September 24, There's an App for that...the Browser

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1 September 24, 2015 Google There's an App for that...the Browser Industry View Attractive Stock Rating Overweight Price Target $ Counter to the GOOGL "app bear case" we find mobile browser traffic is 2X larger than app traffic, growing 1.2X faster. Traffic in 3 of GOOGL's key categories Retail, Finance, Travel over-indexes toward browser, speaking to GOOGL's entrenched position to continue driving the mobile ad market. U.S. Mobile Browser Traffic 2X Larger than App Traffic, Growing 1.2X Faster: Despite the popularity of mobile apps (an est. 76bn downloaded in '14), U.S. mobile browser audiences are 2X larger than app audiences across the top 50 mobile web properties and have grown 1.2X faster over the past 3 years. Only 12 of the top 50 U.S. mobile sites - including YouTube, Instagram, Snapchat, and Pinterest- have larger app audiences. MORGAN STANLEY & CO. LLC Brian Nowak, CFA [email protected] Benjamin Swinburne, CFA [email protected] Michael Costantini [email protected] Owen Hyde [email protected] Kevin Liu [email protected] Google ( GOOGL.O, GOOGL US ) Internet / United States of America Stock Rating Overweight Industry View Attractive Price target $ Shr price, close (Sep 23, 2015) $ Mkt cap, curr (mm) $453, Week Range $ GOOGL and FB Apps Appear Well Positioned to Continue to Capture More Engagement and Ad Dollars: These app-dominated sites are category winners. 4 of the 12 leading apps are GOOGL properties YouTube, Google Search, Maps and Gmail which speaks to GOOGL's entrenched position to continue to monetize its app user base through the mobile transition. FB's Instagram is also included. The only reason FB itself isn't on the list of 12 is because of its strong mobile browser growth, as FB mobile app and browser audiences are now larger than any other mobile property, which speaks to its leadership in both mobile use cases. Google "App Disintermediation" Bear Case Generally Not Playing Out: Our findings also run counter to the common GOOGL "app disintermediation" bear case that people will migrate to mobile apps rather than mobile search/browser. We find that mobile traffic in 3 of Google's biggest search spend categories Retail, Finance and Travel over-indexes toward browsers, and that ~90% of the companies analyzed in these 3 categories are driving over 50% of their mobile traffic growth from browsers. This speaks to the structural advantage of GOOGL's search product (still at the top of the mobile consumer funnel), and the need for companies to continue to spend on GOOGL paid search to grow. Retail Browser Traffic 6X Larger than Apps...though Amazon and Walmart are Showing Strong App Traction: Traffic matters for retailers, and mobile retail traffic is in browsers. 9 of the top 30 retailers (30%) still don't have mobile app audiences large enough to be measured. Further, browser audiences among the remaining 21 retailers are ~6X larger than app audiences. We think this is because changing consumer behavior is difficult and takes time...and years of desktop-based shopping has conditioned shoppers to start their e-commerce experience in browsers and on Google. As such, we see retailers needing to continue to spend on GOOGL to grow in e- Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. 1

2 commerce. That said, AMZN and WMT stand out among the group, as they are now driving ~60% of their mobile user growth through apps. This is a likely positive for AMZN and WMT, as over time larger app audiences will likely lead to lower customer acquisition costs, stickier customer bases and a greater share of wallet. On the flip side, these retailers' size and marketplace structure does make this a potential threat to be monitored for GOOGL. Google September 24, 2015 Online Travel Agency (OTAs) Mobile Browser Audiences are 4.5X Larger, and 6 of the 9 Largest Hotels Still Don't Have App Audiences Large Enough to be Measured: OTA mobile browser audiences are ~4.5X larger than app user bases. This speaks to the browser-based travel research behavior that is migrating from desktop to mobile. Further, the traffic overlap between these sites speaks to how consumers often shop among the OTAs, which we believe further holds back OTA-specific app adoption. Mobile traffic to the large hotel chains is even more browser based, as 67% of the largest hotel chains don t have mobile app audiences large enough to be measured. Here again, we see GOOGL's search at the top of the funnel in mobile travel...well positioned to continue to grow its share of ad budgets. 2

