Media Post’s Search Insider Summit

07 December, 2011

Neil Doshi+1 415.951.1759

neil.doshi@citi.com

Mark Mahaney+1 415.951.1744

mark.mahaney@citi.com

5 December 2011

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosuresCiti Investment Research & Analysis is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm 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.

2

Table of Contents

1.

2.

Economic Overview

Online Advertising Trends

2

10

3. The Rise Of Social Media & Facebook 18

4. The New Internet Growth Drivers 27

3 Sources: Bureau of Economic Analysis, Eurostat, IMF, Haver Analytics, and Citi Investment Research and Analysis.

Rising regional growth correlations likely a result of trade penetration and financial integration…

-1.0

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1.0

1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

U.S.

European Union

Emerging Asia

Latin America

Five Year Moving Correlation Coefficient of Regional Economic Growth to Global Aggregate

Rising Regional Growth Correlations

4 Sources: Bureau of Economic Analysis, Eurostat, IMF, Haver Analytics, and Citi Investment Research and Analysis.

…Stronger global growth potential, yet who can thrive when one region fails?

-15

-10

-5

0

5

10

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Germany, France, Italy

US.

correlation 1st half period = 18.5%

correlation 2nd half period = 71.8%

Real U.S. GDP vs Large Europe Aggregate Q/Q% Change SAAR

Rising Regional Growth Correlations (cont’d)

5

0

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1200

92 94 96 98 00 02 04 06 08 10

-2000

3000

8000

13000

18000

23000

28000

Tangible Common Equity (Left)Debt Outstanding (Right)

FDIC Insured Commercial Banks Tangible Common Equity and Total Domestic Financial Sector Debt Outstanding, Billions of $

5

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12

13

14

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1970 1976 1982 1988 1994 2000 2006 2012

Non-financial Corporations: Liquid Financial Assets as % of Total Liabilities

Sources: Bank for International Settlements, IMF, Federal Deposit Insurance Corporation, Federal Reserve Board, and Citi Investment Research and Analysis.

Stronger Balance Sheets…

6

Country Public Sector Banking Sector Country Public Sector Banking SectorGreece 42.9 8.0 Greece 1.9 2.7Ireland 14.5 60.6 Ireland 1.7 14.5Portugal 32.9 40.8 Portugal 1.3 2.6Belgium 89.1 91.5 Belgium 11.4 16.7Italy 233.5 144.6 Italy 14.4 16.1Spain 90.3 185.6 Spain 6.1 24.7Total $503.2 $531.2 Total $36.8 $77.3

% of Total U.S. Tangible Common Equity 3.6% 7.5%

Total Exposure of U.S. Banks to High-Spread Euro Area Public Debt and Banking Sectors (Billions of $ as of 1Q 2011)

Improved bank balance sheets and reduced U.S. exposure to weak Sovereigns should make a difference vs 2008.

Sources: Bank for International Settlements, IMF, Federal Deposit Insurance Corporation, Federal Reserve Board, and Citi Investment Research and Analysis.

…Lower U.S. Exposure to Europe…

7

…between those directly and indirectly exposed to Europe’s sovereign risks. The U.S. is substantially getting the same financial conditions as Europe.

U.S. vs European Financial Sector Share Prices (rebased Jan 2007 = 100)

Index of Large Financial CDS, Euro area vs US Firms

Sources S&P, Bloomberg: Note: the US CDS group includes large brokers and banks, Euro area are substantially banks. Data excludes firms that failed in 2008/2009.

…But Markets Are Not Distinguishing Well on Exposures

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07 08 09 10 110

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European U.S.

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Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

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S&P 500: (US) Financial IndexBloomberg Europe 500 Banks and Financial Sector Index

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1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011

0.2

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1.2

1.4

New Vehicles (left) New Single-Family Homes (right)

Cash for Clunkers,first time

homebuyers

New Home and Vehicle Sales Per U.S. Household % Annual Rate

Sources: Census Bureau and Wards.

Cyclical Recession Drivers Still Look “Washed Out”

9

Source: BEA Note1 : “Discretionary” is sum of durable goods, games & sports supplies, flowers, periodicals, hotels, recreation services, net foreign travel and other similar, small categories of outlays. Note 2: Data through Oct 2011.

Discretionary Spending Near 50-Year Low Share

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1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

"Discretionary" Consumer Spending as % of Total Consumer Spending

10

So What Should We Make Of This?...

