Internet - Jefferies · page 2 of 49 Jefferies US Internet Team, ... of front-end and back-end...

INDUSTRY NOTE

USA | Technology

Internet April 10, 2013

InternetFulfillment / Same-Day: The Next Killer App

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Jefferies US Internet Team *Jefferies Equity Research

[email protected] Pitz *

Equity Analyst(212) 336-7413 [email protected]

Brian Fitzgerald *Equity Analyst

(212) 284-2491 [email protected] O'Shea *

Equity Associate(212) 284-3415 [email protected]

Sachin Khattar, CFA *Equity Associate

(212) 323-3381 [email protected] Velikov, CFA *

Equity Associate(212) 284-2140 [email protected]

* Jefferies LLC

Key TakeawayWe believe fulfillment and omni-channel capabilities represent the next highground in the eCommerce war. The winners are not clear yet but major playersare investing heavily. For now, Amazon and eBay have the most comprehensiveofferings longer-term but leaders could change any time; more than a fewother players are close behind. We reiterate our Buy ratings on AMZN and EBAY.

Fulfillment is becoming critical for commerce as an impending online sales taxshould soon neutralize any price advantage online retailers had. When this happens, webelieve, fulfillment options will become a differentiating feature for many online (andoffline) retailers. At the same time, Local becomes the new battleground in commerce.While 90% of all retail still happens in brick-and-mortar stores, 75% of total spending iswithin 15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving thetransition to a world where it is expanding commerce beyond conventional stores andeCommerce websites. In such an omni-channel world consumers have multiple touchpoints with a brand / retailer and these have to be well integrated and optimized for aseamless user experience. We believe the growing importance of fulfillment and omni-channel already drives retailers to explore options beyond free shipping.

With free shipping now available on approximately 50% of orders, retailersalready feel renewed pressure to explore new fulfillment options. Over the past 2-3 years,competitive pressure and customer expectations have pushed online retailers to offer free /reduced shipping on an increasing number of orders with constantly shrinking minimumorder requirements. Today, free / reduced shipping is a "must have" in eCommerce andonline retailers are focusing their attention on the next wave of options that could give thema leg up on competition. Currently, same-day delivery and delivery to local securelockers where customers pick up their goods on their own time schedule seem to bethe biggest focus. With most of these services still in beta test, the landscape is constantlychanging but we believe the major contenders have already emerged.

Major players: There are generally three types of players in fulfillment – those that onlyfulfill, those that sell and fulfill, and those that source, sell and fulfill. For now, the firsttype are largely niche (location based) start-ups that have expanded from running errandsfor customers into same-day delivery. The other two types have the highest stakes in thegame and are the ones, we believe, most likely to drive fulfillment into new territories. Keyplayers here include not only the usual suspects - Amazon and eBay - but also Google,big national retailers, and the USPS.

Potential winners: While it is not clear yet if consumers are actually ready to pay (and howmuch) for same-day delivery and similar services, the competition in fulfillment is on andmajor players are already investing. Which aspects of fulfillment (e.g. speed, flexibility, cost)will prove more important to consumers could determine which of the existing offeringswill survive and thrive. Currently, we believe, Amazon and eBay have the mostcompelling offerings. Amazon is a clear leader, based on number of services, globalfulfillment center footprint, and ability to manage demand elasticity through its digitalassets. And while many retailers are wary of using Amazon as a channel, we believe longer-term it could become their best partner, especially for branded products/retailers (sellingexclusive inventory through Amazon). eBay has partnered with top national retailers (whilemaintaining neutrality) and, in our view, has the most compelling offering that helpsretailers leverage their own brands and assets to evolve their multi-channel strategies. Itsproducts enable retailers to address the full opportunity of the converging online and offlinemarkets. And while most of the other contenders' offerings are still in beta mode (i.e. couldchange materially), a few stand out as potentially strong enough to compete with Amazonand eBay. We believe two to keep an eye on are Walmart and Google.

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 45 to 49 of this report.

Key Takeaways

Fulfillment is becoming critical for commerce as an impending online sales tax should

soon neutralize any price advantage online retailers had. When this happens, we believe,

fulfillment options will become a differentiating feature for many online (and offline)

retailers. At the same time, Local becomes the new battleground in commerce. While

90% of all retail still happens in brick-and-mortar stores, 75% of total spending is within

15 miles of shoppers' homes. Mobile is changing the picture, too. It is driving the

transition to a world where it is expanding commerce beyond conventional stores and

eCommerce websites.

Reiterating Buy ratings on AMZN and EBAY

In the ongoing eCommerce war, we believe, Amazon and eBay have the most

comprehensive next-gen offerings and seem best positioned to benefit from these

fundamental trends. Amazon is a clear leader, based on number of services, global

fulfillment center footprint, and ability to manage demand elasticity through its digital

assets. And while many retailers are wary of using Amazon as a channel, we believe

longer-term it could become their best partner, especially for branded products / retailers

(selling exclusive inventory through Amazon). eBay, at the same time, has partnered with

top national retailers (while maintaining neutrality) and, in our view, has the most

compelling offering that helps retailers leverage their own brands and assets to evolve

their multi-channel strategies. Its products enable retailers to address the full opportunity

of the converging online and offline markets.

Amazon

Near term, we will likely see a more significant impact to Amazon's CapEx growth as the

company continues to aggressively build out fulfillment centers domestically and

internationally. We expect FC build out for this year to peak in late Q2 into Q3, with a

slowdown just ahead of the 2013 holiday season. So far, Amazon has commitments (part

of state tax agreements) to build 9 new FCs in the US over the next 2 years and we

estimate it could eventually build 5-10 more to rationalize its US footprint. According to

Marc Wulfraat, President of MWPVL International, a supply chain and logistics consulting

firm, having 40-45 facilities in the US is probably sufficient to cover the Top 20 markets for

same-day delivery. However, internationally Amazon could grow its presence materially,

especially in Australia, South America, Eastern Europe, and India. We estimate it could

open another 10-15 within the next 2-3 years.

We continue to expect Amazon to support additional same-day and next-day shipping

tests, as we consistently see with Quidsi and Zappos products in several markets. We

anticipate same-day tests will begin and grow on the core Amazon.com site by year end

in some markets.

Longer term, as Amazon drives same-day and next-day shipping into the top 20 or top

50 US markets (and eventually into the larger international markets), we believe same-day

shipping will drive reaccelerating unit growth; the earliest impact could even begin in Q4

2013, but most likely will have a longer term impact in 2014 and beyond.

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April 10, 2013

page 2 of 49 , Jefferies Equity Research, [email protected] US Internet Team

Please see important disclosure information on pages 45 - 49 of this report.

eBay

Near term, eBay may have the performance edge as the Marketplaces / PayPal / GSI

combo, with their combination of front-end and back-end eCommerce and digital

marketing solutions, gives retailers competing against Amazon a real fighting chance.

Further, the very nature of eBay being on the "retailers’ team" and enabling overall omni-

channel commerce will likely be a huge selling point for eBay's services, especially among

the offline sellers of commoditized goods.

Longer term, we believe the biggest challenges for eBay will be achieving significant

scale in fulfillment and same-day shipping, though we are in no way counting them out

of the competition.

Over time, as consumers begin to digest and appreciate the value of same-day shipping,

and eventually even start to EXPECT or REQUIRE near instantaneous shipping, we believe

the next leg down for traditional brick-and-mortar could begin... As competing with this

service level will likely be very difficult from a cost perspective.

Offline – who wins, who loses?

Amazon IS indeed a competitor in many product categories – again, namely in consumer

products – with the likes of Best Buy; that is unlikely to change. And we believe that same-

day shipping capabilities could provide the next level of pain for the offline retailers in

these categories. If Amazon is successful in its same-day shipping efforts, some of these

retailers could give Amazon exclusive inventory to ship same day, replacing their tradition

fulfillment businesses.

We believe that unique product brands that sell almost exclusively through their own

stores or exclusive channels could win while commodity product sellers of consumer

electronics, media (books, movies, video), etc. would likely lose.

The net of it all...

Amazon may actually become LESS of a competitor to some players in the offline world

over time as larger brands (specialty, luxury, exclusive) decide that "if you can't beat 'em,

join 'em" strategy could actually work and allocate a certain percentage of their inventory

to Amazon's FBA (many already provide eBay with access to exclusive SKUs and

inventory)... Think about it... Why should specialty retailers maintain 1,000's of specialty

stores / fulfillment centers when one could maintain a fraction of those stores as

strategically well-placed "showrooms" to allow consumers to satisfy their need to

occasionally view actual merchandise?

Let's use an example such as the offline retailer Lululemon; once the customer can try on

a pair of yoga pants and determine that she is size small in a flagship store; she can order

new styles and colors directly online - and potentially even have them delivered to her

hotel in a few hours if she forgets them on a business trip. (Note: there isn’t a single

Lululemon product to be found on Amazon’s site). Our sense is that Lululemon would

not pay to actually provide that level of service to their customer direct from their stores,

but why not someday leverage the most efficient supply chain platform in the world in an

exclusive merchandise deal with Amazon? Some 39% of units Amazon sells on its site are

already from third parties. Why, with the success of FBA, shouldn't that number represent

70% of total units? We think it could.

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The Race in eCommerce Fulfillment Convenience is one of three major components, along with selection and price, which

drive consumers to choose one retailer over another (offline and online alike). And

flexibility or choice of fulfillment options is a critical element of convenience, we believe.

In the early days of eCommerce, free / reduced shipping was the exception and usually

was tied to requirements of minimum order size. Later, the order size requirements began

to shrink and in the past 2-3 years completely disappeared, particularly during the holiday

shopping season. The reasons for this trend, however, were not that retailers were getting

more generous but rather that they were responding to customer and competitive

pressure. According to a January 2013 comScore survey, without free shipping,

54% of consumers would abandon a purchase. Per comScore, the number of

transactions with free shipping continues to increase – from roughly 35% in

2008 to 47% in 2012.

Exhibit 1: Free Shipping Penetration Continues to Grow

Source: comScore, Jefferies

Now that free / reduced shipping has pretty much established itself as a

“must have” for online retailers, the battle for customers is moving to new

frontiers in fulfillment, such as same-day delivery and delivery to local secure

lockers where customers pick up their goods on their own time schedule. This

trend is further accelerated by increasing local competition and an impending Internet

sales tax. Amazon has been in this game probably the longest but this fact has not

discouraged a growing list of competitors to enter the field. It is still the first inning of a

game that could take years to play out but we have already seen what happens with

losers – Kozmo and Urbanfetch, two companies that offered free one-hour delivery in the

late 1990’s, crashed and burned spectacularly in the last Internet bubble. Now most

players have more sound and profitable business models or simply are so big that they

could afford to keep a loss leader that builds customer loyalty and doesn’t give

competitors a lot of breathing space.

35%42% 43% 46% 47%

65%58% 57% 54% 53%

2008 2009 2010 2011 2012Transactions w/ Free Shipping Transactions w/ Paid Shipping

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Key Players There are generally three types of players in the fulfillment game – those that only fulfill

(F), those that sell and fulfill (SF), and those that source, sell and fulfill (SSF). Currently,

in addition to Amazon (SSF), major players include eBay (SF), Walmart (SSF) and Google

(SF) – all three of them testing a variation on same-day delivery service (and all three still

in beta). The list of other players includes Barnes & Noble (SSF), Nordstrom (SSF), the US

Postal Service (F) and start-ups such as Exec (F), Instacart (F), Postmates (F), Shutl (F),

TaskRabbit (F), and WunWun (F).

Amazon Amazon is one of the largest online retailers in the world and currently has one of the

most comprehensive fulfillment offerings; it includes free shipping, same-day delivery,

and delivery to a neighborhood locker.

Free Shipping

Amazon Prime, the company’s membership program, offers free two-day shipping on

millions of eligible items with no minimum order size; for all other items, standard or no-

rush shipping is also free. Shipping upgrades for expedited delivery in the US are available

too. Prime Members also enjoy unlimited instant streaming of more than 33,000 movies

and TV episodes as well as access to the Kindle Owners’ Lending Library where they can

borrow one Kindle book for free each month. All this for a $79 annual fee. By far, in our

opinion, Amazon Prime has been the gold standard in free / reduced shipping that other

online retailers are trying to match.

Exhibit 2: Amazon Prime

Source: Amazon, Jefferies

Same-Day Delivery

Amazon also offers Local Express Delivery, a same-day delivery service available in 10

metro areas – Baltimore, Boston, Chicago, Indianapolis, Las Vegas, New York City (and

parts of New Jersey), Philadelphia, Phoenix, Seattle, and Washington, DC. It costs $3.99

per item for Prime members and $8.99 per shipment + $0.99 per item for non-members

(gift cards $3.99 per shipment). The cut-off times vary from 7am in Chicago and

Amazon Prime offers free two-

day shipping on millions of

eligible items with no minimum

order size; for all other items,

standard or no-rush shipping is

also free

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Indianapolis to 12pm in Seattle. Orders placed after the deadline are delivered the next

business day with Saturday and Sunday delivery available for certain locations.

Local Express Delivery was launched in October 2009 in seven metro areas – Baltimore,

Boston, Las Vegas, New York City, Philadelphia, Seattle, and Washington, DC. It covered

thousands of items and cost $5.99 per item for Prime members and $15-$20 per item

(based on category) for non-members. By holiday season 2009 it had expanded to

include Chicago, Indianapolis and Phoenix. Customers ordering as late as 10:00am-

10:30am (1:00pm for Seattle) could get their orders delivered the same day.

Delivery to Neighborhood Locker

Amazon Locker, another shipping service by the company, solves a different problem.

Shoppers who are unable to wait at home for delivery can pick up their Amazon package

from a secure locker at their own convenience. At check-out, for eligible items, users can

select a convenient locker location and, once the package arrives there, they receive an e-

mail or text message with instructions and a unique pick-up code. Packages are available

for pick-up for three business days after receipt of notice. Complementary to other

shipping options, Amazon Locker is free and is currently available in Seattle, New York

City, and some shopping centers in the UK. Reportedly, Amazon has signed agreements

with 7-Eleven, RadioShack, Rite Aid, and Staples for hosting its lockers in their national

chain locations.

Exhibit 3: Amazon Locker

Source: Internet, Jefferies

“White Truck” Network for Localized Delivery

Reportedly, for the “last mile” of its services Amazon has engaged several “white truck”

companies that offer local delivery in numerous cities. The list of its partners includes A-1

Express and Dynamex, for Local Express Delivery, and Ensenda, LaserShip, OnTrac,

and Prestige for Prime deliveries. While it’s hard to control the quality of user experience

completely, by leveraging third-party carriers with established infrastructure in major

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markets, Amazon can enter new markets quickly and can spare itself the investment in a

fleet of its own. Later, the company can always decide to bring this aspect of fulfillment

in-house, once demand levels and the economics become clearer.

Excellence in Order Processing

Another piece of Amazon’s fulfillment platform is Kiva Systems, maker of robotic order

fulfillment systems which streamline the process of picking, packing and shipping

eCommerce orders for delivery. Amazon closed the acquisition of Kiva in May 2012 but its

Quidsi (Soap.com and Diapers.com) business had been using Kiva robots since before

2010. While we believe management may not initially plan to retrofit Kiva robots into all

existing FCs (based on existing fulfillment centers’ layout / type), we believe all newly-

built ones will feature the systems. Kiva’s integrated inventory storage, quality control

and order fulfillment systems not only expedite order processing (2-3x vs. pick-to-

conveyor and 5-6x vs. manual pick-to-cart / pick-to-pallet environments, according to

MWPVL International) but also improve order accuracy and optimize warehousing. Its

adaptive and dynamic software algorithms are constantly seeking new efficiencies to

improve throughput. Such optimization helps cut costs in more than one way. According

to the two Quidsi co-founders, thanks to Kiva robots, the company was able to offer free

overnight shipping on orders over $25 to customers in about 70% of the US.

Kiva began working with companies like Staples and Walgreens in 2004 and today it

counts among its customers more than a dozen of the biggest retailers in the US

including Crate & Barrel, Drugstore.com, Gap, Gilt Groupe, Office Depot, Saks Fifth

Avenue, and Toys “R” Us. Kiva Systems might as well prove the driver behind Amazon’s

Local Express Delivery service as its efficiency is hard to match. Since Kiva does not require

batching and waving of orders, any online order can be processed in as little as 15

minutes (from the time a shopper places the order to when his/her picked, packed and

labeled package is sitting on a delivery truck). This compares to a roughly 2-hour average

processing time in current Amazon fulfillment centers.

Exhibit 4: Kiva Robots in Action at a Warehouse

Source: Internet, Jefferies

While Kiva has many advantages, it may not be well-suited for all fulfillment settings. Kiva

systems sacrifice cubic volume and there is no way to take advantage of warehouse

height. In addition, according to some retailers (Kiva customers), its replenishment

software is not as robust as other applications and it doesn't integrate well with outbound

sortation software of any kind. We believe this is an opportunity for Amazon to improve

Online orders can be processed

in as little as 15 min in FCs with

Kiva robots (pictured below) vs.

an average of ~2 hrs for current

Amazon FCs

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Kiva’s software stack (Amazon is well known for its expertise) and re-launch its products

in the market. Perhaps this was one reason Amazon bought Kiva in the first place – being

able to re-engineer the product and make it even better.

Digital Content

While it may seem strange, digital content is another weapon in Amazon’s arsenal that

helps the company control shipping costs if not make its fulfillment offerings better than

competitors’. Starting in 2H11, Amazon began offering Prime Members who would agree

to downgrade their shipping (from the standard for Prime 2-day shipping) the option to

earn credit ($1 per order, increased to $3 in 2H12) that can be used for digital downloads

from the Amazon MP3 Store or for a movie from Amazon Instant Video. The new shipping

option, called No-Rush Shipping, allows Amazon to ship orders for delivery in 5-7 days

and thus more effectively balance shipping loads during critical shopping periods.

