Secular Growth Trends in Internet
Advertising
􀂃 Expanding the Internet sector coverage
We initiated our coverage on Google and Yahoo! in mid April ’08 and now
we are widening our coverage of the Internet sector with the launch of five
Internet companies that are focused on Internet advertising: CNET, RATE,
SCOR, TTGT, and VCLK. There are nearly 75 global Internet companies
that are publicly traded in the US, which in aggregate command nearly
$350bn in market cap. Four large companies account for nearly 85% of the
total market cap for the sector - Amazon, eBay, Google, and Yahoo!.
􀂃 Our thesis for Internet advertising
Though our view is that the Internet sector is not immune to economic
headwinds, we believe it will continue to see high growth trends on a longterm
basis supported by rapid adoption of the Internet, increasing
broadband penetration, secular growth trends for Internet advertising &
eCommerce, mobile Internet adoption, and international expansion.
􀂃 Our investment thesis for CNET, RATE, SCOR, TTGT & VCLK
We are initiating RATE, SCOR and VCLK with a Buy rating and $60, $28
and $27 PT, respectively. We are initiating CNET and TTGT with a Hold
rating. Our fair price estimate for TTGT is $14.
􀂃 Internet advertising sector: size, growth forecast, drivers
We are estimating worldwide Internet advertising to reach $66bn in 2010,
up from $36bn in 2007, resulting in a 23% CAGR. We believe search will
continue to outpace the overall market growth and will account for 47% of
the worldwide Internet advertising (up from 45% in 2007). For the U.S., we
are estimating online advertising to reach nearly $38bn in 2010, up from
$21bn in 2007, resulting in a 21% CAGR.
􀂃 Our valuation approach
We usually value the stocks we cover by using EV/EBITDA and/or P/E
methods but we also consider free cash flow yield. For EV/EBITDA, we
look for EV/EBITDA/Growth of 0.5x to 0.7x with an average of 0.6x. For
P/E we look for PEG of 0.8x to 1.0x with an average of 0.9x. We tend to
apply higher multiples to the companies with not only the top fundamentals
in our sector but also for having relatively higher international exposure
and for being takeout targets. Our multiple ranges may vary based on
macro economic outlook, historical valuation trends, and market sentiment.
􀂃 Our edge
1) Deep understanding of the Internet space. 2) Vast industry contacts. 3)
Relatively higher visibility in non-US related Internet activities. 4) Original
thinking and out of the box ideas. 5) Good grip on the products and
platforms offered by leading Internet companies. 6) Value added analysis
and strategic thinking.

Table of Contents:
Coverage Universe........................................................... 3
Investment Theses Summary ......................................... 3
Valuation Approach ......................................................... 5
Sector Forecast Summary............................................... 6
Cheat Sheet for Online Advertising................................ 7
Global Internet Advertising Market ................................ 8
Top 10 Growth Drivers for Internet Advertising............ 11
Paid Search Marketing Growth Drivers.......................... 15
Display Advertising Growth Drivers............................... 19
Impact from Social Media................................................ 21
International Internet Ad Growth Drivers ...................... 24
Mobile Internet Advertising Growth Drivers.................. 26
Other Trends in 2008 and Beyond.................................. 28
M&A in 2008 and Beyond ................................................ 30
Internet Advertising 1-on-1.............................................. 32
Our Investment Thesis on CNET Networks................... 35
Our Investment Thesis on Bankrate............................... 36
Our Investment Thesis on comScore............................. 37
Our Investment Thesis on TechTarget........................... 38
Our Investment Thesis on ValueClick............................ 39