Or ?

11

9000

10000

11000

12000

13000

14000

95 97 99 01 03 05 07 09 11115

120

125

130

135

140

Real GDP (Left, Bils.$)

Nonfarm Payrolls (Right, 000s)

Real GDP and Non-Farm Employment Levels

Sources: BEA, BLS, and Treasury.

Massive Cuts in Employment / GDP Behind US = Bottoming Out

12

Table of Contents

1.

2.

Economic Overview

Online Advertising Trends

2

10

3. The Rise of Social Media & Facebook 18

4. New Internet Growth Trends 27

13

Online Advertising Continues To Take Share In Total Ads…

Sources: NAA; McCann-Erickson Worldwide; BFM; RAB; OAAA; Internet Advertising Bureau and CIRA Estimates.

($ in MMs) 2006 2007 2008 2009 2010 2011E 2012E 2013E

Total US Advertising $205,055 $206,125 $194,721 $163,593 $170,896 $172,850 $177,805 $184,832

Y/Y Change 1% -6% -16% 4% 1% 3% 4%

Total U.S. Online Advertising $16,879 $21,206 $23,448 $22,661 $26,041 $31,500 $36,854 $41,923

Y/Y Change 26% 11% -3% 15% 21% 17% 14%

Internet as % of Total 8% 10% 12% 14% 15% 18% 21% 23%

Y/Y Increase in penetration (bps) 823 206 175 181 139 299 250 195

14

Citi’s U.S. Online Advertising Forecasts

Sources: NAA; McCann-Erickson Worldwide; BFM; RAB; OAAA; Internet Advertising Bureau and CIRA Estimates.

Ad Revenue ($MM) 2009A 2010A 2011E 2012E 2013ETotal $22,661 $26,041 $31,500 $36,854 $41,923Search $10,698 $12,004 $15,166 $18,350 $21,470Classifieds $2,254 $2,597 $2,465 $2,539 $2,590Lead Generation $1,451 $1,339 $1,615 $1,777 $1,865Email $292 $195 $134 $94 $66Display Related Ads $7,966 $9,906 $12,120 $14,094 $15,932

Banner Ads $5,061 $6,230 $7,512 $8,714 $9,760Rich Media $1,505 $1,538 $1,570 $1,601 $1,633Sponsorships $383 $718 $1,138 $1,366 $1,571Digital Video $1,017 $1,420 $1,900 $2,413 $2,968

Ad Revenue (Y/Y Growth) 2009A 2010E 2011E 2012E 2013ETotal -3.4% 14.9% 21.0% 17.0% 13.8%Search 3% 12% 26% 21% 17%Classifieds -31% 15% -5% 3% 2%Lead Generation -12% -8% 21% 10% 5%Email -38% -33% -31% -30% -30%Display Related Ads 4% 24% 22% 16% 13%

Banner Ads 3% 23% 21% 16% 12%Rich Media -8% 2% 2% 2% 2%Sponsorships -1% 87% 59% 20% 15%Digital Video 39% 40% 34% 27% 23%

15 Sources: NAA; McCann-Erickson Worldwide; BFM; RAB; OAAA; Internet Advertising Bureau and CIRA Estimates.

Online Advertising Recovered Faster In The Last Recession…

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U.S. Total Ad Market Growth U.S. Online Ad Market Growth U.S. GDP

16

…And That Recovery Was Led By Search & Display

-80.0%

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40.0%

60.0%

80.0%

Search Classified Lead Gen Email Display

Given the measurable results from Search, and strength in Display from Google, Social and Video, we believe these segments recovered fastest

Sources: Internet Advertising Bureau and CIRA Estimates.

17

Where Did The US Ad Recovery Go?...Google!

0%

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16%

2003 2004 2005 2006 2007 2008 2009 2010

'Net As % Of Total U.S. Ad Spend GOOG As % Of Total U.S. Ad Spend

18

Display Advertising Is Becoming Sophisticated…Like Search

Real Time Bidding in Practice – A Case Study

Exchange / SSP

Platform 1

Platform 2

Platform 3

Hotel Ad

Auto Ad

Bid Price: $1.30

Bid Price: $1.50

Platforms (DSP/Ad Network)

Attributes:GeoTime of DayDay of WeekContextPlacementAudience Segments

Website

AD

Des

ired

Targ

etin

g A

ttrib

utes

?