Exhibit 5: Digital Content as Load Balancer


The combination of Prime, Amazon Locker, and Local Express Delivery helps create the

most comprehensive fulfillment service existing today, in our view. How these services fit

into Amazon’s overall strategy can be gleaned, we believe, from the company’s evolving

position on the question of online sales tax and its push for new domestic fulfillment

centers. Until 2011-12, Amazon waged a high-profile war on the issue of eCommerce tax

with populous states such as New York, California, and Texas (note: its New York tax case

is currently in state appeals court); and new fulfillment center locations, we think, may

have been equally based on proximity to customers as well as on state tax laws.

Expanding Domestic Footprint While Striking Advantageous Tax Windows

Then, in late 2011, the company made an abrupt turn and began striking deals with state

and local governments that granted Amazon tax holidays of different length in exchange

for commitments to build new fulfillment centers and employ thousands of people. It also

initiated a campaign to encourage comprehensive resolution of the tax question on the

federal level instead of the piecemeal approach by individual states. This, we believe, was

triggered by Amazon’s insight that 1) the days of no online sales tax were numbered, 2)

fast local delivery can be a great competitive weapon that reinforces an online retailer’s

offline presence, and 3) many state and local governments were willing to sign

accelerated deals given their financial situations. In a matter of 16 months (beginning

with California in September 2011) Amazon reached agreements with 8 states.

While some might argue that an online tax is a potential near-term negative catalyst for

eCommerce stocks, we believe the real impact should be fairly insignificant. Amazon has

been collecting for years punitive VAT in many international locations and this has not

had any discernible impact on international sales growth rates. In fact, as we have seen in

states such as NY, the imposition of sales tax did not really impact sales;

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ultimately – price, selection and service (along with convenience and speed, which are

service-related derivatives) are the main levers that resonate with online shoppers.

In Exhibit 6 below, we take a look at Amazon’s US operational footprint with a tax overlay.

We believe, the company will continue to expand its presence in select states, primarily

those that provide optimal infrastructure and proximity to markets with high

concentration of Amazon.com customers who are most likely to choose same-day

delivery if offered.

Exhibit 6: Current View of Amazon’s US Sales Tax Footprint


Amazon currently collects taxes in 9 states – Arizona, California, Kansas,

Kentucky, New York, North Dakota, Pennsylvania, Texas, and Washington. In

the second half of 2013, the company has agreed to begin collecting taxes in 4 other

states – Connecticut, Massachusetts, New Jersey, and Virginia. Following that, in 2014

Amazon will begin collecting taxes in Indiana, Nevada and Tennessee; and in 2016 it adds

South Carolina to its tax rosters. So that’s 16 states by 2016.

Currently, the company has operations in the following (21) states: Arizona, California,

Delaware, Georgia, Indiana, Kansas, Kentucky, Michigan, New Jersey, Nevada, New

Hampshire, New York, North Dakota, Pennsylvania, South Carolina, Tennessee, Texas,

Virginia, Washington, Wisconsin, and West Virginia. Included here is a mix of both

operational / business headquarters as well as fulfillment (FC) and customer service (CSC)

centers. The following exhibit shows Amazon’s current customer service center footprint.

The company has announced plans to open 1 new CSC in Kentucky in 2013.

●States currently collecting online sales taxes (AZ, CA, KS, KY, NY, ND, PA, TX, WA)

●States collecting online sales taxes starting in 2H13(CT, MA, NJ, VA)

●States collecting online sales taxes starting in 2014(IN, NV, TN)

●States collecting online sales taxes starting in 2016(SC)

●States with an Amazon.com point-of-presence or affiliated business -- zappos, woot!, audible.com, quidsi, etc.(AZ, CA, DE, GA, IN, KS, KY, MI, NJ, NV, NH, NY, ND, PA, SC, TN, TX, VA, WA, WI, WV)

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Exhibit 7: Amazon Customer Service Centers

Source: Amazon (http://www.amazon.com/b/?node=239366011), Jefferies

The following exhibit shows what we believe is Amazon’s worldwide fulfillment center

footprint as of 1Q13. By our estimates, excluding Quidsi and Zappos, the company

operates close to 90 fulfillment centers globally with a total space in excess of

55MM square feet. Reportedly, Amazon had plans to open a fulfillment center in

Mumbai, India in 2012 but we couldn’t find a confirmation of this. In addition, we

understand that a new fulfillment center is planned to open in France sometime in 2013.

Exhibit 8: Amazon International Fulfillment Centers

Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies

Americas Europe Asia

United States United Kingdom China

North Dakota Edinburgh, Scotland Beijing

Washington Ireland India

West Virginia Cork Hyderabad

Costa Rica Germany Japan

Heredia Berlin Sapporo

San Jose Regensburg

North America Europe Asia

United States United Kingdom China

Arizona (4) Hemel Hempsted, Hertfordshire Beijing (2)

California Marston Gate, Milton Keynes Chengdu

Delaware (2) Swansea, Wales Guangzhou

Indiana (5) Dunfermline, Fife, Scotland Shenyang

Kansas Gourock, Inverclyde, Scotland Suzhou

Kentucky (7) Doncaster, South Yorkshire Wuhan

Nevada (2) Peterborough, Cambridgeshire Xiamen

New Hampshire Rugeley, Staffordshire Xi'ian

Pennsylvania (6) Germany HaErbin

South Carolina (2) Augsburg Kunshan

Tennessee (5) Bad Hersfeld (2) Nanning

Virginia (3) Koblenz Tianjin

Washington (2) Leipzig Japan

Canada Pforzheim Ichikawa

Toronto Rheinberg Sakai

Vancouver Werne Yachiyo

France Daito

Montelimar Kawagoe City

Saran (Orléans) Kawajima

Sevrey Sayama

Italy Tajimi

Castel San Giovanni Tokoname City

Spain Tosu

San Fernando de Henares Yoshinodai

By our estimates, Amazon

operates close to 90 Fulfillment

Centers globally with a total

space in excess of 55MM sq ft

See pages 12-15 for a more

detailed listing of Amazon’s

Global Fulfillment Center

footprint including size,

location, etc.

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http://www.amazon.com/b/?node=239366011

The following exhibit shows Amazon’s current US fulfillment center footprint. The

company operates 41 fulfillment centers with an estimated 33MM square feet of space

and has announced plans for 9 new FCs to open over the next 2 years.

Exhibit 9: Amazon US Fulfillment Centers (Total Number if >1)

Source: Amazon, MWPVL International, Foursquare, Google, FCC.gov, Jefferies

State Operational Planned

Arizona Goodyear

Phoenix (3)

California Ontario / San Bernardino Patterson

Tracy

Connecticut TBD

Delaware Middletown

New Castle

Indiana Indianapolis

Jeffersonville

Plainfield (2)

Whitestown

Kansas Coffeyville

Kentucky Campbellsville

Hebron (3)

Lexington (2)

Louisville

Nevada Fernley

Las Vegas

New Hampshire Nashua

New Jersey Robbinsville

TBD

Pennsylvania Breinigsville / Allentown (2)

Carlisle (2)

Hazleton

Lewisberry

South Carolina Cayce / Lexington

Spartanburg

Tennessee Charleston / Cleveland

Chattanooga

Lebanon (2)

Murfreesboro

Texas Schertz

Coppell

Haslet

Virginia Chester

Petersburg

Sterling

Washington Bellevue DuPont

Sumner

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The continuing build out of fulfillment centers is helping the company manage shipping

costs more effectively. While these costs keep growing (outpacing revenue growth from

4Q10 to 1Q12), the pace is currently decelerating and in 4Q12 reached its lowest point in

over three years.

The following exhibit gives a comprehensive view of Amazon’s global presence from a

geo-spatial perspective. It includes offices, fulfillment centers, customer service centers,

data centers, and software development centers.

Exhibit 10: Amazon Global Locations

Source: Amazon

Table 1: Amazon Worldwide Fulfillment Centers State / Country Amazon.com

Identifier

Address / Location Opened Size Type

Arizona PHX4 16920 W Commerce Dr

Goodyear, AZ 85338-3620

Jun '08 1.4MM sq ft Non-sortable

PHX3 6835 W Buckeye Rd

Phoenix, AZ 85043-4428

Sep '07 1.0MM sq ft Big sortable

PHX6 4750 W Mohave St

Phoenix, AZ 85043

Oct '10 1.2MM sq ft Big sortable

PHX7 800 N 75th Ave

Phoenix, AZ 85043

Sep '11 1.2MM sq ft

California ONT2 1910 E Central Ave

San Bernardino, CA 92408

Oct '12 950K sq ft

Delaware PHL7 560 Merrimac Ave

Middletown, DE 19709-4652

Oct '12 1.2MM sq ft

PHL1 1 Centerpoint Blvd

New Castle, DE 19720-4172

Nov '97 202K sq ft Big sortable

Indiana IND4 710 S Girls School Rd

Indianapolis, IN 46231-1132

Jun '11 903K sq ft

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Identifier


SDF8 900 Patrol Rd

Jeffersonville, IN 47130-7761

Oct '12 1.0MM sq ft

IND2 715 Airtech Pkwy

Plainfield, IN 46168

Oct '08 943K sq ft Non-sortable

IND5 800 Perry Rd

Plainfield, IN 46168-7637

Aug '11 926K sq ft

IND1 4255 Anson Blvd

Whitestown, IN 46075-4412

Aug '08 1.0MM sq ft Big sortable

Kansas TUL1 2654 N US Highway 169

Coffeyville, KS 67337-9254

Apr '99 750K sq ft Big sortable

Kentucky SDF1 1048 S Columbia Ave

Campbellsville, KY 42718-2454

May '99 770K sq ft Big sortable

CVG1 1155 Worldwide Blvd

Hebron, KY 41048-8648

Jun '05 427K sq ft Specialty

CVG2 1600 Worldwide Blvd

Hebron, KY 41048-8640

Dec '05 543K sq ft Specialty

CVG3 3680 Langley Dr

Hebron, KY 41048-9135

Jul '07 711K sq ft Replenishment

LEX1 1850 Mercer Rd

Lexington, KY 40511-1013

Nov '00 604K sq ft Big sortable

LEX2 172 Trade St

Lexington, KY 40511-2607

Jun '06 380K sq ft Returns Center

SDF2 4360 Robards Ln

Louisville, KY 40218-4512

Sep '05 110K sq ft Specialty

Nevada RNO1 1600 Newlands Dr E

Fernley, NV 89408-8903

Jan '99 786K sq ft Big sortable

LAS2 3837 Bay Lake Trl

North Las Vegas, NV 89030

Oct '08 284K sq ft Small sortable

New Hampshire BOS1 10 State St

Nashua, NH 03063-1012

Jul '07 64K sq ft Small sortable

Pennsylvania ABE2 705 Boulder Dr

Breinigsville, PA 18031-1533

Jul '10 600K sq ft Big sortable

ABE3 650 Boulder Dr

Breinigsville, PA 18031-1536

Jun '11 997K sq ft

PHL6 675 Allen Rd

Carlisle, PA 17015-7788

Aug '10 1.2MM sq ft Non-sortable

PHL4 21 Roadway Dr

Carlisle, PA 17015-8806

Sep '10 559K sq ft Non-sortable

AVP1 550 Oakridge Rd

Hazleton, PA 18202-9361

Jul '08 630K sq ft Replenishment

PHL5 500 McCarthy Dr

Lewisberry, PA 17339-8725

Aug '10 750K sq ft Non-sortable

South Carolina CAE1 4400 12th Street Ext

Cayce, SC 29172-3300

Oct '11 1.0MM sq ft

GSP1 402 John Dodd Rd

Spartanburg, SC 29303-6312

Oct '12 1.0MM sq ft

Tennessee CHA2 225 Infinity Dr NW

Charleston, TN 37310-1400

Sep '11 1.2MM sq ft

CHA1 7200 Volkswagen Dr

Chattanooga, TN 37416-1757

Sep '11 1.0MM sq ft Big sortable

BNA1 14840 Central Pike

Lebanon, TN 37090-8118

Sep '11 449K sq ft

BNA2 500 Duke Dr

Lebanon, TN 37090-8123

Oct '12 1.0MM sq ft

BNA3 2020 Joe B Jackson Pkwy

Murfreesboro, TN 37127-7792

Oct '12 1.0MM sq ft

Virginia RIC2 1901 Meadowville Technology Pkwy

Chester, VA 23836-2841

Oct '12 1.1MM sq ft

RIC1 5000 Commerce Way

Petersburg, VA 23803-6917

Oct '12 1.0MM sq ft

BWI1 22630 Dulles Summit Ct

Sterling, VA 20166-9565

Oct '10 1.0MM sq ft Small sortable

Washington SEA8 1227 124th Ave NE

Bellevue, WA 98005-2111

Aug '07 313K sq ft Small sortable

BFI1 1800 140th Ave E

Sumner, WA 98390-9624

Jun '11 492K sq ft

Canada YYZ1 6363 Millcreek Dr

Mississauga, ON L5N 1L8

Feb '11 502K sq ft

450 Derwent Pl

Delta, BC V3M 6H4

Fall '12 194K sq ft

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Identifier


UK LTN1 Marston Gate Distribution Centre

Ridgmont

Milton Keynes, Bedfordshire MK43 0ZA

1998 550K sq ft

GLA1 2 Cloch Road, Faulds Park

Gourock, Inverclyde, Scotland PA19 1BQ

Jul '04 300K sq ft

CWL1 Ffordd Amazon

Crymlyn Burrows

Swansea, South Wales SA1 8QX

Apr '08 800K sq ft

EUK5 Phase Two, Kingston Park

Flaxley Road

Peterborough, Cambridgeshire PE2 9EN

Oct '09 500K sq ft

LBA1 Unit 1, Balby Carr Bank

Doncaster, South Yorkshire DN4 5JS

Dec '10 415K sq ft

BHX1 Towers Business Park

Power Station Road

Rugeley, Staffordshire WS15 1NZ

Aug '11 700K sq ft

EDI4 Amazon Way

Dunfermline, Fife, Scotland KY11 8ST

Nov '11 1.0MM sq ft

LTN2 Boundary Way

Hemel Hempsted, Hertfordshire HP2 7LF

Nov '12 450K sq ft

Germany FRA1 Am Schloss Eichhof 1

36251 Bad Hersfeld, Hessen

Aug '99 452K sq ft

FRA3 Obere Kuehnbach/ Amazonstrasse 1

36251 Bad Hersfeld, Hessen

Aug '99 1.2MM sq ft

LEJ1 Amazonstrasse 1

04347 Leipzig, Saxony

Sep '06 807K sq ft

EDE4 Wahrbrink 25

59368 Werne, North Rhine-Westphalia

Sep '11 1.4MM sq ft

DUS2 Amazonstrasse 1

47495 Rheinberg, North Rhine-Westphalia

Dec '11 1.2MM sq ft

MUC3 Amazonstrasse 1

86863 Graben, Bavaria

Dec '11 1.2MM sq ft

STR1 Amazonstrasse 1 / Bauschlotter Strasse

75177 Pforzheim, Baden-Wurttemberg

Sep '12 1.2MM sq ft

CGN1 Amazonstrasse 1 / Am Autobahnkreuz

56072 Koblenz, Rheinland-Pfalz

Nov '12 1.2MM sq ft

France ORY1 1401 Rue du Champ Rouge, Pole 45

45770 Saran, Loiret

Dec '07 753K sq ft

MRS1 Building 2 Rue Joseph Garde

ZAC Les Portes de Provence

26200 Montelimar

Aug '10 388K sq ft

LYS1 ZAC du Parc d'Activite du Val de Bourgogne

1 Rue Amazon

71100 Sevrey, Burgundy

Sep '12 431K sq ft

Italy MXP1 Parco Logistico Bertola

Via Dogana Po 2

29015 Castel San Giovanni

Oct '11 269K sq ft

Spain MAD4 Avenida de la Astronomia 24

28830 San Fernando de Henares (Madrid)

Jul '12 301K sq ft

China PEK3 Yizhuang, Beijing Apr '04 400K sq ft

SHA1 Suzhou, Jiangsu Nov '06 500K sq ft

CAN1 Guangzhou, Guangdong May '07 120K sq ft

CTU1 Chengdu, Sichuan Nov '09 194K sq ft

PEK5 Tongzhou, Beijing 2010 180K sq ft

XIY1 Xi'an, Shaanxi Aug '10

WUH1 Wuhan, Hubei Sep '10 300K sq ft

XMN1 Xiamen, Fujian Sep '10 17K sq ft

SHE1 Shenyang, Liaoning Oct '10

SHA2 Kunshan, Jiangsu Oct '11 1.3MM sq ft

TSN2 Tianjin, Tianjin Jan '12

NNG1 Nanning, Guangxi Nov '12 538K sq ft

HRB1 Harbin, Heilongjiang

Japan NRT1 Ichikawa, Chiba Nov '05 670K sq ft

KIX1 Sakai, Osaka Aug '09 731K sq ft

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Identifier


NRT2 Yachiyo, Chiba Oct '07 367K sq ft

NRT5 Kawagoe City, Saitama Jul '10 419K sq ft

KIX2 Daito, Osaka Nov '10 271K sq ft

HND1 Yoshinodai, Saitama 2011

HND2 Sayama, Saitama 2011

HND3 Kawajima, Saitama 2011

NGO1 Tokoname City, Aichi Apr '11

HSG1 Tosu, Saga Jul '12 244K sq ft

Tajimi, Gifu Dec '12 861K sq ft

India BOM1 Mumbai, Maharashtra 2012

Source: MWPVL International; Amazon, FCC.gov, Google, Foursquare, Jefferies

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eBay eBay is one of the biggest eCommerce platforms in the world and currently offers a

compelling suite of products and services that facilitate omni-channel commerce.

Same-Day Delivery

At this time, the company offers eBay Now, its same-day delivery service, only in San

Francisco, San Jose and parts of New York City. It works directly with hundreds of local

stores (those available on its Milo platform) including retailers such as Babies “R” Us, Best

Buy, Free People, GNC, Guitar Center, Home Depot, Macy's, Office Depot, Radio Shack,

Target, Toys “R” Us, Urban Outfitters, and Walgreens, thus circumventing the

warehousing issue. The service costs $5 per order while in beta and the minimum order is

$25 which can go up in periods of peak demand. Currently, eBay Now is available

through its mobile website (now.ebay.com) and an iOS app and users log in with their

eBay user ID. Shoppers fill their carts with items from participating retailers and place the

order by clicking a “Bring It!” button. Delivery takes about an hour depending on order

size, traffic, proximity of store(s), how busy stores are, and seasonal factors. The app

allows users to track the progress of their order by following the shopping valet who is

assigned to that order. Once they deliver the item, valets can help the shopper through

the checkout process (using PayPal Here on their cell phone). Accepted payment methods

include PayPal and major credit cards, no cash.

