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The Internet & Native Advertising

A Wall Street Perspective

Ron Josey

Sr. Analyst, Internet SectorSr. Analyst, Internet Sector

JMP Securities

212.906.3528

rjosey@jmpsecurities.com

But First -- What Gets Us Excited About The Internet?6 Key Driversy

1. MOBILE Fundamentally changing Internet usage & monetization

2. ONLINE ADV Newer ad formats are accelerating growth

3 SOCIAL E i th h i th di

5. MOBILE PAYMENTS Smartphones replacing wallets

4. VERTICAL MARKETPLACES Win / Win / Win

3. SOCIAL Empowering the consumer; changing the paradigm

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6. SAME DAY DELIVERY Expands a retailer’s reach

Native Advertising Outlook for 2014 and Beyond

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Mobile: Time Spent On Apps Now Exceeds Desktop!

3Source: comScore

…Resulting In Incremental Internet Usage

381

112

970

800

1,000

1,200

nute

s

Time Spent on Digital Media By Platform

99% growth in total minutes online, led

by 360% growth from Smartphones

405477

83

381

488

200

400

600

Billi

on M

in

4

0June 2010 US June 2013 US

Desktop Smartphone TabletSource: comScore, JMP Securities

Native Advertising Outlook for 2014 and Beyond

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Consumers Are Adopting The Mobile Web

Company Select Mobile Stats / Commentary

Facebook Mobile Ad Revs: $1.3 billion (59% of total revenue); 1 billion mobile MAUs

Yelp 61 million mobile monthly unique visitors, +52% Y/Y, ~46% total; 60% of searches from mobile

Zillow 2/3 of traffic from mobile; Mobile visits +100% Y/Y; 460M homes viewed on mobile

AOL Mobile usage: +80% Y/Y; Mobile ad revs: 100+% Y/Y; 50% of clients req x-screen campaignsAOL Mobile usage: +80% Y/Y; Mobile ad revs: 100+% Y/Y; 50% of clients req. x-screen campaigns

Priceline.com $8B in gross mobile transactions on Booking.com in 2013, up from $1B in 2011

Google ~40% of YouTube's videos viewed from mobile

eBay 61.3% of total customer adds from mobile representing 6.5 million new customers

Amazon com 50+% of Amazon holiday shoppers used mobile

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Amazon.com 50+% of Amazon holiday shoppers used mobile

Expedia 125M cumulative mobile app downloads; 20+% of transactions from mobile

Yahoo 430 million mobile monthly unique visitors, +30% Y/Y; Tumblr mobile monthly users +71% Y/Y

Source: Company reports

And We Are Living In An Increasingly Connected WorldTesla PayPal’sTesla

Model SAndroid WearPayPal s Beacon

Nike PlusFitBit

6

Disney’s MyMagic+

Source: Motorola, Tesla, eBay, FitBit, Disney, Nike

Native Advertising Outlook for 2014 and Beyond

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Creating Significant Advertising OpportunitiesWe Project U.S. Internet Ads To Reach ~$50B in 2014

7

Source: JMP Securities

…Driven by Mobile, Video, Social, & Native

Rich Media

Search

Digital Video

Mobile

Lead Generation/E-mail

Classifieds / Auctions

Banner AdsMobile and Video are the fastest growing advertising areas and Native Ads (as well as Social) are embedded in them throughout

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-20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Sponsorship

U.S. Online Advertising Spend Three-Year CAGR (2013-2016)

Source: JMP Securities

Native Advertising Outlook for 2014 and Beyond

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Yet The Market Is Still Catching Up To Mobile

42.2%

38.4%

24.8%25.0%

30.0%

35.0%

40.0%

45.0% 2013 Consumer Time Vs. Ad Spend

21.5% 20.9%

9.9%

5.4%4.5%

12.2%

20.0%

5.0%

10.0%

15.0%

20.0%

25.0%

9

0.0%TV Digital (ex-mobile) Print Radio Mobile

Spend TimeSource: eMarketer

So what is Native Advertising?

• Native Ads are naturally embedded into a sites content stream and while clearly marked as an advertisement, they are found to be more impactful than traditional banner ads.

