl. TAC) $10,645,000
% Y/Y Growth
24%
% Q/Q Growth
1
Cost of Revenue
Traffic Acquisition Costs (TAC)
% of Advertising Gross Revenue
Net Revenue (excl. TAC)
% Y/Y Growth
% Q/Q Growth
Consensus
Additional Cost of Net Revenue
Total Gross Profit
% Margin
Research and DDvelopment
Sales and Marketing
General and Administrative
Total Stock Compensation Expense
3,715,000
2,510,000
24.5%
$8,135,000
24%
0
1,205,000
$6,930,000
85.2%
1,142,000
1,172,000
671,000
556,000
F2013
Q2 12A
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
$12,214,000
35%
15
$14,101,000
45%
15
$14,419,000
36%
2
$14,657,380
38%
2
$14,902,794
22%
2
$15,499,933
10%
4
$16,970,802
18%
9
$51,379,000
36%
--
$62,030,909
21%
--
$72,348,984
17%
--
4,926,000
2,600,000
24.7%
6,443,000
2,770,000
25.5%
6,108,000
3,080,000
25.5%
6,051,272
3,208,564
26.1%
6,036,170
3,169,692
25.3%
6,161,219
3,268,120
25.0%
6,450,628
3,425,790
23.9%
20,928,405
10,960,000
25.1%
24,699,290
13,072,166
25.0%
27,092,635
15,086,994
24.6%
$11,331,000
51%
18
-
$11,339,000
39%
0
12,360
$11,433,816
41%
1
--
$11,718,102
22%
2
12,296
$12,216,813
8%
4
--
$13,530,012
19%
11
--
$40,419,000
39%
-41,415
$48,898,743
21%
---
$57,261,990
17%
---
$9,614,000
39%
18
#DIV/0!
2,326,000
$7,288,000
75.8%
1,294,000
1,313,000
820,000
658,000
3,673,000
$7,658,000
67.6%
1,631,000
1,605,000
924,000
762,000
3,049,000
$8,290,000
73.1%
1,571,000
1,621,000
1,017,000
708,000
3,019,596
$8,414,220
73.6%
1,581,000
1,572,937
1,027,000
706,120
2,984,722
$8,733,380
74.5%
1,596,000
1,576,925
1,067,000
789,600
2,936,130
$9,280,683
76.0%
1,626,000
1,706,039
1,122,000
914,400
2,990,919
$10,539,094
77.9%
1,657,000
1,907,163
1,209,000
870,840
10,253,000
$30,166,000
74.6%
5,638,000
5,711,000
3,432,000
2,684,000
11,931,366
$36,967,377
75.6%
6,460,000
6,763,063
4,425,000
3,280,960
12,440,477
$44,821,513
78.3%
7,135,000
7,490,298
4,560,000
3,543,437
Adjusted Operating Income (excl. stock$3,945,000
comp.)