Exhibit 11: Screenshots of eBay Now App

Source: App Annie, Jefferies

The service launched in exclusive beta in Aug 2012 in San Francisco and expanded to

New York City and San Jose by early 2013. Beta testers were offered $15 off their first

order and the $5 delivery fee was waived on their first three orders. eBay continues to

work on the offering and this summer it will expand it to two new cities – Chicago and

Dallas. The company also plans to introduce a new feature – Scheduled Delivery – which

has been requested the most by current users.

While eBay doesn’t have Amazon’s fulfillment capabilities, its same-day delivery service

has a fighting chance of success, in our view, because the company can leverage several

of its strengths. First, its local shopping platform Milo, acquired in December 2010 for

$75MM, pulls real-time product inventory data from national retailers and local small

businesses. It thus gives users up-to-the-minute info which is crucial for same-day delivery

orders (reducing the number of instances when a shopper finds something in search

results only to discover on the merchant’s website that the item is out of stock). Second,

combining eBay Now with PayPal Here for the checkout makes the service that much

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more desirable for small local businesses that would likely choose PayPal over other

payment services if that comes with being able to list their inventory in the eBay Now

database. Third, eBay’s no conflict of interest could be another strong magnet for national

and local retailers. Theoretically, as it gathers enough data over time, eBay may decide to

start sourcing and selling the most popular products itself but we believe this is very

unlikely to happen as it runs against the company’s credo. Fourth, eBay offers local and

national retailers access to 60MM+ monthly shoppers (avg. monthly unique visitors in

2012) which only a few other players could match (i.e. Google and Amazon). And lastly,

eBay already has 150,000 stores on eBay Local.

Omni-Channel Capabilities

As the lines between online and offline commerce are blurring, we believe it is important

for retailers of all sizes to embrace omni-channel in order to grow their business and stay

ahead. Today's consumers expect an omni-channel experience, but retailers still think and

operate in terms of multiple channels – the digital store, the physical store, the

wholesalers, their outlets, and the resellers, among others. eBay, through GSI Commerce

and PayPal / Marketplaces, helps retailers respond by enabling them to have a meaningful

online presence. eBay’s product line helps these retailers leverage their own brands and

assets to evolve their multi-channel strategies to seamlessly meet the increasing demands

of the omni-channel consumer.

GSI’s products enable retailers to address the full opportunity of the online and offline

markets. It has built solutions to help clients attract, engage, convert, and retain their

customers through a combination of demand generation, commerce technology, and

multichannel operations. By leveraging GSI’s full omni-channel portfolio, retailers are able

to 1) attract, engage, and retain customers through demand generation and digital

marketing; 2) deliver a seamless brand experience through eCommerce technology and

multichannel operations; and 3) offer a highly-functional Web store, order management,

fulfillment, and customer service. The combination of GSI and eBay extends eBay’s open

commerce platform capabilities and helps retailers win in a connected environment,

allowing them to grow faster and more profitably than on their own.

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Two Omni-Channel Case Studies: Dick’s Sporting Goods and Fifth & Pacific /

Kate Spade

#1 Dick’s Sporting Goods is a good example of a leading retailer trying to optimize

omni-channel. Some of its key pain points include:

1) be where customers want to be 24/7 (in store, online, on a smartphone or

tablet);

2) offer fast and free shipping to customers;

3) leverage better physical stores and employees;

4) enable ship-from-store;

5) enable in-store pick-up for online orders;

6) engage and convert more shoppers across all channels and 500+ physical

stores.

The results (powered by GSI products): Leveraging multi-channel solutions,

including Web-enabled store associate ordering system, ship-from-store, and in-store

pick-up technologies, Dick's has created a virtual distribution network closer to their

customers, enabling fast and free shipping. The company also improved optimization of

inventory across its network, making inventory more productive, reducing out-of-stock

items, and capturing incremental sales.

#2 Fifth & Pacific / Kate Spade provide another example of how GSI, in combination

with PayPal / eBay, is producing results. The relationship with Kate Spade evolved from

being a single-solution provider to being a strategy and innovation partner – developing

solutions for a connected consumer that win. The pain points for Kate Spade include:

1) transition from brick and mortar-only to truly omni-channel;

2) enable overnight ship capability with 9pm cutoff time;

3) use stores to drive more demand to the web and use the web to drive more

demand to the stores;

4) drive more users, deeper loyalty, more transactions, higher transaction value,

and grow the brand.

The results (powered by GSI / PayPal / Marketplaces): eBay Marketplaces has

evolved into a way to source new users into the Kate Spade NY franchise (rather than

being a clearance vehicle to get rid of excess inventory). Kate Spade is in the process of

rolling out an entirely new POS system (incorporating PayPal) to every store in the world,

driven by the need to have a system in the store to support true multi-channel marketing

and sales. Across all three brands, multi-channel customers are more loyal, more

committed, and LTV is meaningfully higher than for single-channel customers.

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Google While Google is known as the world’s leading search engine and one of the largest

players in online advertising, the company’s presence in eCommerce fulfillment should

not be surprising – shopping is one of its key advertising verticals.

Same-Day Delivery

Another one of the big players – Google – has been reportedly testing in private a same-

day delivery service in San Francisco since October 2012. The company just announced

last week the new service officially and opened it to a limited number of external testers

for a trial period of six months. Google Shopping Express, as the service is called, allows a

user to search for and purchase in-stock items from local retailers without leaving the

Google page. Then the user can select a delivery window and a Google courier delivers

the goods in one of the company-inscribed vans.

Exhibit 12: Google Shopping Express

Source: Google, Jefferies

The service, as it currently exists, will require Google to partner with local or national

retailers but it frees the company from investing in physical fulfillment centers. Current

Beta Testers of the service are given a free six-month membership for unlimited same-day

delivery with the following reputable brands and local retailers: American Eagle Outfitters,

Blue Bottle Coffee, Office Depot, Palo Alto Sport Shop & Toy World, Raley’s Nob Hill,

Staples, Target, Toys “R” Us / Babies “R” Us, and Walgreens. The company plans to add

more merchants over the next six months. Reportedly, participating retailers do pay

Google for the leads and, we believe, at rates that likely exceed traditional CPC given the

transaction is immediately consummated. While it is expected that users would be paying

for the service too, after the trial period, Google is still evaluating the economics and

pricing is not available; the company is supposedly considering either an annual fee ($64

or $69) or a per-delivery per-store shipping charge ($4.99). Note, it is still early and both

the implementation and pricing are likely to change.

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Exhibit 13: Google Shopping Express Screenshot / Flash


Given the fact that Google remains a prime starting point for many product searches, it

seems natural that the company would like to monetize these users as they progress all

the way down the conversion funnel, rather than sending traffic to competing

eCommerce sites to complete the transaction. Google has already taken steps in this

direction by recently enhancing Product Listing Ads (PLA) with rich product information

(image of product, size & color options, etc.), making Google Shopping appear more like

Amazon. With Google Shopping Express, Google is furthering its commerce ambitions.

If Google rolls out Google Shopping Express more broadly, we would expect deep

integration with other Google services like Wallet, Maps, Zavers, and obviously the

broader Google Shopping / Search product. Google Shopping recently started

requiring retailers to upload additional inventory information. This is a step in the right

direction as Google will now face the challenge of maintaining precise, up-to-the-minute

inventory levels across all its Google Shopping Express partners.

Delivery to Neighborhood Locker

Following in Amazon’s footsteps, Google seems to be considering a local delivery service

as well – one very similar to Amazon Locker. In November 2012, the company acquired

BufferBox, a provider of temporary lockers for the delivery of packages. As a Google

spokesperson put it, with the purchase of BufferBox the company is trying “to remove as

much friction as possible from the shopping experience, while helping consumers save

time and money.” We tend to agree that giving users a choice of delivery options that

offer convenience and speed at reasonable / subsidized price should help minimize

friction in online shopping. Google has not announced any services yet leveraging its

BufferBox acquisition but we believe it’s a question of time.

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Exhibit 14: BufferBox Locker


Currently, BufferBox operates in Canada only and particularly in the Greater Toronto Area.

Pick-up stations are located at about 20 locations in GO Stations and 7-Eleven and Sobeys

stores. Users can register on the BufferBox website and receive a BufferBox Shipping

Address. At the check-out of any online retailer, they can enter that address for shipping

and get the goods deliver to a nearby BufferBox location. Once delivered, the user

receives a PIN that opens the door of the locker containing their package. Users have 72

hours (excluding Sundays and holidays) to pick up their packages. After that, packages

are removed to a warehouse and, if not requested for re-delivery within seven days,

shipped back to the sender. In cases when the BufferBox is full, the service holds the

package until space opens for delivery. Deliveries requiring signature or tax / duty

payment (COD) are accepted too. BufferBox signs for the parcel or covers any fees and

bills the user (including a 9% processing fee for the latter) before sending the PIN email.

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Walmart On the other end of the spectrum, Walmart already has the storage capacity and ships

directly from its stores (just over 4,000 in the US). Its service, Walmart To Go, is available

in San Jose / San Francisco, Northern Virginia (outside Washington D.C.), Philadelphia,

Minneapolis, and Denver. The delivery fee varies by region and by day of the week / time

of day as does the minimum order size. Currently, a Californian can get a delivery for $6-9

(two-hour delivery slot) or $5 (four-hour delivery slot) on a minimum order of $45. The

categories eligible for this service include most grocery items, electronics & home office,

home & furniture, sports & fitness, and toys & video games.

Exhibit 15: Walmart To Go

Source: Walmart, Jefferies

Walmart To Go started in April 2010 in San Jose / San Francisco as a home delivery service

for online grocery purchases. In October 2012, the company began a test of same-day

delivery for the holiday season. Priced at $10 per order (regardless of number of items /

no minimum requirement), it was available in Minneapolis, Northern Virginia (outside

Washington D.C.), Philadelphia, and San Jose / San Francisco. Selection of goods was

specific to a user’s location (likely limited to items available in local stores) and included

approximately 5,000 items from the 1MM+ in Walmart’s online catalog. Customers could

place an order until 12pm local time and then choose a four-hour window (i.e., 4-8pm, 5-

9pm, 6-10pm) for delivery the same day. The company had not specified a particular end

date and currently it is not clear if the test is over or it has been extended into a

permanent offering.

Executives at Walmart have said that as it ramps digital online investments, it is serving

both high-income consumers as well as its in-store shoppers ($30-60K average annual

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income). Interestingly, we note that the proportion of people who had shopped online in

the previous three months rose steadily from 62% among households with annual

household income <$25K to 84% among those with $100K+. And the company is quick

to highlight that its shoppers also purchase from its website, often on smartphones rather

than computers. Walmart expects its online sales to exceed $9B this year (<2% of total).

Walmart believes its ability to combine digital assets with local points of presence give it a

clear advantage as it could potentially use its 4,000+ US stores as warehouses to fulfill

online orders quickly. Walmart also announced that later this year it would begin testing

its own self-service lockers that customers can use to receive online orders (initial tests are

scheduled in roughly a dozen stores).

Jefferies Broadline & Hardline Retail Analyst Dan Binder believes that Walmart (and

eventually Target) may use their stores as fulfillment centers at some point. However, he

expects longer-term Walmart will have to charge a fee for same-day delivery, so the

market opportunity will probably be small. After all, Walmart’s customers aren’t exactly

Nordstrom’s customers where money is less of an issue. In addition to testing same-day

delivery in 4 cities, Walmart is already offering in-store pick-up for online orders.

Binder also believes that players like BestBuy are very unlikely to ever use Amazon for

fulfillment. He thinks that scale matters and Amazon’s offerings may work for small

businesses but for big businesses and especially for big competitors (such as BestBuy), it

doesn’t seem very logical. We do not agree entirely here as we believe that using Amazon

as a channel could work for branded products / retailers. While Amazon might compete

with 3P merchants that sell commoditized products, we don’t think it does for branded

ones. Thus brands / specialty retailers can benefit from being able to leverage Amazon’s

platform by offering limited / exclusive SKUs. Perhaps over time this would enable these

retailers to lower overhead and still maintain their brands.

Jefferies Specialty Retail team think that while many of the mature specialty retailers are

rationalizing square footage after being “over-stored” when the recession hit (and also

probably in some part due to a shift to online sales), further acceleration of store closures

is unlikely. Most of these retailers still view the store environment as a key marketing tool

for the brand and an important aspect of the user experience (i.e. as a venue for shoppers

to actually try on apparel and view apparel/accessories in person before buying). In

addition, most specialty retailers have begun making significant investments to improve

their in-house e-commerce platforms and make the brands more omni-channel.

We largely agree but believe that costs may outweigh the value longer term – especially

as the high value proposition of same-day delivery begins to take off among consumers

(who did not realize they “needed” it until they had it). Further, since specialty retailers

would not be able to provide such level of service, why wouldn’t they shift some

percentage of inventory to Amazon or eBay if they don’t compete with them?

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Nordstrom Nordstrom is another national retailer that offers same-day delivery in select markets.

Launched in November 2011, the service is available every day of the week (including

Saturday and Sunday) and costs $15 per order. Orders placed by 1pm Pacific time are

delivered by 7pm the same day to addresses in over 100 zip codes in Seattle, WA,

Bellevue, WA, and La Jolla, CA.

Exhibit 16: Same-Day Delivery by Nordstrom

Source: Nordstrom, Jefferies

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Barnes & Noble A same-day delivery option in Manhattan, NY has been available to Barnes & Noble.com

shoppers since May 2000. Currently, it is free for orders above $25 and for B&N

Members. Orders with all Items marked "Usually ships within 24 hours – Same Day

Delivery in Manhattan" are eligible for this service. Generally, this is merchandise in stock

in New Jersey warehouses of the company and its affiliates. Orders must be placed by

11am, Monday through Friday, to qualify and are delivered by 7pm. Orders placed on

New Year's Day, Good Friday, Thanksgiving, and Christmas are not eligible.

Exhibit 17: Same-Day Delivery in Manhattan by Barnes & Noble

Source: Barnes & Noble.com, Jefferies

Other Independent Merchants In addition, some local brick-and-mortar retailers are reportedly testing paid deliveries

within a 3-mile store radius to build competitive advantage, loyalty and market share. We

believe, these retailers will ultimately decide to engage the services of some of the bigger

players (Amazon, eBay, Google, even USPS) as scale does play a major role in the cost of

such an offering.

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April 10, 2013



USPS The US Postal Service began a 1-year experiment in December 2012 for same-day delivery

of in-store and online purchases from participating retailers in San Francisco, CA. While in

beta, the USPS will work with a maximum of 10 retailers with at least 10 physical locations

nationally (one or more within defined major metro areas). Orders completed by 2pm get

picked up after 3pm and delivered between 4pm and 8pm the same day. While pricing is

up to the participating retailer, the regulatory filing for the service states that USPS will be

charging in excess of $2.90 per delivery / package. Only residential addresses are covered

in the test and there are some restrictions on weight and size but they are the same as for

other USPS services. Users can check delivery status through USPS’ Track and Confirm

tool. For returns, merchandise can be returned to the store or sent back with USPS (pick-

up can be scheduled online). According to the USPS website, the service would be

available eventually through its mobile app too. While the experiment started with a

single retailer (1-800-FLOWERS.COM), new ones were in late-stage negotiations as of

January 2013, according to a USPS spokesperson. If the test is successful, the service will

be expanded to other big metro areas such as Boston, Chicago, Los Angeles, and New

York.

Exhibit 18: Metro Post by USPS

Source: USPS, Jefferies

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April 10, 2013



Postmates Get It Now is a one-hour delivery service available in San Francisco since May 2012 and in

Seattle since March 2013. Users, who have downloaded the iOS app, can place an order

between 8am and midnight every day of the week. The order gets assigned to the best

courier for the job seconds after being placed. Then the courier, called Postmate,

purchases the ordered goods on behalf of the user and delivers them to a drop-off

address. During this time, users can track their delivery from the app in real-time and can

contact the Postmate if a change is needed (e.g. add or cancel an item, change delivery

address, etc.). However, such changes get forwarded to HQ as they might require a fee

adjustment. The delivery fee, currently starting at $4.99, is determined dynamically by an

algorithm that accounts for the distance, time required and effort involved in the delivery.

Exhibit 19: Screenshots of Postmates’ Get It Now App


While Postmates (the company) is still managing the inventory of items that users can

order through the service (currently from ~4,000 different locations in San Francisco and

1,000+ in Seattle), it plans to offer a self-serve platform that will allow local businesses to

take control of their venue’s listings and update inventory themselves. In addition, users

can simply prepare a shopping list of items (if the merchant’s inventory is not listed in the

app) and the Postmate will purchase them. Technically, users can order from any retail

store or merchant in the city that accepts credit cards. Another feature in the app (a

nearby tab) allows users to browse stores close to their current location. It updates

dynamically and is powered by Foursquare.

Postmates has been running on-demand same-day deliveries in San Francisco and vicinity

since December 2011. It launched its one-hour delivery service Get It Now in closed beta

in March 2012 and officially in May 2012. The Seattle beta launch happened in February

2013 with the official launch in March. We believe the next city in the company’s

expansion plan is New York (based on its application form for prospective Postmates). The

delivery fee has declined over time to the current $4.99+ but it was $6.99+ when the

service first started. Postmates currently has nearly 200 couriers in San Francisco and just

over 40 in Seattle.

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Exec Exec is an errand-running service, similar to TaskRabbit, which provides companies and

individuals access to on-demand personal assistants for delivery, furniture assembly, and

other errands. Once users post what they need, an in-house trained Exec gets assigned on

the task within 10 minutes. Users can track the progress of their errand and stay in touch

with the Exec through messages. The service gets everything done for $25/hour and is

available from 9am to 9pm. The company and its services are currently based in San

Francisco.

