Finance & Investment ClubConsumer Goods SectorFall 2014

Senior Analyst: Marcela Ocon

Junior Analysts: Stephanie Conyack, Priya Gandhi, Phill Barcellona, Haiyun Zhao, Robbie Brussel,

E-Commerce Websites in the United States

OverviewE-Commerce and Online Auctions in the United States

Increasing use of Mobile

Commerce

Increasing Internet

Penetration

Improving Economic Conditions

Value Vision Media

(NYSE:VVTV)

Gaiam Inc. (NYSE:GAIA)

Industry DefinitionThis industry is comprised of companies that primarily sell goods through an online platform and then deliver these goods directly to customers. Companies sell a variety of goods from electronics, to apparel, to household items all across the world. The industry does not include retailers who also sell products in brick and mortar locations.

Source: IBIS World Industry Report

Zulily Inc.(NYSE: ZU)

Overstock.com Inc. (NYSE:OSTK)

Blue Nile Inc. (NYSE:NILE)

Light in the Box LTD.(NYSE:LITB)

Food, beverage, pet food5%

Computer & TV25%

Sporting Goods

14%

Home Goods7%

Medication and cosmetic

7%

Office Equipment

and sup-plies6%

Other 23%

Clothing, footwear,

accessories, jewlery

15%

Revenue Breakdown by ProductIndustry Definition• Companies in this

industry generate revenue by selling a large variety of consumer cyclical products

• Lower costs with higher convenience

• Diversification of products makes revenue low risk

37%

18%

20%

9%

13%

4%

Market Share by FY2013 Revenue ($)

OSTKVVTVZULITBNILEGAIA

Industry Breakdown

Consumer Goods 7.55T

Consumer Discretionary

4.21T

Internet & Catalog Retail

365.36B

E-Commerce and Online

Auctions 297.90B

Sector Breakdown by Market Cap

Trends

Increasing Internet

Penetration

Improving Economic Conditions

Increasing Mobile

Commerce Sales

Increased International Internet Penetration

• Internationally, internet penetration has grown 676.3% from 2000-2013

• As of 2013, 39% of the entire population had access to the internet

• Internet users have grown at a CAGR of 9.23% from 2009-2013

• Overall North America, Latin America, and Asia have the highest internet penetration worldwide

• Most companies have completed expansion in North America and are now making efforts to expand world wide

• Increasing internet penetration worldwide will help companies with international expansion

2009 2010 2011 2012 2013 2014E 2015E0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000Internet Users (M)

Internet Users (M)U

sers

(M) 39% Penetration

North Amer-ica

Latin America Asia0.00%

10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00% 0.849

49.30%

0.317

Countries with Highest Internet Penetration%

of U

sers

Trends

Increasing Internet

Penetration

Improving Economic Conditions

Increasing Mobile

Commerce Sales

Improving Economic Conditions• Most E-commerce products

are pro-cyclical goods and are dependent on consumption spending

• From 2002-2008, E-commerce sales had grown at a rate of 13.85%

• From 2008-2010 sales took a dip and only grew at a rate of 5.04%

• Increasing consumption levels as well as overall improving economic conditions have caused sales to grow at a rate of 8.57% since 2010

• As overall economic conditions improve, especially consumption spending, we will see an increase in e-commerce revenues

2005 2006 2007 2008 2009 2010 2011 2012 2013330003350034000345003500035500360003650037000

0123456789

Disposable income and Unemployment

Per capita Disposable income Unemployment Rate

Per

Capi

ta D

ispo

sabl

e In

com

e (d

ol-

lars

)

Une

mpl

oym

ent

Rate

2005 2006 2007 2008 2009 2010 2011 2012 201390

95

100

105

110

115

0

50

100

150

200

250

300

350

Consumption Spending on Goods vs. E-Commerce Sales

Consumption Spending on Goods (B)Sales (B)

Billi

ons

of D

olla

rs

Billi

ons o

f Dol

lars

8.57%

13.85% 5.04%

Trends

Increasing Internet

Penetration

Improving Economic Conditions

Increasing Mobile

Commerce Sales

Increasing Mobile Commerce Sales• As mobile shopping sales begin to

grow, brands will begin shifting advertisement budgets towards smartphones and tablets