100 milliseconds

Exchange / SSP

Platform 1

Platform 2

Platform 3

Hotel Ad

Auto Ad

Bid Price: $1.30

Bid Price: $1.50

Platforms (DSP/Ad Network)

Attributes:GeoTime of DayDay of WeekContextPlacementAudience Segments

Website

AD

Des

ired

Targ

etin

g A

ttrib

utes

?

100 milliseconds Source: netmining.com and CIRA

19

New Areas – Exchanges, RTB, Mobile, Video

2010 US Online Display Advertising – RTB vs. Non-RTB Exchange Buying

Source: Forrester

Other91.7%

RTB4.0%Non-RTB Exchange

4.3%

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2010 2011E 2012E 2013E 2014E 2015E

€bn

Mobile Ad Spend Forecast (Global, €m)

Source: GroupM, IHS Screen Digest, CIRA

New business models developing: More granular data – online inventory can be bought/sold on audience profile of

specific user Speed of delivery increased – optimising buying points through real time buying

New/growth areas: Real time bidding, Data analytics, Mobile advertising, Online Video advertising

20

Table of Contents

1.

2.

Internet Stocks Overview

Internet Market Overview

2

10

3. The Rise Of Social Media & Facebook 18

4. The New Internet Growth Drivers 27

21

Facebook Has The Greatest Share Of Time Spent Online

Source: comscore

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Facebook.com Google Sites Yahoo! Sites Microsoft Sites AOL

Top 5 Websites – U.S. Share of Time Spent (minutes) Online

22

Facebook Is Becoming A Utility

In 2010, Social Networks were comparable to search toolbars as a source of information for users

Source: McKinsey & Co., U.S. users 13-64 years old

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engin

es

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toolb

ars

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arks

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age

Direct

entry

Portal

sites

Links

from fri

ends

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Site

s us

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obt

ain

cont

ent (

% u

se)

2008 2009 2010

23

Brands On Facebook Are Becoming Popular

Coke, Disney & Starbucks Are Among The Most Popular Brands On Facebook

Brand Fans (MMs) Brand Fans (MMs)1 Coca-Cola 34.3 16 Xbox 11.32 Disney 28.6 17 Nutella 11.33 Starbucks 25.2 18 adidas Originals 11.14 Oreo 23 19 Dr. Pepper 10.55 Red Bull 22.4 20 Victoria's Secret Pink 10.46 Converse All Star 20.8 21 McDonald's 10.47 Converse 20.1 22 ZARA 10.18 Skitles 19.3 23 Disney Pixar 109 PlayStation 17.3 24 Starburst 10

10 iTunes 16.9 25 Walmart 9.211 Pringles 15.5 26 Nike Football 8.912 Victoria's Secret 15.3 27 Burberry 8.413 Windows Live Messenger 14.3 28 H&M 8.314 Monster Energy 12.3 29 BlackBerry 8.315 Ferrero Rocher 12.2 30 Subway 8.2

Source: Socialbakers.com; September 2011

24

More Marketing Budgets Going To Social Media

Social Media marketing budgets are expected to increase significantly in 2011

Source: MarketingSherpa, 2011 U.S. marketers

-16%

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Broadcast advertising

Telemarketing

Print advertising

Direct mail

Email

Online advertising

Search (SEO/PPC)

Landing page optimisation

Content creation

Website upgrades

Social Media

DecreaseIncrease

25

If The Last Ad Recovery Went To Google?...

0%

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2003 2004 2005 2006 2007 2008 2009 2010

'Net As % Of Total U.S. Ad Spend GOOG As % Of Total U.S. Ad Spend

26

…Where Will The Next Ad Recovery Go?... Facebook?

Facebook is the largest ad publisher in all five ad markets reported by comScore, with almost a quarter of all display ads in four of five countries

Source: Ad Metrix, October 2011

26%

26%

19%

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24%

460 MM

76 MM

70 MM

70 MM

58 MM

27

Social Networking Share Make Up 1/3 of Total Display Ads

Source: comScore Ad Metrix, October 2011

28

Implications for U.S. Internet…CPM Deflation?