Exhibit 20: Exec Errands

Source: Exec, Jefferies

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April 10, 2013



Instacart Instacart is a unique same-day delivery service, which focuses solely on same-day grocery

delivery from Trader Joe’s, Safeway and Whole Foods. Customers can shop directly from

their iPhones from 10am to 9pm every day. The company has a one-hour or a three-hour

promised delivery window for a flat $9.99 and $3.99, respectively. The service is currently

live in San Francisco, Palo Alto and Mountain View. The company has plans to expand

into other verticals.

Exhibit 21: Screenshots of Instacart App


Shutl Shutl is another start-up that provides same-day delivery in the Bay Area, with ambitions

to launch soon in New York City, Chicago, Miami, and several other metro areas in the

US. The company’s technology integrates with online retailers and connects them with a

network of local, same-day carriers, which purportedly provide faster, more flexible

delivery options than the traditional delivery providers such as UPS and FedEx.

Exhibit 22: Shutl

Source: Shutl, Jefferies

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April 10, 2013



TaskRabbit TaskRabbit, one of the original errand outsourcing services, recently launched a Deliver

Now feature, where customers can have same-day delivery from any local business.

Deliver Now costs $10 and is currently only available in San Francisco, while TaskRabbit

itself is based in 9 metro areas. The feature allows regular users to solicit same-day

deliveries for orders from local businesses such as restaurants and stores that do not

themselves provide a delivery service.

Exhibit 23: Screenshots of TaskRabbit App


WunWun WunWun is a product / service similar to TaskRabbit and Exec with a twist. WunWun has

an on-demand network of Helpers. Once your request is received, a Helper is designated

to see it through. When a request requires a specialized provider, WunWun acts as a

personal concierge service. For deliveries, it’s a flat $15 fee and $2 for every 5 minutes of

other services. Currently, WunWun is in beta in New York City.

Exhibit 24: Screenshots of WunWun App


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Potential Winners Whether same-day delivery will become prevalent over time or remain a high-touch add-

on service is not clear yet. Some recent studies reveal that free delivery and lower prices

are much more important to shoppers. According to a BCG survey, conducted in

November 2012, only 9% of participants cited same-day delivery as a top factor that

would improve their online shopping experience. Overwhelmingly more, 74% and 50%

cited free delivery and lower prices, respectively, as top factors. However, that same

survey showed that affluent millennials (18 to 34-year olds with household income in

excess of $150K) were willing to pay up to $10 for same-day delivery vs. up to $6 by

other consumers. The affluent millennial cohort is also spending online about 2 times

more than the average US consumer. Only time will show if millennials again will drive a

change in eCommerce fulfillment as they did with other aspects of everyday life already.

While it is not clear yet if consumers are actually ready to pay (and how much) for such

services, the competition in fulfillment is already on and major players are investing.

Which aspects of fulfillment (e.g. speed, flexibility, cost) will prove more important to

consumers could determine which of the existing offerings will survive and thrive.

We believe that the most compelling offerings, for now, come from Amazon, eBay and

Walmart as each dwells on a competitive strength. However, Amazon is currently the

undisputed leader as it appears to have perfected the logistics function and is likely to

start building new fulfillment centers closer to customers, now that it has signed tax

agreements with a host of states. We also think that the proceeds of its November 2012

debt offering of $3B will be used for fulfillment center build-out, to a large extent. eBay

seems to have solved the inventory / warehousing problem and built scale by partnering

with top national retailers while maintaining neutrality. It also has the most compelling

offering that helps retailers leverage their own brands and assets to evolve their multi-

channel strategies to seamlessly meet the increasing demands of the omni-channel

consumer. Its products enable retailers to address the full opportunity of the converging

online and offline markets. And finally, Walmart has already established a presence in all

key markets and needs only to master the “last mile” or partner with / acquire someone

with the logistics acumen.

We believe Google is another one to keep an eye on as it remains a prime starting point

for many product searches. The company has already taken steps to monetize these

better by enhancing its Product Listing Ads with rich product information (product image,

size & color options, etc.). If Google rolls out Google Shopping Express more broadly, we

would expect deep integration with its other services like Wallet, Maps, Zavers, and

obviously the broader Google Shopping / Search product.

Among the other players, we believe the ones that manage to remain retailer-neutral, to

offer the highest flexibility (accepting orders 24/7 at the extreme), and to remain

competitive on pricing without going bust, are the most likely to succeed. And we do

believe it is not a winner-take-all game. Smaller / local / niche players should be able to

find a place on the table among the bigger players too.

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Appendix

A. Jefferies US eCommerce Model

B. Amazon Model

C. eBay Model

D. Google Model

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A. Jefferies US eCommerce Model

Exhibit 25: Jefferies US eCommerce Model ($ in Millions)

Source: US Department of Commerce, comScore, Jefferies

F2012 F2013

Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E 2011A 2012A 2013E

Total US Retail Sales* $1,080,064 $1,076,950 $1,091,897 $1,106,823 $1,121,106 $1,118,951 $1,137,757 $1,152,147 $4,157,173 $4,355,734 $4,529,962

% Y/Y Growth 6.2% 4.3% 4.6% 4.0% 3.8% 3.9% 4.2% 4.1% 8.3% 4.8% 4.0%

Total US Retail eCommerce Sales* $53,091 $54,936 $57,034 $59,545 $60,490 $61,554 $63,753 $65,913 $193,722 $224,606 $251,710

% Y/Y Growth 15.3% 15.5% 17.4% 15.6% 13.9% 12.0% 11.8% 10.7% 15.1% 15.9% 12.1%

eCommerce Penetration - % of Retail 4.9% 5.1% 5.2% 5.4% 5.4% 5.5% 5.6% 5.7% 4.7% 5.2% 5.6%

Y/Y Penetration Increases (bps) 0.38% 0.49% 0.57% 0.54% 0.48% 0.40% 0.38% 0.34% 0.28% 0.50% 0.40%

Online Travel** $25,614 $28,023 $26,292 $23,021 $27,893 $30,630 $28,659 $25,035 $94,485 $102,951 $112,216

% Y/Y Growth 10.3% 8.7% 8.9% 7.8% 8.9% 9.3% 9.0% 8.7% 11.0% 9.0% 9.0%

eBay US Auctions GMV $2,968 $2,883 $2,809 $2,890 $3,043 $3,048 $3,114 $3,295 $11,556 $11,524 $12,497

% Fixed Price vs. Auction Format 61.0% 62.0% 64.0% 66.0% 65.0% 65.5% 66.0% 67.4% 59.3% 63.4% 66.0%

% Y/Y Growth -1.4% -1.8% 0.2% 2.8% 2.5% 5.7% 10.8% 14.0% 1.2% -0.3% 8.4%

US eCommerce Sales (Adjusted) $81,673 $85,842 $86,136 $85,456 $91,426 $95,232 $95,526 $94,242 $299,763 $339,081 $376,423

% Y/Y Growth 13.0% 12.5% 14.0% 12.9% 11.9% 10.9% 10.9% 10.3% 13.1% 13.1% 11.0%

eCommerce Penetration (Adj) - % of Retail 7.4% 7.7% 7.7% 7.5% 7.9% 8.3% 8.2% 8.0% 7.0% 7.6% 8.1%

Y/Y Penetration Increase 0.43% 0.56% 0.63% 0.59% 0.57% 0.51% 0.48% 0.44% 0.30% 0.55% 0.50%

*US Department of Commerce; Does not include auctions, travel, financial services, or event ticket sales -- http://www.census.gov/mrts/www/ecomm.html

**comScore

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B. Amazon Model

Exhibit 26: Amazon - Income Statement ($000s)

Source: Company data, Jefferies estimates

Q1 12A Q2 12A Q3 12A Q4 12A Q1 13E Q2 13E Q3 13E Q4 13E F2012A F2013E F2014E

Net Revenue $13,185,000 $12,834,000 $13,806,000 $21,268,000 $16,271,675 $16,006,550 $17,351,585 $27,103,649 $61,093,000 $76,733,459 $96,334,698

North America Net Revenue 7,427,000 7,326,000 7,884,000 12,175,000 9,171,631 9,166,226 9,959,790 15,704,269 34,812,000 44,001,916 55,616,677

International Net Revenue 5,758,000 5,508,000 5,922,000 9,093,000 7,100,044 6,840,324 7,391,795 11,399,380 26,281,000 32,731,543 40,718,021

% Y/Y Growth 34% 29% 27% 22% 23% 25% 26% 27% 27% 26% 26%

% Q/Q Growth (24) (3) 8 54 (23) (2) 8 56 -- -- --

Cost of Net Revenue 10,027,000 9,488,000 10,319,000 16,136,000 12,182,149 11,671,457 12,786,070 20,316,006 45,970,000 56,955,683 71,037,101

Total Gross Profit $3,158,000 $3,346,000 $3,487,000 $5,132,000 $4,089,526 $4,335,093 $4,565,514 $6,787,643 $15,123,000 $19,777,776 $25,297,597

% Margin 24.0% 26.1% 25.3% 24.1% 25.1% 27.1% 26.3% 25.0% 24.8% 25.8% 26.3%

Fulfillment 1,258,000 1,298,000 1,454,000 2,196,000 1,643,626 1,674,887 1,830,879 2,803,973 6,206,000 7,953,365 10,033,186

Marketing 468,000 521,000 524,000 833,000 678,446 701,012 672,452 1,075,116 2,346,000 3,127,025 3,973,978

Technology & Content 860,000 970,000 1,080,000 1,221,000 1,128,000 1,278,000 1,413,000 1,578,000 4,131,000 5,397,000 6,297,000

General & Administrative 174,000 197,000 197,000 204,000 222,000 254,000 260,000 268,000 772,000 1,004,000 1,224,000

GAAP Operating Income / (Loss) incl Stock Comp & Amort. of Intangibles192,000 107,000 (28,000) 405,000 142,255 77,374 56,233 716,054 676,000 991,917 2,183,096

% Margin 1.5% 0.8% (0.2%) 1.9% 0.9% 0.5% 0.3% 2.6% 1.1% 1.3% 2.3%

% Y/Y Growth (40) (47) (135) 56 (26) (28) -- 77 (22) 47 120

% Q/Q Growth (26) (44) (126) -- (65) (46) (27) 1,173 -- -- --

EBITDA $855,000 $845,000 $786,000 $1,340,000 $1,079,217 $1,067,880 $1,024,144 $1,694,852 $3,826,000 $4,866,092 $6,582,224

% Margin 6.5% 6.6% 5.7% 6.3% 6.6% 6.7% 5.9% 6.3% 6.3% 6.3% 6.8%

% Y/Y Growth 28 34 46 63 26 26 30 26 44 27 35

% Q/Q Growth 4 (1) (7) 70 (19) (1) (4) 65 -- -- --

Net Interest (Income) and Other (Income) 108,000 (39,000) (6,000) 68,000 60,477 (26,644) (8,005) 49,226 131,000 75,055 36,887

Adjusted Pre-Tax Profit / (Loss) $290,000 $399,000 $238,000 $610,000 $356,978 $453,838 $397,188 $1,013,328 $1,537,000 $2,221,332 $3,732,546

% Effective Tax Rate 33% 43% 62% 43% 30.7% 36.5% 30.7% 44.7% 44% 38% 36%

Provision / (Benefit) for Income Taxes 43,000 109,000 83,000 194,000 40,889 78,013 38,543 366,755 429,000 524,201 944,332

Tax Adjustments for Non-GAAP Items 51,500 63,250 65,000 68,250 68,800 87,455 83,238 86,625 248,000 326,118 396,584

Minority Interest (89,000) 30,000 169,000 46,000 35,000 35,000 35,000 35,000 156,000 140,000 126,000

Operating Net Income / (Loss) $284,500 $196,750 ($79,000) $301,750 $212,289 $253,369 $240,408 $524,947 $704,000 $1,231,014 $2,265,630

% Margin 2.2% 1.5% (0.6%) 1.4% 1.3% 1.6% 1.4% 1.9% 1.2% 1.6% 2.4%

% Y/Y Growth (8) (40) (140) (8) (25) 29 -- 74 (40) 75 84

% Q/Q Growth (13) (31) (140) -- (30) 19 (5) 118 -- -- --

Other Operating Expense/Amortization of Intangibles 46,000 32,000 43,000 38,000 40,000 36,000 40,000 41,000 159,000 157,000 152,000

Stock-Based Compensation 160,000 221,000 217,000 235,000 235,200 313,820 292,950 305,500 833,000 1,147,470 1,434,338

Tax Effect of Non-GAAP Entries (51,500) (63,250) (65,000) (68,250) (68,800) (87,455) (83,238) (86,625) (248,000) (326,118) (396,584)

Reported GAAP Net Income / (Loss) $130,000 $7,000 ($274,000) $97,000 $5,889 ($8,996) ($9,305) $265,072 ($40,000) $252,661 $1,075,877

% Margin 1.0% 0.1% (2.0%) 0.5% 0.0% (0.1%) (0.1%) 1.0% (0.1%) 0.3% 1.1%

% Y/Y Growth (35) (96) (535) (45) (95) (229) -- 173 (106) -- 326

% Q/Q Growth (27) (95) (4,014) -- (94) (253) -- -- -- -- --

Weighted Avg. Diluted Shares Outstanding 460,000 458,000 460,000 461,000 462,613 462,659 462,781 463,092 453,000 462,786 462,344

Operating EPS $0.62 $0.43 ($0.17) $0.65 $0.46 $0.55 $0.52 $1.13 $1.55 $2.66 $4.90

% Y/Y Growth (8%) (40%) (140%) (8%) (26%) 27% -- 73% (39%) 71% 84%

% Q/Q Growth (13) (31) (140) -- (30) 19 (5) 118 -- -- --

Reported GAAP EPS $0.28 $0.02 ($0.60) $0.21 $0.01 ($0.02) ($0.02) $0.57 ($0.09) $0.55 $2.33

% Y/Y Growth (35%) (96%) (536%) (45%) (95%) (227%) -- 172% (106%) -- 326%

% Q/Q Growth (26) (95) (3,997) -- (94) (253) -- -- -- -- --

F2012 F2013

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Exhibit 27: Amazon - Revenue Build ($000s)


Exhibit 28: Amazon - Balance Sheet ($000s)



Total Revenue $13,185,000 $12,834,000 $13,806,000 $21,268,000 $16,271,675 $16,006,550 $17,351,585 $27,103,649 $61,093,000 $76,733,459 $96,334,698

% Y/Y Growth 34% 29% 27% 22% 23% 25% 26% 27% 27% 26% 26%

% Q/Q Growth (24) (3) 8 54 (23) (2) 8 56 -- -- --

Ex-FX Total Revenue 13,224,440 13,094,960 14,162,880 21,435,670 16,394,167 16,061,613 17,340,984 27,246,540 61,917,950 77,043,304 55,616,677

% Y/Y Growth ex-FX 34% 32% 30% 23% 24% 25% 26% 28% 29% 26% -28%

Media $4,710,000 $4,119,000 $4,600,000 $6,514,000 $5,275,772 $4,628,738 $5,201,930 $7,519,706 $19,943,000 $22,626,146 $25,769,254

% Y/Y Growth 19% 13% 11% 8% 12% 12% 13% 15% 12% 13% 14%

% of Total Revenue 36 32 33 31 32 29 30 28 33 29 27

Electronics and Other General Merchandise $7,975,000 $8,161,000 $8,558,000 $13,934,000 $10,272,073 $10,560,805 $11,201,815 $18,378,863 $38,628,000 $50,413,556 $65,586,143

% Y/Y Growth 43% 38% 35% 28% 29% 29% 31% 32% 35% 31% 30%

% of Total Revenue 60 64 62 66 63 66 65 68 63 66 68

Other $500,000 $554,000 $648,000 $820,000 $723,830 $817,007 $947,840 $1,205,080 $2,522,000 $3,693,757 $4,979,302

% Y/Y Growth 61% 54% 59% 61% 45% 47% 46% 47% 59% 46% 35%

% of Total Revenue 4 4 5 4 4 5 5 4 4 5 5

Total North America Revenue $7,427,000 $7,326,000 $7,884,000 $12,175,000 $9,171,631 $9,166,226 $9,959,790 $15,704,269 $34,812,000 $44,001,916 $55,616,677

% Y/Y Growth 36% 36% 33% 23% 23% 25% 26% 29% 30% 26% 26%

% Q/Q Growth (25) (1) 8 54 (25) (0) 9 58 -- -- --

% of Total Revenue 56 57 57 57 56 57 57 58 57 57 58

Media $2,197,000 $1,874,000 $2,215,000 $2,903,000 $2,526,550 $2,168,218 $2,576,045 $3,428,443 $9,189,000 $10,699,256 $12,411,137

% Y/Y Growth 16.6% 18.2% 14.9% 13.3% 15.0% 15.7% 16.3% 18.1% 15% 16% 16%

% of North America Revenue 30 26 28 24 28 24 26 22 26 24 22


% Y/Y Growth 44.5% 41.2% 39.2% 23.6% 25.0% 26.1% 28.1% 30.9% 34% 28% 29%

% Y/Y Growth (Organic) 35.1% 31.1% 27.9% 15.8% 17.1% 17.4% 18.2% 23.3% 25% 20% 29%


Zappos contribution $308,316 $354,121 $412,201 $535,116 $379,229 $428,487 $498,763 $644,279 $1,609,754 $1,950,758

% Y/Y Growth 25% 25% 25% 23% 23% 21% 21% 20% 24% 21%

Other $458,000 $515,000 $608,000 $769,000 $677,840 $773,483 $902,880 $1,147,348 $2,350,000 $3,501,551 $4,762,109

% Y/Y Growth 65.3% 58.5% 64.3% 67.5% 48.0% 50.2% 48.5% 49.2% 64% 49% 36%


AWS $412,200 $463,500 $547,200 $692,100 $610,056 $696,135 $812,592 $1,032,613 $2,115,000 $3,151,396 $4,285,898

% Y/Y Growth 65% 58% 64% 68% 48% 50% 49% 49% 64% 49% 36%

% Q/Q Growth (0) 12 18 26 (12) 14 17 27 -- -- --

Total International Revenue $5,758,000 $5,508,000 $5,922,000 $9,093,000 $7,100,044 $6,840,324 $7,391,795 $11,399,380 $26,281,000 $32,731,543 $40,718,021