% Margin
48%
% Y/Y Growth
22
% Q/Q Growth
(2)
% Margin
42%
$3,861,000
40%
16
(2)
33%
$3,498,000
31%
(4)
(9)
24%
$4,081,000
36%
1
17
30%
$4,233,283
37%
7
4
31%
$4,493,456
38%
16
6
32%
$4,826,644
40%
38
7
32%
$5,765,931
43%
41
19
36%
$15,385,000
38%
8
-31%
$19,319,314
40%
26
-33%
$25,636,215
45%
33
-39%
EBITDA
% Margin
% Y/Y Growth
% Q/Q Growth
$4,531,000
47%
20
2
$4,326,000
38%
5
(5)
$5,034,000
44%
11
16
$5,231,136
46%
17
4
$5,525,079
47%
22
6
$5,899,888
48%
36
7
$6,955,915
51%
38
18
$18,347,000
45%
14
--
$23,612,018
48%
29
--
$29,457,436
51%
25
--
Net Interest (Income) and Other (Income)
Adjusted Pre-Tax Profit / (Loss)
% Effective Tax Rate
Provision / (Benefit) for Income Taxes
Tax Adjustments for Non-GAAP Items
Minority Interest
Operating Net Income / (Loss)
% Margin
% Y/Y Growth
% Q/Q Growth
Stock-Based Compensation
Tax Effect of Non-GAAP Entries
Reported GAAP Net Income / (Loss)
% Margin
% Y/Y Growth
% Q/Q Growth
$4,456,000
55%
23
(2)
(156,000)
$4,101,000
18.8%
655,000
118,000
0
$3,328,000
41%
26
6
556,000
(118,000)
$2,890,000
36%
61
7
(254,000)
$4,115,000
18.7%
672,000
97,000
0
$3,346,000
35%
17
1
658,000
(97,000)
$2,785,000
29%
11
(4)
(63,000)
$3,561,000
15.5%
623,000
(71,000)
0
$3,009,000
27%
(5)
(10)
762,000
71,000
$2,176,000
19%
(20)
(22)
639,000
26,000
0
$3,568,000
31%
14
19
708,000
(26,000)
$2,886,000
25%
7
33
(151,796)
$4,385,080
15.7%
638,226
110,508
0
$3,636,345
32%
9
2
706,120
(110,508)
$3,040,733
27%
5
5
(105,662)
$4,599,118
15.7%
671,517
123,967
0
$3,803,633
32%
14
5
789,600
(123,967)
$3,138,001
27%
13
3
(69,982)
$4,896,625
15.7%
714,956
143,561
0
$4,038,108
33%
34
6
914,400
(143,561)
$3,267,269
27%
50
4
(75,761)
$5,841,693
15.7%
852,946
136,722
0
$4,852,025
36%
36
20
870,840
(136,722)
$4,140,007
31%
43
27
(625,000)
$16,010,000
17%
2,589,000
170,000
0
$13,251,000
33%
12
-2,684,000
(170,000)
$10,737,000
27%
10
--
(403,201)
$19,722,515
17%
2,877,645
514,758
0
$16,330,112
33%
23
-3,280,960
(514,758)
$13,586,010
28%
27
--
(340,377)
$25,976,593
22%
5,619,836
766,595
0
$19,590,161
34%
20
-3,543,437
(766,595)
$16,813,320
29%
24
--
Weighted Avg. Diluted Shares Outstanding
330,136
330,793
334,977
336,012
337,596
339,248
340,934
333,314
338,448
345,932
Operating EPS
% Y/Y Growth
% Q/Q Growth
$10.08
25%
6
$10.12
16%
0
$9.03
(7%)
(11)
$10.65
12%
18
$10.82
7%
2
$11.27
11%
4
$11.90
32%
6
$14.23
34%
20
$39.76
11%
--
$48.25
21%
--
$56.63
17%
--
$8.75
59%
6
$8.42
10%
(4)
$6.53
(22%)
(22)
$8.62
5%
32
$9.05
3%
5
$9.30
10%
3
$9.63
48%
4
$12.14
41%
26
$32.21
9%
--
$40.14
25%
--
$48.60
21%
--
Reported GAAP EPS
% Y/Y Growth
% Q/Q Growth
333,314
(152,000)
$4,233,000
15.7%
Source: Company data, Jefferies estimates
page 41 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 38: Google - Revenue Build ($000s)
F2012
Q1 12A
Q2 12A
F2013
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
F2013E
F2014E
Gross Revenue (including TAC)
Google Revenue (Advertising & Other)
% Y/Y Growth
% Q/Q Growth
$10,645,000
$12,214,000
$14,101,000
24%
35%
45%
1
15
15
$14,419,000
36%
2
$13,188,800
24%
(9)
$13,448,900
10%
2
$14,031,500
0%
4
$15,473,000
7%
10
$46,040,000
21%
--
$56,142,200
22%
--
$66,048,065
18%
--
Advertising
% Y/Y Growth
% Q/Q Growth
% of Total Gross Revenue
$10,225,000
$10,525,000
$10,860,000