• Mobile shopping sales have increased at a CAGR of 39.25%from 2010-2013 and spending on mobile ads has increased at a CAGR of 85.47% from 2010-2013

• Retailers will start seeing shift in revenues from computers to mobile devices

• We predict that for each $1B increase in ad spending, mobile sales revenue will increase by $2.44B

2011 2012 2013 2014E 2015E0.00%5.00%

10.00%15.00%20.00%25.00%

0.06910.90%

0.1470.177

0.208

Mobile Sales Revenue as Percentage of Total E-Commerce Sales

2010 2011 2012 2013012345678

Mobile Ad spending (B)

Mobile Ads

Mob

ile A

d Sp

endi

ng

Risks and Sensitivities

Risk of changing technologyOur industry will face constant changes due to new trends in technologyIn order to keep interest of customers, firms must be able to keep up with the changing technology

Risk of government sales tax regulationIn recent years different states have made efforts to require sales tax on goods ordered onlineIf taxes are required it could create a lot of new costs for online retailers

Risk of fraudIn order to maintain customer loyalty retailers will have to increase fraud protection due to recent threatsFailure to do so will cause customers to loose trust in the retailers services

Risk of adverse economic conditionsDue to the cyclical nature of our products, adverse economic conditions could negatively affect our industryEach $11.34 decrease in consumption spending will decrease revenue by $1

Key FinancialsTKR Market Cap (M)

% of 52 Week High

EBITDA (M)

ROA Profit Margin

P/E EV/EBITDA

Price/Book

MKTG. as % of Revenue

OSTK 584.3 77.3% 18.2 2.9% 5.7% 7.3 25.9 4.5 7.0%

VVTV 322.3 86.1% 12.9 0.6% -0.9% N/A 26.4 4.1 0.3%

ZU 3560.0 38.6% 26.8 3.3% 1.6% 184.4 119.8 13.8 8.6%

NILE 402.7 69.2% 16.5 9.2% 2.1% 43.3 23.6 48.0 15.4%

LITB 411.4 71.1% N/A N/A -7.7% N/A N/A 6.3 26.7%

GAIA 178.1 83.1% N/A N/A -23.4% N/A N/A 1.9 9.8%

Max 3560 86.1% 26.8 9.2% 5.7% 184.4 119.8 48.0 26.7%

Median

407.1 74.2% 17.4 3.1% 0.4% 43.3 26.2 5.4 9.2%

Mean 909.82 70.9% 18.6 4% -3.8% 78.3 48.9 13.1 11.3%

Low 178.1 38.6% 12.9 0.6% -23.4% 7.3 23.6 1.9 0.3%

Value Weighted Index

1/2/1

4

1/11/1

4

1/20/1

4

1/29/1

4

2/7/1

4

2/16/1

4

2/25/1

4

3/6/1

4

3/15/1

4

3/24/1

4

4/2/1

4

4/11/1

4

4/20/1

4

4/29/1

4

5/8/1

4

5/17/1

4

5/26/1

4

6/4/1

4

6/13/1

4

6/22/1

4

7/1/1

4

7/10/1

4

7/19/1

4

7/28/1

4

8/6/1

4

8/15/1

4

8/24/1

4

9/2/1

4

9/11/1

4

9/20/1

4

9/29/1

4

10/8/1

4

10/17/1

4

10/26/1

4

11/4/1

4

11/13/1

40

5

10

15

20

25

30

35

40

45

50Value Weighted Index Vs. OSTK

OSTK Value Weighted Index

Dai

ly P

rice

Conclusion

Overstock.com Inc.(NYSE:OSTK)

Overstock.com Inc. will be further researched based on the following facts

and trends:1. Increasing marketing spending as percentage of revenue will increase customer base

2. High ability to keep up with new technological trends with introduction of bitcoin

3. Healthy financial metrics- Company has very favorable profit margin which is higher than industry

average- Marketing as % of revenue expected to increase in the future