% Y/Y Growth 31.1% 22.2% 19.8% 20.8% 23.3% 24.2% 24.8% 25.4% 23% 25% 24%

% of Total Revenue 44 43 43 43 44 43 43 42 43 43 42

Ex-FX International Revenue $5,797,440 $5,768,960 $6,278,880 $9,260,670 $7,222,536 $6,895,387 $7,381,194 $11,542,271 $27,105,950 $33,041,388

% Y/Y Growth ex-FX 32% 28% 27% 23% 25% 25% 25% 27% 27% 26%

FX Growth -1% -5% -6% -2% -2% -1% 0% -1% -3% -1%

Media $2,513,000 $2,245,000 $2,385,000 $3,611,000 $2,749,222 $2,460,520 $2,625,885 $4,091,263 $10,754,000 $11,926,890 $13,358,117

% Y/Y Growth 21.2% 8.2% 7.1% 4.8% 7.5% 8.7% 10.3% 11.9% 10% 11% 12%

% Y/Y Growth ex-FX 22% 12% 12% 7% 9% 10% 10% 13% 13% 12%

% of International Revenue 44 41 40 40 39 36 36 36 41 36 33


% Y/Y Growth 40.2% 34.4% 30.4% 34.7% 32.1% 33.4% 35.2% 31.8% 35% 34% 32%

% Y/Y Growth ex-FX 42% 42% 42% 37% 34% 35% 35% 34% 39% 36%


Other $42,000 $39,000 $40,000 $51,000 $45,990 $43,524 $44,960 $57,732 $172,000 $192,206 $217,193

% Y/Y Growth 24% 15% 8% 2% 10% 12% 12% 13% 11% 12% 13%


F2012 F2013


Cash & Cash Equivalents $2,288,000 $2,335,000 $2,980,000 $8,084,000 $4,214,493 $4,116,288 $4,792,110 $9,506,579 $8,084,000 $9,506,579 $13,927,426

Short-Term Marketable Securities 3,427,000 2,635,000 2,268,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000 3,364,000

Accounts Receivable 1,813,000 2,035,000 2,392,000 3,364,000 2,142,512 2,380,371 2,652,653 3,847,326 3,364,000 3,847,326 4,830,109

Inventories 4,255,000 4,380,000 5,065,000 6,031,000 5,239,993 5,608,695 6,550,672 8,419,601 6,031,000 8,419,601 10,501,219

Other Current Assets 371,000 408,000 413,000 453,000 418,616 468,948 501,160 550,567 453,000 550,567 678,019

Current Assets $12,154,000 $11,793,000 $13,118,000 $21,296,000 $15,379,614 $15,938,302 $17,860,595 $25,688,074 $21,296,000 $25,688,074 $33,300,772

Property and Equipment 4,653,000 5,097,000 5,662,000 7,060,000 6,829,518 6,869,612 7,017,652 7,104,374 7,060,000 7,104,374 7,193,213

Goodwill 1,970,000 2,521,000 2,540,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000 2,552,000

Deferred Tax Assets 27,000 26,000 38,000 123,000 123,000 123,000 123,000 123,000 123,000 123,000 123,000

Other Assets 1,535,000 1,585,000 1,476,000 1,524,000 2,452,943 2,563,581 2,338,745 3,553,407 1,524,000 3,553,407 4,375,987

Total Assets $20,339,000 $21,022,000 $22,834,000 $32,555,000 $27,337,076 $28,046,496 $29,891,992 $39,020,855 $32,555,000 $39,020,855 $47,544,971

Accounts Payable $6,886,000 $7,072,000 $8,369,000 $13,318,000 $8,397,339 $8,620,890 $10,088,735 $15,509,792 $13,318,000 $15,509,792 $19,344,350

Accrued Expenses & Other Liabilities 3,498,000 3,813,000 4,182,000 5,684,000 4,259,602 4,486,268 4,644,080 6,519,730 5,684,000 6,519,730 8,028,985

Unearned Revenue 0 0 0 0 114,814 178,965 261,720 504,647 0 504,647 1,301,197

Short-Term Debt 104,000 79,000 54,000 0 0 0 0 0 0 0 771,000

Total Current Liabilities $10,488,000 $10,964,000 $12,605,000 $19,002,000 $12,771,756 $13,286,122 $14,994,535 $22,534,169 $19,002,000 $22,534,169 $29,445,532

0.65% Unsecured Notes due Nov 2015 0 0 0 771,000 771,000 771,000 771,000 771,000 771,000 771,000 0

1.20% Unsecured Notes due Nov 2017 0 0 0 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000 1,028,000

2.50% Unsecured Notes due Nov 2022 255,000 255,000 255,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000

Other LT Liabilities 2,325,000 2,298,000 2,421,000 2,277,000 3,275,487 3,470,214 3,608,350 4,920,972 2,277,000 4,920,972 6,060,130

Total Liabilities $13,068,000 $13,517,000 $15,281,000 $24,363,000 $19,131,243 $19,840,336 $21,686,885 $30,539,141 $24,363,000 $30,539,141 $37,944,661

Additional Paid-In Capital 7,197,000 7,578,000 7,868,000 8,352,000 8,359,943 8,369,266 8,377,518 8,389,053 8,352,000 8,389,053 8,431,772

Retained Earnings (Accumulated Deficit) 2,085,000 2,092,000 1,818,000 1,916,000 1,921,889 1,912,894 1,903,589 2,168,661 1,916,000 2,168,661 3,244,538

Treasury Stock (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000) (1,837,000)

Accumulated Other Comprehensive Income (174,000) (328,000) (296,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000) (239,000)

Shareholders' Equity $7,271,000 $7,505,000 $7,553,000 $8,192,000 $8,205,832 $8,206,160 $8,205,107 $8,481,714 $8,192,000 $8,481,714 $9,600,310

Liabilities & Shareholders' Equity $20,339,000 $21,022,000 $22,834,000 $32,555,000 $27,337,076 $28,046,496 $29,891,992 $39,020,855 $32,555,000 $39,020,855 $47,544,971

F2012 F2013

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Exhibit 29: Amazon - Cash Flow Statement ($000s)


Exhibit 30: Amazon - DCF Analysis ($MM)



Net Income $130,000 $7,000 ($274,000) $97,000 $5,889 ($8,996) ($9,305) $265,072 ($40,000) $252,661 $1,075,877

Depreciation 457,000 485,000 554,000 662,000 661,762 640,686 634,961 632,297 2,158,000 2,569,706 2,812,790

Tax Benefit from Stock Options (40,000) (85,000) (66,000) (239,000) 6,380 7,759 6,688 9,975 (430,000) 30,801 34,786

Stock-Based Compensation 160,000 221,000 217,000 235,000 235,200 313,820 292,950 305,500 833,000 1,147,470 1,434,338

Deferred Taxes (38,000) (43,000) (36,000) (148,000) 0 0 0 0 (265,000) 0 0

(Gain) / Loss on Sale of Securities (2,000) (2,000) (4,000) (1,000) 0 0 0 0 (9,000) 0 0

Other Non-Cash Charges 61,000 13,000 197,000 136,000 0 0 0 0 407,000 0 0

Funds From Operations $728,000 $596,000 $588,000 $742,000 $909,231 $953,270 $925,293 $1,212,845 $2,654,000 $4,000,638 $5,483,791

(Inc.) Dec. in Accounts Receivable and Other 746,000 (166,000) (416,000) (1,024,000) 326,929 (398,829) (79,658) (2,458,742) (860,000) (2,610,301) (1,932,814)

(Inc.) Dec. in Inventories 747,000 (124,000) (647,000) (974,000) 791,007 (368,702) (941,977) (1,868,930) (998,000) (2,388,601) (2,081,617)

Inc. (Dec.) in Accounts Payable (4,258,000) 180,000 1,223,000 4,926,000 (4,920,661) 223,551 1,467,845 5,421,057 2,071,000 2,191,792 3,834,558

Inc. (Dec.) in Accrued Expenses and Other (529,000) 59,000 96,000 1,412,000 (425,910) 421,392 295,949 3,188,271 1,038,000 3,479,702 2,648,412

Addition to Unearned Revenue 397,000 382,000 472,000 545,000 509,788 487,998 544,833 754,577 1,796,000 2,297,196 3,241,913

Amortization of Unearned Revenue (269,000) (333,000) (373,000) (546,000) (394,973) (423,848) (462,077) (511,650) (1,521,000) (1,792,549) (2,445,363)

Change in Net Working Capital ($3,166,000) ($2,000) $355,000 $4,339,000 ($4,113,821) ($58,439) $824,915 $4,524,584 $1,526,000 $1,177,239 $3,265,089

Cash Flow from Operations ($2,438,000) $594,000 $943,000 $5,081,000 ($3,204,590) $894,831 $1,750,208 $5,737,429 $4,180,000 $5,177,877 $8,748,880

Capital Expenditures (386,000) (657,000) (716,000) (2,025,000) (431,280) (680,780) (783,000) (719,020) (3,784,000) (2,614,080) (2,901,629)

Acquisitions, Net of Cash Acquired (50,000) (624,000) (37,000) (35,000) 0 0 0 0 (746,000) 0 0

Purchases of Securities and Investments (852,000) (565,000) (358,000) (1,528,000) 0 0 0 0 (3,303,000) 0 0

Proceeds from Sales of Securities and Investments 1,738,000 1,251,000 742,000 506,000 0 0 0 0 4,237,000 0 0

Net Cash Used in Investing Activities $450,000 ($595,000) ($369,000) ($3,082,000) ($431,280) ($680,780) ($783,000) ($719,020) ($3,596,000) ($2,614,080) ($2,901,629)

Debt Issuance / (Repayment) (85,000) (18,000) (144,000) 2,927,000 0 0 0 0 2,680,000 0 0

Proceeds from / (Repurchase of) Common Stock (960,000) 0 109,000 0 (233,636) (312,256) (291,386) (303,940) (851,000) (1,141,218) (1,426,404)

Excess Tax Benefit from Stock Options 40,000 85,000 66,000 239,000 0 0 0 0 430,000 0 0

Net Cash Provided by Financing Activities ($1,005,000) $67,000 $31,000 $3,166,000 ($233,636) ($312,256) ($291,386) ($303,940) $2,259,000 ($1,141,218) ($1,426,404)

Effect of Exchange Rate Changes 12,000 (19,000) 40,000 (61,000) 0 0 0 0 (28,000) 0 0

Inc. (Dec.) in Cash and Cash Equivalents ($2,981,000) $47,000 $645,000 $5,104,000 ($3,869,507) ($98,205) $675,822 $4,714,469 $2,815,000 $1,422,579 $4,420,847

Beginning Cash and Cash Equivalents 5,269,000 2,288,000 2,335,000 2,980,000 8,084,000 4,214,493 4,116,288 4,792,110 5,269,000 8,084,000 9,506,579

Ending Cash and Cash Equivalents $2,288,000 $2,335,000 $2,980,000 $8,084,000 $4,214,493 $4,116,288 $4,792,110 $9,506,579 $8,084,000 $9,506,579 $13,927,426

F2012 F2013

2013

2012A Q1 13E Q2 13E Q3 13E Q4 13E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Revenue $61,093 $16,272 $16,007 $17,352 $27,104 $96,335 $118,214 $141,503 $165,423 $189,981 $214,453 $238,738 $261,865 $287,156

% Y/Y Growth 27% 23% 25% 26% 27% 26% 23% 20% 17% 15% 13% 11% 10% 10%

EBITDA $3,826 $1,079 $1,068 $1,024 $1,695 $6,582 $7,878 $9,724 $11,747 $14,126 $16,460 $18,864 $21,336 $24,118

% Margin 6% 7% 7% 6% 6% 7% 7% 7% 7% 7% 8% 8% 8% 8%

% Y/Y Growth 44 26 26 30 26 35 20 23 21 20 17 15 13 13

Implied Taxes on Operations ($1,685) ($332) ($389) ($314) ($758) ($2,365) ($2,617) ($3,240) ($3,931) ($4,782) ($5,615) ($6,472) ($7,352) ($8,342)

% Effective Tax Rate 44% 31% 36% 31% 45% 36% 33% 33% 33% 34% 34% 34% 34% 35%

Capital Expenditures ($3,784) ($431) ($681) ($783) ($719) ($2,902) ($3,192) ($3,511) ($3,862) ($4,248) ($4,461) ($4,684) ($4,918) ($5,164)

% Y/Y Growth 109% 12% 4% 9% (64%) 11% 10% 10% 10% 10% 5% 5% 5% 5%

Change in Net Working Capital $1,526 ($4,114) ($58) $825 $4,525 $3,265 $4,618 $5,402 $6,306 $7,262 $8,098 $8,758 $9,047 $9,649

Tax Benefit from NOL Carryforwards 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Acquisitions Not Yet Reflected on Balance Sheet -- 0 0 0 0 0 0 0 0 0 0 0 0 0

Unlevered Free Cash Flow ($117) ($3,797) ($61) $752 $4,742 $4,581 $6,688 $8,374 $10,260 $12,357 $14,481 $16,466 $18,113 $20,260

NPV at 12/31/12 Valuation Date and 12.0% WACC ($3,693) ($57) $691 $4,234 $3,865 $5,038 $5,631 $6,159 $6,624 $6,930 $7,034 $6,908 $6,899

Perpetuity Growth Rate / Terminal Value at 12.0% WACC Implied Terminal Value / Terminal EBITDA Multiple

3.0% 3.5% 4.0% 4.5% 5.0% 10.3x 11.0x 11.7x 12.6x 13.5x

$248,663 $264,568 $282,462 $302,741 $325,917 $248,663 $264,568 $282,462 $302,741 $325,917

Median DCF Valuation at 12/31/12 Valuation Date WACC Equity Value per Share

NPV of Cash Flows and Terminal Value $142,144 10% $355 $368 $382 $398 $416

Plus: Net Cash 10,677 11% 331 342 355 369 386

Implied Equity Value $152,821 12% 308 318 330 343 358

Implied Fully Diluted Shares Outstanding (MM) 463 13% 287 297 307 320 333

Implied Equity Value per Share $330 14% 268 277 287 298 310

Technology

Internet

April 10, 2013



C. eBay Model

Exhibit 31: eBay - Income Statement ($000s)


Exhibit 32: eBay - Revenue Build ($000s)



Net Revenues $3,277,000 $3,398,000 $3,404,000 $3,992,000 $3,749,989 $3,956,527 $4,012,053 $4,768,613 $14,071,000 $16,487,182 $19,523,884

% Y/Y Growth 29% 23% 15% 18% 14% 16% 18% 19% 21% 17% 18%

Cost of Net Revenues 948,000 954,000 989,000 1,192,000 1,090,455 1,118,722 1,173,688 1,426,054 4,083,000 4,808,919 5,694,653


% Margin 71.1% 71.9% 70.9% 70.1% 70.9% 71.7% 70.7% 70.1% 71.0% 70.8% 70.8%

Sales and Marketing 647,000 683,000 691,000 757,000 723,510 789,330 806,409 897,046 2,778,000 3,216,294 3,759,879

Product Development 344,000 357,000 355,000 379,000 386,000 411,000 429,000 447,000 1,435,000 1,673,000 1,973,000

General and Administrative 321,000 346,000 326,000 391,000 369,000 382,000 390,000 405,000 1,384,000 1,546,000 1,726,000

Provision for Transaction & Loan Losses 134,000 131,000 148,000 168,000 144,375 147,183 169,435 190,745 581,000 651,736 757,527

Adjusted Operating Income / (Loss) $883,000 $927,000 $895,000 $1,105,000 $1,036,649 $1,108,294 $1,043,522 $1,402,769 $3,810,000 $4,591,232 $5,612,825

% Margin 26.9% 27.3% 26.3% 27.7% 27.6% 28.0% 26.0% 29.4% 27.1% 27.8% 28.7%

% Y/Y Growth (9) 5 (3) 23 (6) 7 (6) 34 20 21 22

EBITDA $1,059,000 $1,114,000 $1,103,000 $1,323,000 $1,254,367 $1,321,475 $1,256,780 $1,618,235 $4,599,000 $5,450,857 $6,713,098

% Margin 32.3% 32.8% 32.4% 33.1% 33.4% 33.4% 31.3% 33.9% 32.7% 33.1% 34.4%

% Y/Y Growth (7) 5 (1) 20 (5) 5 (5) 29 21 19 23

Net Interest (Income) and Other (Income) (25,000) (33,000) 1,000 (29,000) 4,513 3,084 2,152 (91,091) (86,000) (81,341) (90,544)

Adjusted Pre-Tax Profit / (Loss) $908,000 $960,000 $894,000 $1,134,000 $1,032,135 $1,105,209 $1,041,370 $1,493,859 $3,896,000 $4,672,574 $5,703,368

% Effective Tax Rate 20% 24% 20% 18% 21% 22% 22% 21% 20% 22% 22%

Provision / (Benefit) for Income Taxes 114,000 159,000 75,000 126,000 168,325 199,254 185,583 266,797 474,000 819,960 1,083,927

Tax Adjustments for Non-GAAP Items 69,000 71,000 101,000 81,000 47,020 48,394 47,328 48,556 322,000 191,298 180,020

Operating Net Income / (Loss) $725,000 $730,000 $718,000 $927,000 $816,790 $857,561 $808,459 $1,178,506 $3,100,000 $3,661,316 $4,439,422

% Margin 22% 21% 21% 23% 22% 22% 20% 25% 22% 22% 23%

% Y/Y Growth (8) 1 (2) 29 (12) 5 (6) 46 16 18 21

Amortization of Acquired Intagible Assets 105,000 103,000 103,000 101,000 100,000 98,000 97,000 95,000 412,000 390,000 300,000

Stock-Based Compensation 111,000 127,000 122,000 127,000 121,101 140,970 136,640 144,780 487,000 543,491 576,100