23%
21%
16%
1%
3%
3%
96%
86%
77%
$12,076,000
19%
11%
84%
$12,300,400
20%
2%
93%
$12,510,000
19%
2%
93%
$13,047,400
20%
4%
93%
$14,359,600
19%
10%
93%
$43,686,000
20%
-95%
$52,217,400
20%
-93%
$61,328,300
17%
-93%
Search Revenue
% Y/Y Growth
Display Revenue (Youtube + ASC + AdMob)
% Y/Y Growth
8,850,000
17%
1,375,000
81%
9,000,000
15%
1,525,000
77%
8,910,000
7%
1,950,000
95%
9,704,000
8%
2,372,000
98%
9,770,400
10%
2,530,000
84%
9,900,000
10%
2,610,000
71%
10,157,400
14%
2,890,000
48%
11,159,600
15%
3,200,000
35%
$36,464,000
11%
$7,222,000
89%
$40,987,400
12%
$11,230,000
55%
Google Web Sites
7,312,000
24%
69%
7,542,000
21%
62%
7,727,000
15%
55%
8,640,000
18%
60%
8,701,280
19%
66%
9,050,400
20%
67%
9,426,940
22%
67%
10,627,200
23%
69%
$31,221,000
19%
68%
$37,805,820
21%
67%
6,912,000
20%
7,042,000
17%
6,977,000
8%
7,740,000
11%
7,651,280
11%
7,950,400
13%
8,276,940
19%
9,427,200
22%
$28,671,000
14%
$33,305,820
16%
% Y/Y Growth
400,000
186%
500,000
133%
750,000
200%
900,000
200%
1,050,000
163%
1,100,000
120%
1,150,000
53%
1,200,000
33%
$2,550,000
182%
$4,500,000
76%
Mobile O&O
% of Google Websites Revenue
511,840
7%
678,780
9%
849,970
11%
1,123,200
13%
1,218,179
14%
1,357,560
15%
1,508,310
16%
1,806,624
17%
$3,163,790
11%
$5,890,674
18%
2,913,000
20%
27%
2,983,000
20%
24%
3,133,000
21%
22%
3,436,000
19%
24%
3,599,120
24%
27%
3,459,600
16%
26%
3,620,460
16%
26%
3,732,400
9%
24%
$12,465,000
20%
27%
$14,411,580
16%
26%
1,938,000
7%
1,958,000
6%
1,933,000
5%
1,964,000
-1%
2,119,120
9%
1,949,600
0%
1,880,460
-3%
1,732,400
-12%
$7,793,000
4%
$7,681,580
-1%
700,000
49%
700,000
49%
700,000
27%
722,000
11%
725,000
4%
750,000
7%
840,000
20%
900,000
25%
$2,822,000
32%
$3,215,000
14%
% Y/Y Growth
% of Total Gross Revenue
Google.com
% Y/Y Growth
YouTube
Google Network
% Y/Y Growth
% of Total Gross Revenue
AdSense Search
% Y/Y Growth
AdSense Display (PC)
% Y/Y Growth
AdMob
% Y/Y Growth
Licensing & Other
% Y/Y Growth
% Q/Q Growth
% of Total Gross Revenue
Licensing excluding DCLK
% Y/Y Growth
% Q/Q Growth
DoubleClick (Ad Server License Only)
% Y/Y Growth
% Q/Q Growth
Nexus One/Google Phones/ITA
% Y/Y Growth
% Q/Q Growth
Google Play
% Y/Y Growth
% Q/Q Growth
% Y/Y Growth
% Q/Q Growth
$16,717,433
16%
25%
275,000
83%
325,000
86%
500,000
150%
750,000
200%
755,000
175%
760,000
134%
900,000
80%
1,100,000
47%
$1,850,000
139%
$3,515,000
90%
$420,000
56%
2%
4%
$439,000
42%
5%
4%
$666,000
73%
52%
5%
$829,000
102%
24%
6%
$888,400
112%
7%
7%
$938,900
114%
6%
7%
$984,100
48%
5%
7%
$1,113,400
34%
13%
7%
$2,354,000
71%
-5%
$3,924,800
67%
-7%
$4,719,765
20%
-7%
$180,000
82%
6%
$199,000
66%
11%
$181,000
25%
-9%
$194,000
14%
7%
$203,400
13%
5%
$218,900
10%
8%
$199,100
10%
-9%
$213,400
10%
7%
$754,000
41%
--
$834,800
11%
--
$893,236
7%
--
$160,000
-6%
0%
$160,000
-6%
0%
$160,000
0%
0%
$160,000
0%
0%
$160,000
0%
0%
$160,000
0%
0%
$160,000
0%
0%
$160,000
0%
0%
$640,000
-3%
--
$640,000
0%
--
$665,600
4%
--
$80,000
$80,000
300%
0%
$225,000
181%
181%
$350,000
338%
56%
$375,000
369%
7%
$400,000
400%
7%
$450,000
100%
13%
$550,000
57%
22%
$735,000
308%
--
$1,775,000
141%
--
$2,283,429
29%
--
$100,000
$125,000
$150,000
$160,000
$175,000
75%
9%
$190,000
52%
9%
$225,000
---
$675,000
200%
--
$877,500
30%
--
---
$5,888,709