2010 Ad Impressions By Online U.S. Sites – Facebook > Yahoo! + Microsoft + AOL

Site Ad impressions (MMs)

Facebook 1,019,891

Yahoo 529,378

Microsoft 243,879

Fox Int Media 200,175

AOL 130,159

Google 128,247

Turner Digital 74,958

Glam Media 44,054

eBay 32,884

ESPN 32,405

Source: comscore

29

Signs Of CPM Deflation Showing Up In The P&L?

…And We Saw Display Ad Weakness at AOL, WebMD, Demand Media, etc.Source: Company Documents

Yahoo’s Display Ad Revenue Grew An Anemic 2% Y/Y In Q2…

$491

$635

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$514 $514

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2%

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Gross Display Revenue Y/Y Grow th

Yahoo Gross Display Ad Revenue ($ MMs)

30

Table of Contents

1.

2.

Economic Overview

Online Advertising Trends

2

10

3. The Rise of Social Media & Facebook 18

4. The New Internet Growth Areas 27

31

1. Mobile Internet - > $2.5B Revenue Run Rate

2. TV/Video Advertising – Budgets Are (Finally) Shifting

3. Facebook – Disruptive Impact of Social Networks

4. Cloud Services – Web Hosted Apps Are Increasing

5. Digital Goods – Apps, Micro-Transactions…

6. Local ‘Net Advertising Market – M&A Focus

New Internet Growth Drivers

32Sources: Gartner, CIRA Estimates

2007 2008 2009 2010E 2011ESmartphone Units (MMs) 122 139 172 264 339 Y/Y Growth 53% 14% 24% 53% 29%% of Total Handsets 11% 11% 14% 19% 23%

Google’s Android indirect monetization route has achieved a $2.5B revenue contribution level.

OpenTable receives approx 15% of its restaurant reservations via its iPhone app.

eBay estimates $5B worth of goods to be purchased via mobile in 2011 (up from $2B in 2010).

1) Smartphones – Global Sales Expexted To Be Robust

33Sources: PriceWaterhouseCoopers, IAB, CIRA; Magna data

($ in Billions)

Internet, $26

Outdoor, $6

Radio, $15

Television, $55

Magazines, $16

Newspapers, $23

Directories , $7

Direct Mail, $20

2) TV - $55B TV Ad Market Is The Largest Ad Category

34

3) Facebook & The Rise Of All Things Social

There are ~1B unique viewers of Social Network Sites, and Facebook has the lion-share with 800MM registered users.

At f8, Facebook announced that 50% of its 800MM users logged on in one day – a first ever

200

800

Facebook Other SNS

Source: Vincenzo Cosenza www.vincos.it, License: CC-BY-NC, Google Trends for Websites /Alexa

Source: IDC, Facebook, comScore

Global Monthly Social Network Users (MMs) World Map Of Social Network Users (June 2011)

35Sources: CIRA; IDC Forecasts

About half of US and European CIOs plan to implement cloud technologies in some capacity over the next 12 months; however, it is largely on a small, trial basis.

It comes as no surprise to us that the biggest impediment to cloud deployment is security.

Overall, we view cloud as a growth driver for certain ‘Net companies (e.g. AMZN, AKAM, GOOG, etc.), but it is still likely 1-2 years out.

$55.5

$43.8

$16.5

$22.2

$28.7

$35.9

34%

30%

25%27%

22%

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2009 2010E 2011E 2012E 2013E 2014E

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Cloud Services Revenue (in $B) Y/Y Growth

4) Cloud (Services) Are Getting Brighter

36

5) All Things…Digital Goods (and In-Game Advertising)

Sources: CIRA, Company Reports

Zynga Revenue & Growth

$100,927

$170,674

$195,759

$242,890

$130,099

$279,144

115%141%

550%

588%

251%

445%

3/10A 6/10A 9/10A 12/10A 3/11A 6/11A

37

6) The Local Net Advertising Market

Sources: CIRA, Company Reports

"Company G" Revenue & Growth

$20,272

$81,779

$172,224

$295,523

$392,582

$430,160

$38,666

1,358%

915%

426%

1,947%1,761%

3,098%

3/10A 6/10A 9/10A 12/10A 3/11A 6/11A 9/11A

Revenue (000s) Y/Y Growth

38 Sources: CIRA, Company Reports

Digital Goods

Local

Cloud Computing

Facebook/ Social

Video Ad Growth

Mobile Internet

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Digital Goods

Local

Cloud Computing

Facebook/ Social

Video Ad Growth

Mobile Internet

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Large Cap Internet Beneficiaries