Employer Payroll Taxes on Stock Options Gains 14,000 2,000 3,000 3,000 14,000 3,000 3,000 3,000 22,000 23,000 24,000

1x Charges 0 (5,000) (2,000) 30,000 0 0 0 0 23,000 0 0

(Gain) / Loss on Sale of Investments (6,000) (118,000) (4,000) (4,000) (35,000) (35,000) (35,000) (35,000) (132,000) (140,000) (120,000)

Tax Effect of Non-GAAP Entries (69,000) (71,000) (101,000) (81,000) (47,020) (48,394) (47,328) (48,556) (322,000) (191,298) (180,020)$0

Reported GAAP Net Income / (Loss) $570,000 $692,000 $597,000 $751,000 $663,709 $698,985 $654,147 $1,019,282 $2,610,000 $3,036,123 $3,839,341

% Margin 17% 20% 18% 19% 18% 18% 16% 21% 19% 18% 20%

% Y/Y Growth (71) 21 (14) 26 (12) 5 (6) 56 (19) 16 26

Weighted Avg. Diluted Shares Outstanding 1,308,000 1,309,000 1,314,000 1,318,000 1,327,162 1,328,233 1,329,681 1,332,031 1,312,250 1,329,277 1,337,219

Operating EPS $0.55 $0.56 $0.55 $0.70 $0.62 $0.65 $0.61 $0.88 $2.36 $2.75 $3.32

% Q/Q Growth (8%) 1% (2%) 29% (12%) 5% (6%) 46% 16% 17% 21%

Reported GAAP EPS $0.44 $0.53 $0.45 $0.57 $0.50 $0.53 $0.49 $0.77 $1.99 $2.28 $2.87

% Q/Q Growth (71%) 21% (14%) 25% (12%) 5% (7%) 56% (19%) 15% 26%

F2012 F2013


Total Net Revenues $3,277,000 $3,398,000 $3,404,000 $3,992,000 $3,749,989 $3,956,527 $4,012,053 $4,768,613 $14,071,000 $16,487,182 $19,523,884

% Y/Y Growth 28.7% 23.1% 14.8% 18.1% 14.4% 16.4% 17.9% 19.5% 20.8% 17.2% 18.4%

Marketplaces 1,728,000 1,814,000 1,806,000 2,050,000 1,909,221 2,023,710 2,026,036 2,337,864 7,398,000 8,296,831 9,539,188

% Y/Y Growth 11.2% 9.1% 9.3% 15.7% 10.5% 11.6% 12.2% 14.0% 11.4% 12.1% 15.0%

% of Total Net Revenues 52.7% 53.4% 53.1% 51.4% 50.9% 51.1% 50.5% 49.0% 52.6% 50.3% 48.9%

Transaction Revenues 1,425,000 1,491,000 1,490,000 1,672,000 1,588,950 1,667,118 1,674,960 1,916,016 6,078,000 6,847,044 7,935,724

% Y/Y Growth 10.9% 10.5% 10.1% 15.8% 11.5% 11.8% 12.4% 14.6% 11.9% 12.7% 15.9%

Marketing Services & Other Revenues 303,000 323,000 316,000 378,000 320,271 356,592 351,076 421,848 1,320,000 1,449,787 1,603,464

% Y/Y Growth 12.8% 2.9% 5.6% 14.9% 5.7% 10.4% 11.1% 11.6% 9.0% 9.8% 10.6%

Payments 1,309,000 1,357,000 1,366,600 1,541,000 1,593,768 1,689,817 1,736,017 1,963,749 5,573,600 6,983,351 8,592,211

% Y/Y Growth 31.9% 26.5% 23.4% 24.3% 21.8% 24.5% 27.0% 27.4% 26.3% 25.3% 23.0%


Transaction Revenues 1,216,000 1,234,000 1,264,400 1,432,000 1,482,912 1,538,798 1,603,259 1,821,504 5,146,400 6,446,473 7,935,609

% Y/Y Growth 29.0% 24.5% 22.4% 23.8% 22.0% 24.7% 26.8% 27.2% 24.8% 25.3% 23.1%

Marketing Services & Other Revenues 93,000 123,000 102,200 109,000 110,856 151,019 132,758 142,245 427,200 536,878 656,602

% Y/Y Growth 87.4% 50.2% 37.4% 31.4% 19.2% 22.8% 29.9% 30.5% 47.9% 25.7% 22.3%

Other Revenue 3,000 6,000 5,400 3,000 5,000 5,000 5,000 5,000 17,400 20,000 21,500

% Y/Y Growth 77.9% -35.5% 66.7% -16.7% -7.4% 66.7% 126.4% 14.9% 7.5%

GSI Commerce 237,000 221,000 226,000 398,000 242,000 238,000 245,000 462,000 1,082,000 1,187,000 1,370,985

% Y/Y Growth 15.0% 9.0% 11.5% 9.5% 2.1% 7.7% 8.4% 16.1% 83.4% 9.7% 15.5%


F2012 F2013

Technology

Internet

April 10, 2013



Exhibit 33: eBay - Metrics ($000s)


F2012 F2013


Marketplaces Metrics

Gross Merchandise Volume (GMV) $18,077,000 $18,192,000 $18,275,000 $20,832,000 $20,222,000 $20,548,113 $20,815,612 $24,031,512 $75,376,000 $85,617,237 $98,753,917

% Y/Y Growth 9.3% 7.5% 8.7% 13.5% 11.9% 13.0% 13.9% 15.4% 9.8% 13.6% 15.3%

US GMV $7,610,417 $7,586,064 $7,803,425 $8,499,456 $8,695,460 $8,835,689 $9,158,869 $10,093,235 $31,499,362 $36,783,253 $42,760,446

% Y/Y Growth 8.7% 8.6% 11.3% 14.9% 14.3% 16.5% 17.4% 18.8% 10.9% 16.8% 16.2%

% of Total GMV 42% 42% 43% 41% 43% 43% 44% 42% 42% 43% 43%

International GMV $10,466,583 $10,605,936 $10,471,575 $12,332,544 $11,526,540 $11,712,425 $11,656,743 $13,938,277 $43,876,638 $48,833,984 $55,993,471

% Y/Y Growth 9.6% 6.8% 6.8% 12.6% 10.1% 10.4% 11.3% 13.0% 9.0% 11.3% 14.7%

Mobile GMV $1,950,000 $2,350,000 $3,250,000 $5,350,000 $3,500,000 $3,700,000 $5,050,000 $7,800,000 $12,900,000 $20,050,000 $27,067,500

% Y/Y Growth 169.0% 161.1% 160.0% 170.9% 79.5% 57.4% 55.4% 45.8% 166.0% 55.4% 35.0%

Mobile as % of Total 10.8% 12.9% 17.8% 25.7% 17.3% 18.0% 24.3% 32.5% 17.1% 23.4% 27.4%

Fixed-Price GMV (excl Vehicles) $11,100,000 $11,300,000 $11,700,000 $13,700,000 $13,144,300 $13,459,014 $13,738,304 $16,187,206 $47,800,000 $56,528,824 $67,152,664

% Y/Y Growth 16.8% 15.3% 15.8% 21.2% 18.4% 19.1% 17.4% 18.2% 17.4% 18.3% 18.8%

Fixed-Price as % of Total GMV 61% 62% 64% 66% 65% 66% 66% 67% 63.4% 66.0% 68.0%

Fixed-Price as % of Non-Vehicle GMV 68% 70% 72% 72% 70% 72% 72% 73% 71% 72% 73%

Marketplaces Transaction Revenue ($'000)$1,425,000 $1,491,000 $1,490,000 $1,672,000 $1,588,950 $1,667,118 $1,674,960 $1,916,016 $6,078,000 $6,847,044 $7,935,724

% Y/Y Growth 10.9% 10.5% 10.1% 15.8% 11.5% 11.8% 12.4% 14.6% 11.9% 12.7% 15.9%

US Marketplaces, ex-Vehicles

US GMV ex-Vehicles 6,366,000 6,241,000 6,479,000 7,338,000 7,359,096 7,252,042 7,606,346 8,592,798 $26,424,000 $30,810,282 $35,770,737

Y/Y Growth 13.1% 13.7% 15.9% 19.2% 15.6% 16.2% 17.4% 17.1% 15.6% 16.6% 16.1%

Q/Q Growth 3.4% -2.0% 3.8% 13.3% 0.3% -1.5% 4.9% 13.0% -- -- --

% of Total 35.2% 34.3% 35.5% 35.2% 36.4% 35.3% 36.5% 35.8% 35.1% 36.0% 36.2%

International Marketplaces, ex-Vehicles

Int'l GMV ex-Vehicles 9,840,000 9,930,000 9,801,000 11,767,000 11,296,320 11,439,360 11,349,558 13,673,254 $41,338,000 $47,758,492 $56,402,779

Y/Y Growth 11.0% 8.0% 8.0% 13.9% 14.8% 15.2% 15.8% 16.2% 10.3% 15.5% 18.1%

FX-neutral Y/Y Growth 13.0% 16.0% 15.0%

Q/Q Growth -4.8% 0.9% -1.3% 20.1% -4.0% 1.3% -0.8% 20.5% -- -- --

% of Total 54.4% 54.6% 53.6% 56.5% 55.9% 55.7% 54.5% 56.9% 54.8% 55.8% 57.1%

Global Marketplaces, Vehicles

Vehicles GMV 1,871,000 2,021,000 1,994,000 1,727,000 1,566,584 1,856,711 1,859,708 1,765,460 $7,613,000 $7,048,463 $6,580,401

Y/Y Growth -8.7% -9.7% -7.2% -7.3% -16.3% -8.1% -6.7% 2.2% -8.3% -7.4% -6.6%

FX-neutral Y/Y Growth -8.0% -7.0% -5.0%

Q/Q Growth 0.4% 8.0% -1.3% -13.4% -9.3% 18.5% 0.2% -5.1% -- -- --

% of Total 10.4% 11.1% 10.9% 8.3% 7.7% 9.0% 8.9% 7.3% 10.1% 8.2% 6.7%

Active Users ('000) 102,400 104,800 108,300 112,300 112,128 114,756 118,589 122,969 112,300 122,969

% Y/Y Growth 6.8% 7.8% 9.7% 11.9% 9.5% 9.5% 9.5% 9.5% 12% 10%

Payments Metrics

Total Payment Volume ($'000) $33,857,000 $34,451,000 $35,159,000 $41,471,000 $43,487,155 $45,126,041 $46,606,372 $53,260,351 $144,938,000 $188,479,919 $235,477,997

% Y/Y Growth 23.7% 19.9% 20.1% 24.3% 28.4% 31.0% 32.6% 28.4% 22.0% 30.0% 24.9%

On-eBay Volume $11,424,000 $11,337,000 $11,455,000 $13,444,000 $14,792,591 $14,869,031 $15,209,990 $17,322,440 $47,660,000 $62,194,051 $77,707,739

% Y/Y Growth 16.6% 14.7% 14.9% 17.8% 29.5% 31.2% 32.8% 28.8% 16.1% 30.5% 24.9%

% Y/Y Growth (FX-Neutral) 18.0% 18.0% 18.0% 18.0%

% of Total Payment Volume 33.7% 32.9% 32.6% 32.4% 34.0% 33.0% 32.6% 32.5% 32.9% 33.0% 33.0%

Merchant Services (Off-eBay) Volume $22,433,000 $23,114,000 $23,704,000 $28,027,000 $28,694,565 $30,257,011 $31,396,383 $35,937,911 $97,278,000 $126,285,868 $157,770,258

% Y/Y Growth 27.7% 22.5% 22.7% 27.6% 27.9% 30.9% 32.5% 28.2% 25.2% 29.8% 24.9%

% Y/Y Growth (FX-Neutral) 28.0% 26.0% 26.0% 28.0%

Bill Me Later TPV $650,000 $696,000 $775,000 $1,034,000 $927,756 $1,027,992 $1,154,750 $1,558,238 $3,155,000 $4,668,736 $6,256,106

% Y/Y Growth 50.8% 39.5% 36.9% 30.9% 42.7% 47.7% 49.0% 50.7% 38.0% 48.0% 34.0%

Mobile TPV $1,825,000 $2,625,000 $3,525,000 $5,750,000 $4,100,000 $4,250,000 $4,900,000 $6,772,500 $13,725,000 $20,022,500 $27,030,375

% Y/Y Growth 247.6% 238.7% 235.7% 228.6% 124.7% 61.9% 39.0% 17.8% 234.8% 45.9% 35.0%

Mobile as % of Total 5.4% 7.6% 10.0% 13.9% 9.4% 9.4% 10.5% 12.7% 9.5% 10.6% 11.5%

Transaction Take Rate 3.87% 3.94% 3.89% 3.72%

Transaction Expense Rate 1.07% 1.07% 1.07% 1.03%

Transaction Loss Rate 0.26% 0.26% 0.30% 0.28%

Transaction Margin 65.6% 66.3% 64.8% 64.7%

Active Registered Accounts ('000) 109,800 113,200 117,400 122,700 123,470 126,841 130,373 136,320 122,700 136,320 150,633

% Y/Y Growth 12.4% 12.9% 14.0% 15.4% 12.5% 12.1% 11.1% 11.1% 15.4% 11.1% 10.5%

Net Number of Payments ('000) 555,700 564,800 589,200 691,700 711,296 720,685 741,803 851,483 2,401,400 3,025,266 3,678,468

% Y/Y Growth 30.9% 30.7% 28.3% 26.2% 28.0% 27.6% 25.9% 23.1% 28.8% 26.0% 21.6%

Transaction Average Size $60.93 $61.00 $59.67 $59.96 $61.14 $62.62 $62.83 $62.55 $60.36 $62.30 $64.02

% Y/Y Growth -5.5% -8.3% -6.4% -1.5% 0.3% 2.7% 5.3% 4.3% -5.3% 3.2% 2.8%

Payments Transaction Revenue ($'000)$1,216,000 $1,234,000 $1,264,400 $1,432,000 $1,482,912 $1,538,798 $1,603,259 $1,821,504 $5,146,400 $6,446,473 $7,935,609

% Y/Y Growth 29.0% 24.5% 22.4% 23.8% 21.9% 24.7% 26.8% 27.2% 24.8% 25.3% 23.1%

Payments Take Rate 3.59% 3.58% 3.60% 3.45% 3.41% 3.41% 3.44% 3.42% 3.55% 3.42% 3.37%

Technology

Internet

April 10, 2013



Exhibit 34: eBay - Balance Sheet ($000s)


Exhibit 35: eBay - Cash Flow Statement ($000s)





Accounts Receivable 633,000 648,000 694,000 822,000 764,381 806,915 818,679 973,493 822,000 973,493 1,152,796

Funds Receivable 5,857,000 5,916,000 6,599,000 10,254,000 7,271,979 7,674,872 7,784,988 9,256,599 10,254,000 9,256,599 10,961,532

Other Current Assets 728,000 960,000 982,000 1,099,000 680,313 723,628 749,526 810,627 1,099,000 810,627 939,807

Current Assets $13,089,000 $13,278,000 $17,410,000 $21,583,000 $19,677,705 $20,899,538 $21,806,090 $23,867,448 $21,583,000 $23,867,448 $29,843,818


Long-Term Investments 2,861,000 2,630,000 2,500,000 3,044,000 3,053,000 3,062,000 3,071,000 3,172,000 3,044,000 3,172,000 3,292,000

Goodwill 8,440,000 8,417,000 8,492,000 8,537,000 8,537,000 8,537,000 8,537,000 8,537,000 8,537,000 8,537,000 8,537,000

Other Intangibles 1,316,000 1,272,000 1,234,000 1,128,000 1,028,000 930,000 833,000 738,000 1,128,000 738,000 438,000

Other Assets 392,000 423,000 473,000 491,000 504,068 536,149 555,324 600,606 491,000 600,606 696,317

Total Assets $28,207,000 $28,258,000 $32,502,000 $37,274,000 $35,339,304 $36,690,645 $37,736,380 $40,089,781 $37,274,000 $40,089,781 $46,670,155

Accounts Payable $325,000 $257,000 $271,000 $301,000 $299,472 $307,970 $323,874 $394,729 $301,000 $394,729 $467,432

Funds Payable & Amounts Due to Customers 4,340,000 4,295,000 4,807,000 8,094,000 5,296,484 5,589,782 5,669,833 6,742,912 8,094,000 6,742,912 7,984,859


Deferred Revenue 135,000 137,000 132,000 137,000 145,500 153,513 155,668 185,160 137,000 185,160 219,264

Short-Term Debt 564,000 564,000 12,000 413,000 413,000 413,000 413,000 13,000 413,000 13,000 861,000

Income Taxes Payable 71,000 79,000 63,000 63,000 228,524 258,149 238,408 316,041 63,000 316,041 395,012


Long-Term Debt 1,521,000 1,518,000 4,506,000 4,106,000 4,106,000 4,106,000 4,106,000 4,106,000 4,106,000 4,106,000 3,258,000

Deferred Tax Liabilities 946,000 956,000 945,000 1,020,000 1,020,000 1,020,000 1,020,000 1,020,000 1,020,000 1,020,000 1,020,000

Other Liabilities 66,000 72,000 77,000 207,000 90,882 106,538 120,613 187,372 207,000 187,372 217,231




Treasury Stock (7,395,000) (7,750,000) (7,797,000) (8,053,000) (8,053,000) (8,053,000) (8,053,000) (8,053,000) (8,053,000) (8,053,000) (8,053,000)

Accumulated Other Comprehensive Income 864,000 464,000 649,000 649,000 649,000 649,000 649,000 649,000 649,000 649,000 649,000



F2012 F2013


Net Income $570,000 $692,000 $597,000 $751,000 $663,709 $698,985 $654,147 $1,019,282 $2,610,000 $3,036,123 $3,839,341

Depreciation 176,000 187,000 208,000 218,000 217,719 213,181 213,258 215,467 789,000 859,625 1,100,273

Amortization 105,000 103,000 103,000 101,000 100,000 98,000 97,000 95,000 412,000 390,000 300,000

Tax Benefit from Stock Options 0 0 0 0 8,986 8,210 5,941 5,749 0 28,887 26,041

Stock-Based Compensation 111,000 127,000 122,000 127,000 121,101 140,970 136,640 144,780 487,000 543,491 576,100