10%
--
$6,300,919
7%
--
-0%
$0
$0
--
--
--
-25%
Add: Hedging Revenue (Forecast periods)
Motorola Revenue (Hardware & Other)
44,610,868
18%
68%
-20%
($15,000)
$1,250,000
$2,575,000
--
$1,514,000
--
$1,468,580
--
--3%
-7%
($15,000)
$1,453,894
--1%
($15,000)
$1,468,433
-1%
($15,000)
$1,497,802
-2%
$5,339,000
Source: Company data, Jefferies estimates
page 42 of 49
Please see important disclosure information on pages 45 - 49 of this report.
Jefferies US Internet Team, Jefferies Equity Research, pitz-fitz@jefferies.com
Technology
Internet
April 10, 2013
Exhibit 39: Google - Balance Sheet ($000s)
F2012
Q1 12A
F2013
Q2 12A
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2013E
F2014E
Cash & Cash Equivalents
Short-Term Marketable Securities
Accounts Receivable
Current Deferred Taxes
Other Current Assets
Current Assets
$23,108,000
26,208,000
5,713,000
51,000
1,779,000
$56,859,000
$15,437,000
27,685,000
7,341,000
146,000
3,248,000
$53,857,000
$16,260,000
29,464,000
7,809,000
230,000
3,058,000
$56,821,000
$14,778,000
33,310,000
8,585,000
1,144,000
2,637,000
$60,454,000
$17,476,253
33,310,000
8,726,930
1,183,347
2,594,332
$63,290,863
$20,962,813
33,310,000
8,873,049
1,239,267
2,605,496
$66,990,624
$24,387,745
33,310,000
9,228,582
1,317,474
2,710,348
$70,954,149
$30,210,584
33,310,000
10,104,330
1,569,415
2,875,900
$78,070,228
$14,778,000
33,310,000
8,585,000
1,144,000
2,637,000
$60,454,000
F2012A
$30,210,584
33,310,000
10,104,330
1,569,415
2,875,900
$78,070,228
$47,320,364
33,310,000
11,785,060
2,054,093
3,040,072
$97,509,589
Property and Equipment
Long-Term Equity and Other Investments
Goodwill
Other Intangibles
Long-Term Deferred Taxes
Prepaid Revenue Share, Expenses and Other Assets
Total Assets
9,875,000
880,000
7,325,000
1,541,000
0
664,000
$77,144,000
10,909,000
1,040,000
10,120,000
7,862,000
0
2,263,000
$86,051,000
11,401,000
1,063,000
10,485,000
7,754,000
0
2,206,000
$89,730,000
11,854,000
1,469,000
10,537,000
7,473,000
0
2,011,000
$93,798,000
12,207,163
1,469,000
10,537,000
7,148,000
0
2,094,942
$96,746,968
12,543,736
1,469,000
10,537,000
6,823,000
0
2,069,562
$100,432,922
12,905,487
1,469,000
10,537,000
6,473,000
0
2,133,828
$104,472,463
13,253,459
1,469,000
10,537,000
6,123,001
0
2,236,774
$111,689,462
11,854,000
1,469,000
10,537,000
7,473,000
0
2,011,000
$93,798,000
13,253,459
1,469,000
10,537,000
6,123,001
0
2,236,774
$111,689,462
15,171,668
1,469,000
10,537,000
5,448,001
0
2,558,900
$132,694,157
Accounts Payable
Accrued Compensation & Benefits
Accrued Expenses & Other Liabilities
Accrued Revenue Share
Deferred Revenue
Current Income Taxes
Short-Term Debt & Capital Lease Obligations
Total Current Liabilities
$760,000
1,017,000
1,248,000
1,164,000
594,000
239,000
4,720,000
$9,742,000
$2,419,000
1,626,000
2,750,000
1,175,000
767,000
157,000
5,134,000
$14,028,000
$2,233,000
1,926,000
3,313,000
1,108,000
905,000
45,000
4,904,000
$14,434,000
$2,012,000
2,239,000
3,258,000
1,471,000
895,000
240,000
4,222,000
$14,337,000
$2,045,275
2,224,072
3,282,976
1,323,519
709,707
165,629
4,222,000
$13,973,177
$2,014,255
2,255,450
3,305,616
1,433,017
727,353
231,531
4,222,000
$14,189,223
$2,069,210
2,369,350
3,484,985
1,445,018
758,308
219,896
4,222,000
$14,568,766
$2,159,482
2,539,109