• Naturally embedded within content

• Are targeted and contextually relevant ads

Said another way -- Native Ads are:

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• Deliver higher conversion rates

• And are perfectly suited for social and mobile environments

Native Advertising Outlook for 2014 and Beyond

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Mobile Native Ad examplesFacebook Twitter GoogleFacebook Twitter Google

11Source: Facebook, Twitter, Google

Yahoo!’s New Splash Ads & Pinterest’s Promoted PinsPinterest Promoted PinsYahoo! Splash Adp

12Source: Pinterest, Yahoo!

Native Advertising Outlook for 2014 and Beyond

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What Internet Leaders are Saying About Native Ads

“News Feed ads have significantly higher engagement… We want to get to a state where the ad content is getting as good as the organic content”

- Facebook

“I firmly believe that native advertising can be every bit as good as the content itself”

“Showing native ads on mobile can actually increase revenue per page view [vs. traditional display ads]”

- Yahoo! CEO Marissa Mayer

“folks who engaged with promoted Tweets, brand favorability was 30% higher, purchase intent was 50% higher”

“you can reply, favorite, retweet a promoted Tweet … ads perform better when they are content first”

- Twitter

13Source: Company reports

What Does The Data Say?

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Native Advertising Outlook for 2014 and Beyond

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Native Ads Have Higher Conversion Rates

15Source: Yahoo!

Native Ads are More Engaging...

16Source: Sharethrough, IPG Media labs, 2013

Native Advertising Outlook for 2014 and Beyond

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…More Social…

17Source: Sharethrough, IPG Media labs, 2013

…41% of Brands and 34% of Agencies are using Native Ad formats

18Source: Hexagram and Spada, 2014

Native Advertising Outlook for 2014 and Beyond

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…With Awareness The Top Objective for Native Ads

19Source: Sharethrough and eMarketer, September 2013

Effective Ad Formats Impact On Results

20

Native Advertising Outlook for 2014 and Beyond

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2Q13: Facebook’s Inflection Point Thanks To Native & Mobile…Stock followed suit

80.0

40 0

50.0

60.0

70.0

ck

Pri

ce

10.0

20.0

30.0

40.0

FB

Sto

c

FB ad revenue growth significantly reaccelerates

Creating an inflection point in the stock

21Source: Thomson Reuters and JMP Securities

Mobile Adoption Rewarded With GrowthCompany Data Current ValuationCompany Data Current Valuation

2014E Revenue ’13-’14 Growth Market Cap EV/Rev 2015 EV/EBITDA 2015 TTM Stock Return

Facebook $12.0B 52.7% $167.6B 9.6x 15.6x +154%

Twitter $1.3B 190.9% $23.7B 16.1x 70.0x +44%

Yahoo! $4.5B 2.7% $35.8B 0.6x 1.9x +35%

AOL $1.8B -0.4% $3.3B 1.1x 5.6x +8.6%

22Source: Thomson Reuters and JMP Securities

S&P 500 +19.7%

Native Advertising Outlook for 2014 and Beyond

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THANK YOU

Ron Josey

Sr. Analyst, Internet Sector

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© 2014 JMP Securities LLC

Sr. Analyst, Internet Sector

JMP Securities

212.906.3528

rjosey@jmpsecurities.com

Google Inc (GOOG)JMP Securities currently makes a market in this security.

F b k I (FB)

JMP Research Disclosures

Facebook, Inc (FB)JMP Securities currently makes a market in this security.

Amazon.com, Inc (AMZN)JMP Securities currently makes a market in this security.

Priceline.com Inc (PCLN)JMP Securities currently makes a market in this security.

eBay Inc (EBAY)JMP Securities currently makes a market in this security.

Yahoo! Inc (YHOO)( )JMP Securities currently makes a market in this security.

Expedia, Inc (EXPE)JMP Securities currently makes a market in this security.

Yelp (YELP)JMP Securities currently makes a market in this security.

Zillow, Inc (Z)JMP Securities currently makes a market in this security.JMP Securities was manager or co-manager of a public offering of securities for the Company in the past 12 months, and received compensation for doing so.

AOL Inc (AOL)AOL Inc (AOL)JMP Securities currently makes a market in this security.

TrueCar, Inc (TRUE)JMP Securities currently makes a market in this security.JMP Securities was manager or co-manager of a public offering of securities for the Company in the past 12 months, and received compensation for doing

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Native Advertising Outlook for 2014 and Beyond