We have identified our six top Internet themes/events for 1H’08 that could create trading opportunities in the group.
Intensifying 3rd party seller competition (negative)
As the industry giant ($57bn in TTM GMV) eBay’s anticipated listing fee changes could impact the 3rd party market. We think Amazon ($5bn in TTM GMV) might incorporate some of this uncertainty (and consumer uncertainty), into its ‘08 outlook, potentially creating a buying opportunity as we expect little actual impact.
A bump Online media spending (positive)
We see two events that could build enthusiasm on the Internet advertising market into the summer: elections and the TV writers strike. Direct dollars won’t be that material ($150mn possible direct benefit to Online adverting in ‘08), but extensive political spend could crowd non-political spending to Online display markets, which could be a catalyst for Yahoo or Google (YouTube).
Increasing focus on mobile market initiatives (both)
CES and the spectrum auction will provide greater clarity on Google’s and Yahoo’s mobile strategies, we expect each company to be aggressive in 2008. Difficult to handicap the risk of Google winning the spectrum auction, but losing could be a stock catalyst. Also, we expect Yahoo’s to renegotiate its AT&T contract with a mobile partnership component, potentially clearing an overhang.
Improving display ad targeting technology (positive)
A Google/DCLK merger may highlight possibility for improved targeting technology to drive up the value of Online ad inventory. We think Online CPMsat around $2.50, which trail newspapers by 5-10x has room to grow, and targeting will make social networking sites more competitive, but also benefit Yahoo! in ‘08.
Asset value unlock speculation (positive)
The InterActive split into five entities expected in mid-2008 will be the catalyst and, in addition to potentially creating value for Interactive, the split could be an industry catalyst highlighting the underlying asset value for Yahoo ($10-11/share) and potentially even eBay (we value PayPal ~$10bn) or Expedia (TripAdvisor).
Social networking revenue model emergence (negative)
Audiences are moving to social networking sites and the “interest targeting” ad sales initiative by MySpace is just a first step in competitive audience monetization. We expect more display/sponsorship/ad network initiatives, followed by peer-to-peer eCommerce and possibly personalized search in a few years. All large cap. Internet stocks (eBay, Google, Yahoo) have some degree of risk, although AOL, MSN and Yahoo! could have most in ‘08.