3,728,014
1,607,007
839,820
270,769
4,222,000
$15,366,201
2,012,000
2,239,000
3,258,000
1,471,000
895,000
240,000
4,222,000
$14,337,000
2,159,482
2,539,109
3,728,014
1,607,007
839,820
270,769
4,222,000
$15,366,201
$2,486,673
2,750,686
4,140,765
1,910,488
889,779
532,642
4,222,000
$16,933,032
Long-Term Debt & Capital Lease Obligations
Long-Term Deferred Revenue
Deferred Income Taxes
Other Long-Term Liabilities
Total Liabilities
2,987,000
42,000
2,171,000
490,000
$15,432,000
2,987,000
97,000
3,407,000
811,000
$21,330,000
2,988,000
100,000
3,495,000
685,000
$21,702,000
2,988,000
100,000
3,918,000
740,000
$22,083,000
2,988,000
79,297
3,918,000
735,066
$21,693,540
2,988,000
81,268
3,918,000
745,437
$21,921,928
2,988,000
84,727
3,918,000
783,081
$22,342,575
2,988,000
93,835
3,918,000
839,188
$23,205,223
2,988,000
100,000
3,918,000
740,000
$22,083,000
2,988,000
93,835
3,918,000
839,188
$23,205,223
2,988,000
201,145
3,918,000
936,391
$24,976,568
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Treasury Stock
Accumulated Other Comprehensive Income
Shareholders' Equity
20,795,000
40,495,000
0
422,000
$61,712,000
21,357,000
43,280,000
0
84,000
$64,721,000
22,204,000
45,456,000
0
368,000
$68,028,000
22,835,000
48,342,000
0
538,000
$71,715,000
23,132,696
51,382,733
0
538,000
$75,053,429
23,452,260
54,520,734
0
538,000
$78,510,994
23,803,886
57,788,003
0
538,000
$82,129,889
26,018,228
61,928,011
0
538,000
$88,484,239
22,835,000
48,342,000
0
538,000
$71,715,000
26,018,228
61,928,011
0
538,000
$88,484,239
28,438,258
78,741,331
0
538,000
$107,717,589
Liabilities & Shareholders' Equity
$77,144,000
$86,051,000
$89,730,000
$93,798,000
$96,746,968
$100,432,922
$104,472,463
$111,689,462
$93,798,000
$111,689,462
$132,694,157
Source: Company data, Jefferies estimates
Exhibit 40: Google - Cash Flow Statement ($000s)
F2012
Q1 12A
Net Income
Depreciation
Amortization of Intangibles and Warrants
In-process research and development
Tax Benefit from Stock Options
Stock-Based Compensation
Deferred Taxes
Other / Charges
Funds From Operations
(Inc.) Dec. in Accounts Receivable
(Inc.) Dec. in Income Taxes
(Inc.) Dec. in Prepaid Revenue and Other
Inc. (Dec.) in Accounts Payable
Inc. (Dec.) in Accrued Expenses and Other Liabilities
Inc. (Dec.) in Accrued Revenue
Inc. (Dec.) in Deferred Revenue
Change in Net Working Capital
Q2 12A
F2013
Q3 12A
Q4 12A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
F2012A
$3,040,733
672,853
325,000
0
0
706,120
0
0
$4,744,706
$3,138,001
706,623
325,000
0
0
789,600
0
0
$4,959,224
$3,267,269
723,244
350,000
0
0
914,400
0
0
$5,254,913
$4,140,007
839,984
350,000
0
0
870,840
0
0
$6,200,831
$10,737,000
1,988,000
974,000
0
(188,000)
2,692,000
(266,000)
(216,000)
$15,721,000
$2,890,000
378,000
133,000
0
(28,000)
556,000
354,000
(68,000)
$4,215,000
$2,785,000
473,000
197,000
0
(27,000)
658,000
(163,000)
(176,000)
$3,747,000
$2,176,000
507,000
321,000
0
(58,000)
762,000
(168,000)
32,000
$3,572,000
$2,886,000
630,000
323,000
0
(75,000)
716,000
(289,000)
(4,000)
$4,187,000
301,000
143,000
(308,000)
169,000
(855,000)
(11,000)
40,000
($521,000)
(222,000)
1,026,000
(710,000)
(249,000)
612,000
34,000
14,000
$505,000
(307,000)
167,000
(9,000)
(194,000)
727,000
(80,000)
128,000
$432,000
(559,000)