Earnings in Unconsolidated Equity Interests 0 0 0 0 (9,000) (9,000) (9,000) (101,000) 0 (128,000) (120,000)

Provision for Transaction Losses 134,000 131,000 148,000 168,000 144,375 147,183 169,435 190,745 581,000 651,736 757,527

Other Non-Cash Charges 0 (118,000) 0 9,000 0 0 0 0 (109,000) 0 0

Funds From Operations $1,096,000 $1,122,000 $1,178,000 $1,374,000 $1,246,890 $1,297,529 $1,267,421 $1,570,023 $4,770,000 $5,381,862 $6,479,282

(Inc.) Dec. in Accounts Receivable 0 0 0 0 57,619 (42,533) (11,764) (154,814) 0 (151,493) (179,303)

(Inc.) Dec. in Funds Receivable 0 0 0 0 2,982,021 (402,893) (110,116) (1,471,612) 0 997,401 (1,704,932)

(Inc.) Dec. in Other Current Assets 0 0 0 0 418,687 (43,315) (25,898) (61,101) 0 288,373 (129,180)

(Inc.) Dec. in Other Long-Term Assets 0 0 0 0 (13,068) (32,081) (19,176) (45,281) 0 (109,606) (95,711)

Inc. (Dec.) in Accounts Payable 0 0 0 0 (1,528) 8,498 15,903 70,855 0 93,729 72,703

Inc. (Dec.) in Funds Payable 0 0 0 0 (2,797,516) 293,297 80,051 1,073,078 0 (1,351,088) 1,241,947

Inc. (Dec.) in Accrued and Other Liabilities 0 0 0 0 (135,512) 140,845 110,349 258,953 0 374,634 420,647

Inc. (Dec.) in Deferred Revenue 0 0 0 0 8,500 8,014 2,154 29,492 0 48,160 34,104

Inc. (Dec.) in Income Taxes Payable 0 0 0 0 165,524 29,624 (19,741) 77,634 0 253,041 78,971

Change in Net Working Capital ($565,000) ($354,000) ($24,000) $12,000 $684,726 ($40,543) $21,763 ($222,795) ($931,000) $443,151 ($260,755)

Cash Flow from Operations $531,000 $768,000 $1,154,000 $1,386,000 $1,931,616 $1,256,985 $1,289,184 $1,347,227 $3,839,000 $5,825,013 $6,218,528

Capital Expenditures (242,000) (357,000) (362,000) (296,000) (266,249) (399,609) (421,266) (456,227) (1,257,000) (1,543,351) (1,788,567)

Acquisitions, Net of Cash Acquired (3,000) (130,000) (10,000) 0 0 0 0 0 (143,000) 0 0

Purchases of Securities and Investments (1,051,000) (328,000) (126,000) (1,658,000) 0 0 0 0 (3,163,000) 0 0

Proceeds from Divested Business / Sales of PP&E 0 144,000 0 0 0 0 0 0 144,000 0 0

Proceeds from Sales of Securities and Investments 408,000 221,000 309,000 483,000 0 0 0 0 1,421,000 0 0

Other (5,000) (131,000) (241,000) (388,000) 0 0 0 0 (765,000) 0 0

Net Cash Used in Investing Activities ($893,000) ($581,000) ($430,000) ($1,859,000) ($266,249) ($399,609) ($421,266) ($456,227) ($3,763,000) ($1,543,351) ($1,788,567)

Debt Issuance / (Repayment) 0 0 2,426,000 0 0 0 0 (400,000) 2,426,000 (400,000) 0

Proceeds from / (Repurchase of) Common Stock (155,000) (215,000) 87,000 (132,000) (112,335) (124,285) (109,145) (117,168) (415,000) (462,932) (467,007)

Excess Tax Benefit from Stock Options 54,000 14,000 27,000 35,000 0 0 0 0 130,000 0 0

Other (118,000) (14,000) (24,000) (34,000) 0 0 0 0 (190,000) 0 0

Net Cash Provided by Financing Activities ($219,000) ($215,000) $2,516,000 ($131,000) ($112,335) ($124,285) ($109,145) ($517,168) $1,951,000 ($862,932) ($467,007)

Effect of Exchange Rate Changes 54,000 (98,000) 53,000 90,000 0 0 0 0 99,000 0 0

Inc. (Dec.) in Cash and Cash Equivalents ($527,000) ($126,000) $3,293,000 ($514,000) $1,553,032 $733,091 $758,773 $373,832 $2,126,000 $3,418,729 $3,962,954



F2012 F2013

Technology

Internet

April 10, 2013



Exhibit 36: eBay - DCF Analysis ($MM)


2013


Revenue $14,071 $3,750 $3,957 $4,012 $4,769 $19,524 $23,310 $27,135 $30,813 $34,319 $37,615 $40,535 $42,944 $45,110

% Y/Y Growth 21% 14% 16% 18% 19% 18% 19% 16% 14% 11% 10% 8% 6% 5%

EBITDA $4,599 $1,254 $1,321 $1,257 $1,618 $6,713 $8,209 $9,859 $11,545 $13,292 $15,060 $16,816 $18,392 $19,901

% Margin 33% 33% 33% 31% 34% 34% 35% 36% 37% 39% 40% 41% 43% 44%

% Y/Y Growth 21 18 19 14 22 23 22 20 17 15 13 12 9 8

Implied Taxes on Operations ($940) ($262) ($296) ($281) ($342) ($1,488) ($1,831) ($2,203) ($2,582) ($2,971) ($3,365) ($3,754) ($4,097) ($4,423)


Capital Expenditures ($1,257) ($266) ($400) ($421) ($456) ($1,789) ($2,089) ($2,377) ($2,638) ($2,869) ($3,070) ($3,227) ($3,333) ($3,411)

% Y/Y Growth 30% 10% 12% 18% 54% 16% 17% 14% 11% 9% 7% 5% 3% 2%

Change in Net Working Capital ($931) $685 ($41) $22 ($223) ($261) ($335) ($350) ($344) ($337) ($324) ($295) ($248) ($229)


Acquisitions Not Yet Reflected on Balance Sheet-- 0 0 0 0 0 0 0 0 0 0 0 0 0

Unlevered Free Cash Flow $1,471 $1,411 $585 $576 $598 $3,176 $3,955 $4,929 $5,982 $7,114 $8,301 $9,540 $10,714 $11,838

NPV at 12/31/12 Valuation Date and 12.3% WACC $1,371 $552 $528 $532 $2,669 $2,959 $3,283 $3,548 $3,758 $3,904 $3,994 $3,994 $3,930


3.0% 3.5% 4.0% 4.5% 5.0% 7.0x 7.4x 7.9x 8.4x 9.1x

$138,851 $147,452 $157,090 $167,964 $180,327 $138,851 $147,452 $157,090 $167,964 $180,327


NPV of Cash Flows and Terminal Value $81,463 10% $71 $73 $76 $78 $82

Plus: Cash and Equivalents 7,933 11% 66 68 71 73 76

Implied Equity Value $89,396 12% 62 64 66 68 71

Implied Fully Diluted Shares Outstanding (MM) 1,353 13% 58 60 62 64 66

Implied Equity Value per Share $66 14% 55 56 58 60 62

Technology

Internet

April 10, 2013



D. Google Model

Exhibit 37: Google - Income Statement ($000s)



Reported Gross Revenue (incl. TAC) $10,645,000 $12,214,000 $14,101,000 $14,419,000 $14,657,380 $14,902,794 $15,499,933 $16,970,802 $51,379,000 $62,030,909 $72,348,984

% Y/Y Growth 24% 35% 45% 36% 38% 22% 10% 18% 36% 21% 17%

% Q/Q Growth 1 15 15 2 2 2 4 9 -- -- --

Cost of Revenue 3,715,000 4,926,000 6,443,000 6,108,000 6,051,272 6,036,170 6,161,219 6,450,628 20,928,405 24,699,290 27,092,635

Traffic Acquisition Costs (TAC) 2,510,000 2,600,000 2,770,000 3,080,000 3,208,564 3,169,692 3,268,120 3,425,790 10,960,000 13,072,166 15,086,994

% of Advertising Gross Revenue 24.5% 24.7% 25.5% 25.5% 26.1% 25.3% 25.0% 23.9% 25.1% 25.0% 24.6%

Net Revenue (excl. TAC) $8,135,000 $9,614,000 $11,331,000 $11,339,000 $11,433,816 $11,718,102 $12,216,813 $13,530,012 $40,419,000 $48,898,743 $57,261,990

% Y/Y Growth 24% 39% 51% 39% 41% 22% 8% 19% 39% 21% 17%

% Q/Q Growth 0 18 18 0 1 2 4 11 -- -- --

Consensus - #DIV/0! - 12,360 -- 12,296 -- -- 41,415 -- --

Additional Cost of Net Revenue 1,205,000 2,326,000 3,673,000 3,049,000 3,019,596 2,984,722 2,936,130 2,990,919 10,253,000 11,931,366 12,440,477


% Margin 85.2% 75.8% 67.6% 73.1% 73.6% 74.5% 76.0% 77.9% 74.6% 75.6% 78.3%

Research and DDvelopment 1,142,000 1,294,000 1,631,000 1,571,000 1,581,000 1,596,000 1,626,000 1,657,000 5,638,000 6,460,000 7,135,000

Sales and Marketing 1,172,000 1,313,000 1,605,000 1,621,000 1,572,937 1,576,925 1,706,039 1,907,163 5,711,000 6,763,063 7,490,298

General and Administrative 671,000 820,000 924,000 1,017,000 1,027,000 1,067,000 1,122,000 1,209,000 3,432,000 4,425,000 4,560,000

Total Stock Compensation Expense 556,000 658,000 762,000 708,000 706,120 789,600 914,400 870,840 2,684,000 3,280,960 3,543,437

Adjusted Operating Income (excl. stock comp.)$3,945,000 $3,861,000 $3,498,000 $4,081,000 $4,233,283 $4,493,456 $4,826,644 $5,765,931 $15,385,000 $19,319,314 $25,636,215

% Margin 48% 40% 31% 36% 37% 38% 40% 43% 38% 40% 45%

% Y/Y Growth 22 16 (4) 1 7 16 38 41 8 26 33

% Q/Q Growth (2) (2) (9) 17 4 6 7 19 -- -- --

% Margin 42% 33% 24% 30% 31% 32% 32% 36% 31% 33% 39%

EBITDA $4,456,000 $4,531,000 $4,326,000 $5,034,000 $5,231,136 $5,525,079 $5,899,888 $6,955,915 $18,347,000 $23,612,018 $29,457,436

% Margin 55% 47% 38% 44% 46% 47% 48% 51% 45% 48% 51%

% Y/Y Growth 23 20 5 11 17 22 36 38 14 29 25

% Q/Q Growth (2) 2 (5) 16 4 6 7 18 -- -- --

Net Interest (Income) and Other (Income) (156,000) (254,000) (63,000) (152,000) (151,796) (105,662) (69,982) (75,761) (625,000) (403,201) (340,377)

Adjusted Pre-Tax Profit / (Loss) $4,101,000 $4,115,000 $3,561,000 $4,233,000 $4,385,080 $4,599,118 $4,896,625 $5,841,693 $16,010,000 $19,722,515 $25,976,593

% Effective Tax Rate 18.8% 18.7% 15.5% 15.7% 15.7% 15.7% 15.7% 15.7% 17% 17% 22%

Provision / (Benefit) for Income Taxes 655,000 672,000 623,000 639,000 638,226 671,517 714,956 852,946 2,589,000 2,877,645 5,619,836

Tax Adjustments for Non-GAAP Items 118,000 97,000 (71,000) 26,000 110,508 123,967 143,561 136,722 170,000 514,758 766,595

Minority Interest 0 0 0 0 0 0 0 0 0 0 0

Operating Net Income / (Loss) $3,328,000 $3,346,000 $3,009,000 $3,568,000 $3,636,345 $3,803,633 $4,038,108 $4,852,025 $13,251,000 $16,330,112 $19,590,161

% Margin 41% 35% 27% 31% 32% 32% 33% 36% 33% 33% 34%

% Y/Y Growth 26 17 (5) 14 9 14 34 36 12 23 20

% Q/Q Growth 6 1 (10) 19 2 5 6 20 -- -- --

Stock-Based Compensation 556,000 658,000 762,000 708,000 706,120 789,600 914,400 870,840 2,684,000 3,280,960 3,543,437

Tax Effect of Non-GAAP Entries (118,000) (97,000) 71,000 (26,000) (110,508) (123,967) (143,561) (136,722) (170,000) (514,758) (766,595)

Reported GAAP Net Income / (Loss) $2,890,000 $2,785,000 $2,176,000 $2,886,000 $3,040,733 $3,138,001 $3,267,269 $4,140,007 $10,737,000 $13,586,010 $16,813,320

% Margin 36% 29% 19% 25% 27% 27% 27% 31% 27% 28% 29%

% Y/Y Growth 61 11 (20) 7 5 13 50 43 10 27 24

% Q/Q Growth 7 (4) (22) 33 5 3 4 27 -- -- --

Weighted Avg. Diluted Shares Outstanding 330,136 330,793 333,314 334,977 336,012 337,596 339,248 340,934 333,314 338,448 345,932

Operating EPS $10.08 $10.12 $9.03 $10.65 $10.82 $11.27 $11.90 $14.23 $39.76 $48.25 $56.63

% Y/Y Growth 25% 16% (7%) 12% 7% 11% 32% 34% 11% 21% 17%

% Q/Q Growth 6 0 (11) 18 2 4 6 20 -- -- --

Reported GAAP EPS $8.75 $8.42 $6.53 $8.62 $9.05 $9.30 $9.63 $12.14 $32.21 $40.14 $48.60

% Y/Y Growth 59% 10% (22%) 5% 3% 10% 48% 41% 9% 25% 21%

% Q/Q Growth 6 (4) (22) 32 5 3 4 26 -- -- --

F2012 F2013

Technology

Internet

April 10, 2013



Exhibit 38: Google - Revenue Build ($000s)



Gross Revenue (including TAC)

Google Revenue (Advertising & Other) $10,645,000 $12,214,000 $14,101,000 $14,419,000 $13,188,800 $13,448,900 $14,031,500 $15,473,000 $46,040,000 $56,142,200 $66,048,065

% Y/Y Growth 24% 35% 45% 36% 24% 10% 0% 7% 21% 22% 18%

% Q/Q Growth 1 15 15 2 (9) 2 4 10 -- -- --

Advertising $10,225,000 $10,525,000 $10,860,000 $12,076,000 $12,300,400 $12,510,000 $13,047,400 $14,359,600 $43,686,000 $52,217,400 $61,328,300

% Y/Y Growth 23% 21% 16% 19% 20% 19% 20% 19% 20% 20% 17%

% Q/Q Growth 1% 3% 3% 11% 2% 2% 4% 10% -- -- --

% of Total Gross Revenue 96% 86% 77% 84% 93% 93% 93% 93% 95% 93% 93%

Search Revenue 8,850,000 9,000,000 8,910,000 9,704,000 9,770,400 9,900,000 10,157,400 11,159,600 $36,464,000 $40,987,400

% Y/Y Growth 17% 15% 7% 8% 10% 10% 14% 15% 11% 12%

Display Revenue (Youtube + ASC + AdMob) 1,375,000 1,525,000 1,950,000 2,372,000 2,530,000 2,610,000 2,890,000 3,200,000 $7,222,000 $11,230,000

% Y/Y Growth 81% 77% 95% 98% 84% 71% 48% 35% 89% 55%

Google Web Sites 7,312,000 7,542,000 7,727,000 8,640,000 8,701,280 9,050,400 9,426,940 10,627,200 $31,221,000 $37,805,820 44,610,868

% Y/Y Growth 24% 21% 15% 18% 19% 20% 22% 23% 19% 21% 18%


Google.com 6,912,000 7,042,000 6,977,000 7,740,000 7,651,280 7,950,400 8,276,940 9,427,200 $28,671,000 $33,305,820

% Y/Y Growth 20% 17% 8% 11% 11% 13% 19% 22% 14% 16%

YouTube 400,000 500,000 750,000 900,000 1,050,000 1,100,000 1,150,000 1,200,000 $2,550,000 $4,500,000

% Y/Y Growth 186% 133% 200% 200% 163% 120% 53% 33% 182% 76%

Mobile O&O 511,840 678,780 849,970 1,123,200 1,218,179 1,357,560 1,508,310 1,806,624 $3,163,790 $5,890,674

% of Google Websites Revenue 7% 9% 11% 13% 14% 15% 16% 17% 11% 18%

Google Network 2,913,000 2,983,000 3,133,000 3,436,000 3,599,120 3,459,600 3,620,460 3,732,400 $12,465,000 $14,411,580 $16,717,433

% Y/Y Growth 20% 20% 21% 19% 24% 16% 16% 9% 20% 16% 16%


AdSense Search 1,938,000 1,958,000 1,933,000 1,964,000 2,119,120 1,949,600 1,880,460 1,732,400 $7,793,000 $7,681,580

% Y/Y Growth 7% 6% 5% -1% 9% 0% -3% -12% 4% -1%

AdSense Display (PC) 700,000 700,000 700,000 722,000 725,000 750,000 840,000 900,000 $2,822,000 $3,215,000

% Y/Y Growth 49% 49% 27% 11% 4% 7% 20% 25% 32% 14%

AdMob 275,000 325,000 500,000 750,000 755,000 760,000 900,000 1,100,000 $1,850,000 $3,515,000

% Y/Y Growth 83% 86% 150% 200% 175% 134% 80% 47% 139% 90%

Licensing & Other $420,000 $439,000 $666,000 $829,000 $888,400 $938,900 $984,100 $1,113,400 $2,354,000 $3,924,800 $4,719,765

% Y/Y Growth 56% 42% 73% 102% 112% 114% 48% 34% 71% 67% 20%

% Q/Q Growth 2% 5% 52% 24% 7% 6% 5% 13% -- -- --


Licensing excluding DCLK $180,000 $199,000 $181,000 $194,000 $203,400 $218,900 $199,100 $213,400 $754,000 $834,800 $893,236