156,000
495,000
(225,000)
278,000
356,000
(19,000)
$482,000
(141,930)
(39,347)
(41,275)
33,275
(69,258)
(147,481)
(205,996)
($612,012)
(146,118)
(55,920)
14,217
(31,020)
130,292
109,499
19,618
$40,567
(355,534)
(78,207)
(169,118)
54,955
319,277
12,000
34,414
($182,212)
(875,748)
(251,941)
(268,498)
90,273
519,767
161,990
90,619
($533,538)
(787,000)
1,492,000
(532,000)
(499,000)
762,000
299,000
163,000
$898,000
F2013E
$13,586,010
2,942,704
1,350,000
0
0
3,280,960
0
0
$21,159,674
(1,519,330)
(425,415)
(464,674)
147,482
900,079
136,007
(61,346)
($1,287,195)
F2014E
$16,813,320
3,146,220
675,000
0
0
3,543,437
0
0
$24,177,977
(1,680,730)
(484,678)
(486,298)
327,191
983,405
303,480
157,269
($880,361)
Cash Flow from Operations
$3,694,000
$4,252,000
$4,004,000
$4,669,000
$4,132,694
$4,999,791
$5,072,701
$5,667,293
$16,619,000
$19,872,480
$23,297,615
Capital Expenditures
Acquisitions, Net of Cash Acquired
Purchases of Securities and Investments
Proceeds from Sales of Securities and Investments
Other
Net Cash Used in Investing Activities
(607,000)
(92,000)
(8,791,000)
17,396,000
245,000
$8,151,000
(774,000)
(9,854,000)
(6,854,000)
5,456,000
(360,000)
($12,386,000)
(872,000)
(525,000)
(8,704,000)
7,143,000
(349,000)
($3,307,000)
(1,020,000)
(97,000)
(9,164,000)
5,380,000
(613,000)
($5,514,000)
(1,026,017)
0
0
0
0
($1,026,017)
(1,043,196)
0
0
0
0
($1,043,196)
(1,084,995)
0
0
0
0
($1,084,995)
(1,187,956)
0
0
0
0
($1,187,956)
(3,273,000)
(10,568,000)
(33,513,000)
35,375,000
(1,077,000)
($13,056,000)
(4,342,164)
0
0
0
0
($4,342,164)
(5,064,429)
0
0
0
0
($5,064,429)
Debt Issuance / (Repayment)
Proceeds from / (Repurchase of) Common Stock
Excess Tax Benefit from Stock Options
Net Cash Provided by Financing Activities
1,249,000
(47,000)
28,000
$1,230,000
749,000
(137,000)
27,000
$639,000
(1,000)
(5,000)
58,000
$52,000
(669,000)
(98,000)
75,000
($692,000)
0
(408,547)
123
($408,424)
0
(470,159)
123
($470,036)
0
(562,895)
120
($562,774)
0
1,342,513
989
$1,343,502
1,328,000
(287,000)
188,000
$1,229,000
0
(99,088)
1,356
($97,732)
0
(1,123,406)
0
($1,123,406)
Effect of Exchange Rate Changes
Inc. (Dec.) in Cash and Cash Equivalents
50,000
$13,125,000
(176,000)
($7,671,000)
Beginning Cash and Cash Equivalents
Ending Cash and Cash Equivalents
9,983,000
$23,108,000
23,108,000
$15,437,000
74,000
$823,000
55,000
($1,482,000)
0
$2,698,253
0
$3,486,560
0
$3,424,931
0
$5,822,839
3,000
$4,795,000
0
$15,432,584
0
$17,109,780
15,437,000
$16,260,000
16,260,000
$14,778,000
14,778,000
$17,476,253
17,476,253
$20,962,813
20,962,813
$24,387,745
24,387,745
$30,210,584
9,983,000
$14,778,000
14,778,000
$30,210,584
30,210,584
$47,320,364
Source: Company data, Jefferies estimates
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Internet
April 10, 2013
Exhibit 41: Google - DCF Analysis ($MM)
2013
2012A
Q1 13E
Q2 13E
Q3 13E
Q4 13E
Revenue
$40,419
% Y/Y Growth
39%
EBITDA
$18,347
% Margin
45%
% Y/Y Growth
14
Implied Taxes on Operations
($3,162)
% Effective Tax Rate
17%
Capital Expenditures
($3,273)
% Y/Y Growth
(5%)
Change in Net Working Capital
$898
Tax Benefit from NOL Carryforwards
0
Acquisitions Not Reflected on Balance Sheet / Shares--
$11,434
41%
$5,231
46%
17
($821)
16%
($1,026)
69%
($612)
0
0
$11,718
22%
$5,525