% Y/Y Growth 82% 66% 25% 14% 13% 10% 10% 10% 41% 11% 7%

% Q/Q Growth 6% 11% -9% 7% 5% 8% -9% 7% -- -- --

DoubleClick (Ad Server License Only) $160,000 $160,000 $160,000 $160,000 $160,000 $160,000 $160,000 $160,000 $640,000 $640,000 $665,600

% Y/Y Growth -6% -6% 0% 0% 0% 0% 0% 0% -3% 0% 4%

% Q/Q Growth 0% 0% 0% 0% 0% 0% 0% 0% -- -- --

Nexus One/Google Phones/ITA $80,000 $80,000 $225,000 $350,000 $375,000 $400,000 $450,000 $550,000 $735,000 $1,775,000 $2,283,429

% Y/Y Growth -- 300% 181% 338% 369% 400% 100% 57% 308% 141% 29%

% Q/Q Growth 0% 0% 181% 56% 7% 7% 13% 22% -- -- --

Google Play $0 $0 $100,000 $125,000 $150,000 $160,000 $175,000 $190,000 $225,000 $675,000 $877,500

% Y/Y Growth -- -- -- -- -- -- 75% 52% -- 200% 30%

% Q/Q Growth - - - 25% 20% 7% 9% 9% -- -- --

Add: Hedging Revenue (Forecast periods) ($15,000) ($15,000) ($15,000) ($15,000)

Motorola Revenue (Hardware & Other) $1,250,000 $2,575,000 $1,514,000 $1,468,580 $1,453,894 $1,468,433 $1,497,802 $5,339,000 $5,888,709 $6,300,919

% Y/Y Growth -- -- -- -- -- -- -- -- 10% 7%

% Q/Q Growth -3% -1% 1% 2% -- -- --

F2012 F2013

Technology

Internet

April 10, 2013



Exhibit 39: Google - Balance Sheet ($000s)


Exhibit 40: Google - Cash Flow Statement ($000s)





Accounts Receivable 5,713,000 7,341,000 7,809,000 8,585,000 8,726,930 8,873,049 9,228,582 10,104,330 8,585,000 10,104,330 11,785,060

Current Deferred Taxes 51,000 146,000 230,000 1,144,000 1,183,347 1,239,267 1,317,474 1,569,415 1,144,000 1,569,415 2,054,093

Other Current Assets 1,779,000 3,248,000 3,058,000 2,637,000 2,594,332 2,605,496 2,710,348 2,875,900 2,637,000 2,875,900 3,040,072

Current Assets $56,859,000 $53,857,000 $56,821,000 $60,454,000 $63,290,863 $66,990,624 $70,954,149 $78,070,228 $60,454,000 $78,070,228 $97,509,589


Long-Term Equity and Other Investments 880,000 1,040,000 1,063,000 1,469,000 1,469,000 1,469,000 1,469,000 1,469,000 1,469,000 1,469,000 1,469,000

Goodwill 7,325,000 10,120,000 10,485,000 10,537,000 10,537,000 10,537,000 10,537,000 10,537,000 10,537,000 10,537,000 10,537,000

Other Intangibles 1,541,000 7,862,000 7,754,000 7,473,000 7,148,000 6,823,000 6,473,000 6,123,001 7,473,000 6,123,001 5,448,001

Long-Term Deferred Taxes 0 0 0 0 0 0 0 0 0 0 0

Prepaid Revenue Share, Expenses and Other Assets 664,000 2,263,000 2,206,000 2,011,000 2,094,942 2,069,562 2,133,828 2,236,774 2,011,000 2,236,774 2,558,900

Total Assets $77,144,000 $86,051,000 $89,730,000 $93,798,000 $96,746,968 $100,432,922 $104,472,463 $111,689,462 $93,798,000 $111,689,462 $132,694,157

Accounts Payable $760,000 $2,419,000 $2,233,000 $2,012,000 $2,045,275 $2,014,255 $2,069,210 $2,159,482 2,012,000 2,159,482 $2,486,673

Accrued Compensation & Benefits 1,017,000 1,626,000 1,926,000 2,239,000 2,224,072 2,255,450 2,369,350 2,539,109 2,239,000 2,539,109 2,750,686


Accrued Revenue Share 1,164,000 1,175,000 1,108,000 1,471,000 1,323,519 1,433,017 1,445,018 1,607,007 1,471,000 1,607,007 1,910,488

Deferred Revenue 594,000 767,000 905,000 895,000 709,707 727,353 758,308 839,820 895,000 839,820 889,779

Current Income Taxes 239,000 157,000 45,000 240,000 165,629 231,531 219,896 270,769 240,000 270,769 532,642

Short-Term Debt & Capital Lease Obligations 4,720,000 5,134,000 4,904,000 4,222,000 4,222,000 4,222,000 4,222,000 4,222,000 4,222,000 4,222,000 4,222,000


Long-Term Debt & Capital Lease Obligations 2,987,000 2,987,000 2,988,000 2,988,000 2,988,000 2,988,000 2,988,000 2,988,000 2,988,000 2,988,000 2,988,000

Long-Term Deferred Revenue 42,000 97,000 100,000 100,000 79,297 81,268 84,727 93,835 100,000 93,835 201,145

Deferred Income Taxes 2,171,000 3,407,000 3,495,000 3,918,000 3,918,000 3,918,000 3,918,000 3,918,000 3,918,000 3,918,000 3,918,000

Other Long-Term Liabilities 490,000 811,000 685,000 740,000 735,066 745,437 783,081 839,188 740,000 839,188 936,391




Treasury Stock 0 0 0 0 0 0 0 0 0 0 0

Accumulated Other Comprehensive Income 422,000 84,000 368,000 538,000 538,000 538,000 538,000 538,000 538,000 538,000 538,000



F2012 F2013


Net Income $2,890,000 $2,785,000 $2,176,000 $2,886,000 $3,040,733 $3,138,001 $3,267,269 $4,140,007 $10,737,000 $13,586,010 $16,813,320

Depreciation 378,000 473,000 507,000 630,000 672,853 706,623 723,244 839,984 1,988,000 2,942,704 3,146,220

Amortization of Intangibles and Warrants 133,000 197,000 321,000 323,000 325,000 325,000 350,000 350,000 974,000 1,350,000 675,000

In-process research and development 0 0 0 0 0 0 0 0 0 0 0

Tax Benefit from Stock Options (28,000) (27,000) (58,000) (75,000) 0 0 0 0 (188,000) 0 0

Stock-Based Compensation 556,000 658,000 762,000 716,000 706,120 789,600 914,400 870,840 2,692,000 3,280,960 3,543,437

Deferred Taxes 354,000 (163,000) (168,000) (289,000) 0 0 0 0 (266,000) 0 0

Other / Charges (68,000) (176,000) 32,000 (4,000) 0 0 0 0 (216,000) 0 0

Funds From Operations $4,215,000 $3,747,000 $3,572,000 $4,187,000 $4,744,706 $4,959,224 $5,254,913 $6,200,831 $15,721,000 $21,159,674 $24,177,977

(Inc.) Dec. in Accounts Receivable 301,000 (222,000) (307,000) (559,000) (141,930) (146,118) (355,534) (875,748) (787,000) (1,519,330) (1,680,730)

(Inc.) Dec. in Income Taxes 143,000 1,026,000 167,000 156,000 (39,347) (55,920) (78,207) (251,941) 1,492,000 (425,415) (484,678)

(Inc.) Dec. in Prepaid Revenue and Other (308,000) (710,000) (9,000) 495,000 (41,275) 14,217 (169,118) (268,498) (532,000) (464,674) (486,298)

Inc. (Dec.) in Accounts Payable 169,000 (249,000) (194,000) (225,000) 33,275 (31,020) 54,955 90,273 (499,000) 147,482 327,191

Inc. (Dec.) in Accrued Expenses and Other Liabilities (855,000) 612,000 727,000 278,000 (69,258) 130,292 319,277 519,767 762,000 900,079 983,405

Inc. (Dec.) in Accrued Revenue (11,000) 34,000 (80,000) 356,000 (147,481) 109,499 12,000 161,990 299,000 136,007 303,480

Inc. (Dec.) in Deferred Revenue 40,000 14,000 128,000 (19,000) (205,996) 19,618 34,414 90,619 163,000 (61,346) 157,269

Change in Net Working Capital ($521,000) $505,000 $432,000 $482,000 ($612,012) $40,567 ($182,212) ($533,538) $898,000 ($1,287,195) ($880,361)

Cash Flow from Operations $3,694,000 $4,252,000 $4,004,000 $4,669,000 $4,132,694 $4,999,791 $5,072,701 $5,667,293 $16,619,000 $19,872,480 $23,297,615

Capital Expenditures (607,000) (774,000) (872,000) (1,020,000) (1,026,017) (1,043,196) (1,084,995) (1,187,956) (3,273,000) (4,342,164) (5,064,429)

Acquisitions, Net of Cash Acquired (92,000) (9,854,000) (525,000) (97,000) 0 0 0 0 (10,568,000) 0 0

Purchases of Securities and Investments (8,791,000) (6,854,000) (8,704,000) (9,164,000) 0 0 0 0 (33,513,000) 0 0

Proceeds from Sales of Securities and Investments 17,396,000 5,456,000 7,143,000 5,380,000 0 0 0 0 35,375,000 0 0

Other 245,000 (360,000) (349,000) (613,000) 0 0 0 0 (1,077,000) 0 0

Net Cash Used in Investing Activities $8,151,000 ($12,386,000) ($3,307,000) ($5,514,000) ($1,026,017) ($1,043,196) ($1,084,995) ($1,187,956) ($13,056,000) ($4,342,164) ($5,064,429)

Debt Issuance / (Repayment) 1,249,000 749,000 (1,000) (669,000) 0 0 0 0 1,328,000 0 0

Proceeds from / (Repurchase of) Common Stock (47,000) (137,000) (5,000) (98,000) (408,547) (470,159) (562,895) 1,342,513 (287,000) (99,088) (1,123,406)

Excess Tax Benefit from Stock Options 28,000 27,000 58,000 75,000 123 123 120 989 188,000 1,356 0

Net Cash Provided by Financing Activities $1,230,000 $639,000 $52,000 ($692,000) ($408,424) ($470,036) ($562,774) $1,343,502 $1,229,000 ($97,732) ($1,123,406)

Effect of Exchange Rate Changes 50,000 (176,000) 74,000 55,000 0 0 0 0 3,000 0 0

Inc. (Dec.) in Cash and Cash Equivalents $13,125,000 ($7,671,000) $823,000 ($1,482,000) $2,698,253 $3,486,560 $3,424,931 $5,822,839 $4,795,000 $15,432,584 $17,109,780



F2012 F2013

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Exhibit 41: Google - DCF Analysis ($MM)


2013


Revenue $40,419 $11,434 $11,718 $12,217 $13,530 $57,262 $64,473 $70,466 $75,523 $79,668 $83,451 $87,342 $90,752 $94,296

% Y/Y Growth 39% 41% 22% 8% 19% 17% 13% 9% 7% 5% 5% 5% 4% 4%

EBITDA $18,347 $5,231 $5,525 $5,900 $6,956 $29,457 $34,468 $38,439 $41,559 $43,852 $45,797 $47,798 $49,374 $51,056

% Margin 45% 46% 47% 48% 51% 51% 53% 55% 55% 55% 55% 55% 54% 54%

% Y/Y Growth 14 17 22 36 38 25 17 12 8 6 4 4 3 3

Implied Taxes on Operations ($3,162) ($821) ($867) ($926) ($1,092) ($6,373) ($7,238) ($8,072) ($8,727) ($9,209) ($9,617) ($10,038) ($10,369) ($10,722)


Capital Expenditures ($3,273) ($1,026) ($1,043) ($1,085) ($1,188) ($5,064) ($5,696) ($6,233) ($6,671) ($7,022) ($7,360) ($7,696) ($7,998) ($8,312)

% Y/Y Growth (5%) 69% 35% 24% 16% 17% 12% 9% 7% 5% 5% 5% 4% 4%

Change in Net Working Capital $898 ($612) $41 ($182) ($534) ($880) ($534) ($158) ($61) $307 $352 $446 $544 $580


Acquisitions Not Reflected on Balance Sheet / Shares-- 0 0 0 0 0 0 0 0 0 0 0 0 0

Unlevered Free Cash Flow $12,810 $2,772 $3,655 $3,706 $4,164 $17,140 $21,000 $23,976 $26,100 $27,927 $29,172 $30,510 $31,551 $32,602

NPV at 12/31/12 Valuation Date and 11.2% WACC $2,700 $3,468 $3,424 $3,746 $14,621 $16,113 $16,543 $16,198 $15,590 $14,648 $13,775 $12,813 $11,909


2.0% 2.5% 3.0% 3.5% 4.0% 7.4x 7.9x 8.4x 9.0x 9.7x

$378,962 $402,766 $429,481 $459,677 $494,080 $378,962 $402,766 $429,481 $459,677 $494,080


NPV of Cash Flows and Terminal Value 286,662 9% $1,069 $1,097 $1,129 $1,165 $1,206

Plus: Net Cash 46,569 10% 1,007 1,033 1,062 1,094 1,131

Implied Equity Value $333,231 11% 950 974 1,000 1,030 1,063

Implied Fully Diluted Shares Outstanding (MM) 333 12% 899 920 944 971 1,001

Implied Equity Value per Share $1,000 13% 851 871 892 917 945

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Analyst CertificationI, Jefferies US Internet Team, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Brian Pitz, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subjectcompany(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or viewsexpressed in this research report.I, Brian Fitzgerald, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Timothy O'Shea, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Sachin Khattar, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Stan Velikov, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.

Company Specific Disclosures

Meanings of Jefferies RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more withina 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock priceconsistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperformrated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions onthe investment merits of the company are provided.

Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.

Conviction List Methodology

1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research2. Only stocks with a Buy rating are allowed to be included in the recommended list.3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen

is used to ensure a well-diversified portfolio.4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis.5. Once a month, analysts are invited to recommend their best ideas. Analysts’ stock selection can be based on one or more of the following:

non-Consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relative

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to the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached theirtarget price, been downgraded over the course of the month or where a more suitable candidate has been found are removed.

6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list duringthe month.

7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$.8. The conviction list is published once a month whilst global equity markets are closed.9. Transaction fees are not included.

10. All corporate actions are taken into account.

Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report• Amazon.com, Inc (AMZN: $261.14, BUY)• eBay, Inc. (EBAY: $56.07, BUY)• Google, Inc. (GOOG: $777.65, BUY)• Wal-Mart Stores, Inc. (WMT: $78.12, BUY)

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Distribution of RatingsIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY 757 46.96% 128 16.91%HOLD 721 44.73% 87 12.07%UNDERPERFORM 134 8.31% 2 1.49%

Other Important Disclosures

Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC (“Jefferies”) groupcompanies:

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This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. The information setforth herein was obtained from sources believed to be reliable, but has not been independently verified by Jefferies. Therefore, except for any obligationunder applicable rules we do not guarantee its accuracy. Additional and supporting information is available upon request. Unless prohibited by theprovisions of Regulation S of the U.S. Securities Act of 1933, this material is distributed in the United States ("US"), by Jefferies LLC, a US-registeredbroker-dealer, which accepts responsibility for its contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of1934. Transactions by or on behalf of any US person may only be effected through Jefferies LLC. In the United Kingdom and European EconomicArea this report is issued and/or approved for distribution by Jefferies International Limited and is intended for use only by persons who have, or have

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been assessed as having, suitable professional experience and expertise, or by persons to whom it can be otherwise lawfully distributed. JefferiesInternational Limited has adopted a conflicts management policy in connection with the preparation and publication of research, the details of whichare available upon request in writing to the Compliance Officer. Jefferies International Limited may allow its analysts to undertake private consultancywork. Jefferies International Limited’s conflicts management policy sets out the arrangements Jefferies International Limited employs to manage anypotential conflicts of interest that may arise as a result of such consultancy work. For Canadian investors, this material is intended for use only byprofessional or institutional investors. None of the investments or investment services mentioned or described herein is available to other personsor to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). In Singapore, Jefferies Singapore Limited isregulated by the Monetary Authority of Singapore. For investors in the Republic of Singapore, this material is provided by Jefferies Singapore Limitedpursuant to Regulation 32C of the Financial Advisers Regulations. The material contained in this document is intended solely for accredited, expert orinstitutional investors, as defined under the Securities and Futures Act (Cap. 289 of Singapore). If there are any matters arising from, or in connectionwith this material, please contact Jefferies Singapore Limited, located at 80 Raffles Place #15-20, UOB Plaza 2, Singapore 048624, telephone: +656551 3950. In Japan this material is issued and distributed by Jefferies (Japan) Limited to institutional investors only. In Hong Kong, this report isissued and approved by Jefferies Hong Kong Limited and is intended for use only by professional investors as defined in the Hong Kong Securities andFutures Ordinance and its subsidiary legislation. In the Republic of China (Taiwan), this report should not be distributed. The research in relation tothis report is conducted outside the PRC. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC.PRC investors shall have the relevant qualifications to invest in such securities and shall be responsible for obtaining all relevant approvals, licenses,verifications and/or registrations from the relevant governmental authorities themselves. In India this report is made available by Jefferies India PrivateLimited. In Australia this information is issued solely by Jefferies International Limited and is directed solely at wholesale clients within the meaning ofthe Corporations Act 2001 of Australia (the "Act") in connection with their consideration of any investment or investment service that is the subject ofthis document. Any offer or issue that is the subject of this document does not require, and this document is not, a disclosure document or productdisclosure statement within the meaning of the Act. Jefferies International Limited is authorised and regulated by the Financial Conduct Authorityunder the laws of the United Kingdom, which differ from Australian laws. Jefferies International Limited has obtained relief under Australian Securitiesand Investments Commission Class Order 03/1099, which conditionally exempts it from holding an Australian financial services licence under theAct in respect of the provision of certain financial services to wholesale clients. Recipients of this document in any other jurisdictions should informthemselves about and observe any applicable legal requirements in relation to the receipt of this document.

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