47%
22
($867)
16%
($1,043)
35%
$41
0
0
$12,217
8%
$5,900
48%
36
($926)
16%
($1,085)
24%
($182)
0
0
$13,530
19%
$6,956
51%
38
($1,092)
16%
($1,188)
16%
($534)
22
0
Unlevered Free Cash Flow
$12,810
NPV at 12/31/12 Valuation Date and 11.2% WACC
$2,772
$2,700
$3,655
$3,468
$3,706
$3,424
$4,164
$3,746
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
$57,262
17%
$29,457
51%
25
($6,373)
22%
($5,064)
17%
($880)
0
0
$64,473
13%
$34,468
53%
17
($7,238)
21%
($5,696)
12%
($534)
0
0
$70,466
9%
$38,439
55%
12
($8,072)
21%
($6,233)
9%
($158)
0
0
$75,523
7%
$41,559
55%
8
($8,727)
21%
($6,671)
7%
($61)
0
0
$79,668
5%
$43,852
55%
6
($9,209)
21%
($7,022)
5%
$307
0
0
$83,451
5%
$45,797
55%
4
($9,617)
21%
($7,360)
5%
$352
0
0
$87,342
5%
$47,798
55%
4
($10,038)
21%
($7,696)
5%
$446
0
0
$90,752
4%
$49,374
54%
3
($10,369)
21%
($7,998)
4%
$544
0
0
$94,296
4%
$51,056
54%
3
($10,722)
21%
($8,312)
4%
$580
0
0
$17,140
$14,621
$21,000
$16,113
Perpetuity Growth Rate / Terminal Value at 11.2% WACC
2.0%
2.5%
3.0%
3.5%
4.0%
$378,962
$402,766
$429,481
$459,677
$494,080
Median DCF Valuation at 12/31/12 Valuation Date
NPV of Cash Flows and Terminal Value
286,662
Plus: Net Cash
46,569
Implied Equity Value
$333,231
Implied Fully Diluted Shares Outstanding (MM)
333
Implied Equity Value per Share
$1,000
$23,976
$16,543
$26,100
$16,198
$27,927
$15,590
$29,172
$14,648
$30,510
$13,775
$31,551
$12,813
$32,602
$11,909
Implied Terminal Value / Terminal EBITDA Multiple
7.4x
7.9x
8.4x
9.0x
9.7x
$378,962
$402,766
$429,481
$459,677
$494,080
WACC
9%
10%
11%
12%
13%
$1,069
1,007
950
899
851
Equity Value per Share
$1,097
$1,129
$1,165
1,033
1,062
1,094
974
1,000
1,030
920
944
971
871
892
917
$1,206
1,131
1,063
1,001
945
Source: Company data, Jefferies estimates
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Analyst Certification
I, Jefferies US Internet Team, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this research report.
I, Brian Pitz, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject
company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views
expressed in this research report.
I, Brian Fitzgerald, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
I, Timothy O'Shea, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
I, Sachin Khattar, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed in this research report.
I, Stan Velikov, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives
compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as
appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority
of reports are published at irregular intervals as appropriate in the analyst's judgement.
Company Specific Disclosures
Meanings of Jefferies Ratings
Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.
Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.
Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month
period.
The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within
a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price
consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform
rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12month period.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/
or Jefferies policies.
CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities
regulations prohibit certain types of communications, including investment recommendations.
Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on
the investment merits of the company are provided.
Valuation Methodology
Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total
return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market
risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,
P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,
and return on equity (ROE) over the next 12 months.
Conviction List Methodology
1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research
2. Only stocks with a Buy rating are allowed to be included in the recommended list.
3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen
is used to ensure a well-diversified portfolio.
4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis.
5. Once a month, analysts are invited to recommend their best ideas. Analysts’ stock selection can be based on one or more of the following:
non-Consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relative
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to the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached their
target price, been downgraded over the course of the month or where a more suitable candidate has been found are removed.
6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list during
the month.
7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$.
8. The conviction list is published once a month whilst global equity markets are closed.
9. Transaction fees are not included.
10. All corporate actions are taken into account.
Risk which may impede the achievement of our Price Target
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the
financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based
upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of
the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and
income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial
and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may
adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such
as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report
• Amazon.com, Inc (AMZN: $261.14, BUY)
• eBay, Inc. (EBAY: $56.07, BUY)
• Google, Inc. (GOOG: $777.65, BUY)
• Wal-Mart Stores, Inc. (WMT: $78.12, BUY)
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Technology
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April 10, 2013
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April 10, 2013
Distribution of Ratings
IB Serv./Past 12 Mos.
Rating
BUY
HOLD
UNDERPERFORM
Count
Percent
Count
Percent
757
721
134
46.96%
44.73%
8.31%
128
87
2
16.91%
12.07%
1.49%
Other Important Disclosures
Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC (“Jefferies”) group
companies:
United States: Jefferies LLC which is an SEC registered firm and a member of FINRA.
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Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,
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Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a member
of the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 5251
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