3 Risk Reward Source: Thomson Reuters, Morgan Stanley Research Price Target $820 Bull $ X 2017e bull case Core EPS of $52.96, Less the PV of the Alphabet Investment Losses Base $ X 2017e base case Core EPS of $50.15, Less the PV of the Alphabet Investment Losses. Bear $ X 2017e bear case Core EPS of $49.33, Less the PV of the Alphabet Investment Losses. Our $820 price target is based on our discounted cash flow valuation and implies 19.4x 2017e core Google non-gaap EPS of $ We then back out the discounted value of the Alphabet investment losses to arrive at our $820 target. We use a 9.7% WACC and a 3% terminal growth rate (2.5% previously). Improved core Google revenue disclosure, better-thanexpected expense discipline and share repurchases lead to multiple expansion and higher earnings power. Mobile monetization proves highly incremental to core search revenue growth and search takes more share of global budgets. YouTube becomes an even bigger contributor to top-line growth, and, more importantly, operates at a higher margin than in our base case. Status quo on core Google core revenue disclosure and capital allocation. Google maintains share in global search advertising, but mature US and UK markets weigh on growth. Assumes midteens search revenue growth through 2017, as mobile device proliferation leads to search advertising taking share of global ad budgets. However, with ~50% of global search revenue driven by more mature search markets in the US and UK, we see organic growth slowing. We forecast YouTube growing at a CAGR of ~45% over the next 3 years, though the segment is a headwind to incremental margins (high content expense costs). No change on core Google revenue disclosure and capital allocation and global ad growth slows...investment spend leads to margin compression too. Assumes slower search advertising growth through 2018, resulting in $3.2bn (~3.5%) lower revenue compared to our base case in 2018 as growth in ad budgets slows, as search takes less share of budgets. Investment Thesis Increased transparency from the creation of Alphabet Inc. is a positive step to better understanding core Google profitability and lossgenerating investment projects. Improved and more detailed disclosure lead to multiple expansion with other internet companies (up to 13-18% company-wide multiple expansion at Expedia and Amazon), and we see a similar outcome for Google as investors gain a clearer picture of core Google's strong earnings power. Google Website's growth is likely to surprise to the upside, driven in large part by better than expected YouTube results. We now see YouTube growing at a 45% forward CAGR, driving 41% of total Google Websites growth, as Google Websites grows at an 18% forward CAGR the next 3 years. Our $820 price target is based on 19.4x 2017e core Google non-gaap EPS of $50.15 less the PV of the Alphabet investment losses. Key Value Drivers Search advertising spend continues to gain share of global advertising budgets, including in the US and UK where organic growth appears to be slowing. Mobile search advertising proves incremental to organic search spend. Investments in video content driving longer-term monetization at YouTube. Moderation of expense growth. Risks to Our Price Target Over 90% of the company s net advertising revenue comes from Search. While we believe Search will continue to take share of global ad budgets and Google will retain its dominant share, growth in US and UK markets (~50% of Google search revenue) has slowed. Improved disclosure around the Google Inc. and Other Alphabet segments may not decrease the overall investment activity of the business. Deterioration in the advertising market, particularly as vast majority of revenue is driven by advertising. Elevated investment in R&D and dilution from additional restricted stock grants. Resolution of EU antitrust probe, potentially lowering Google s share of search advertising spend in the region or global tax reform (given Google s 15-20% effective tax rate). 3

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5 There's an App for that...the Browser Mobile Browser Traffic is 2X Bigger and Growing 1.2x Faster than App Traffic U.S. mobile is still largely a browser based world as mobile browser audiences are ~2X larger than app audiences across the top 50 U.S. mobile web properties ( see Exhibit 1). 1 As shown, the median browser audience (across the top 50 U.S. mobile apps as of July 2015) has grown at 61% per year, while app audiences have grown at an average of 51% per year. Said another way, mobile browser audiences have grown 1.2x faster than mobile app audiences off of a 1.8x larger base. Exhibit 1: For the top 50 mobile web properties browser audiences are 2X larger than mobile app audiences, growing 1.2x faster Please see the Appendix for full detail on the top 50 mobile browser and mobile app audiences. Note that this over-indexing toward browsers is the opposite of what most investors we speak with expect, who often ask about the "app-lification" of consumer behavior as we transition from desktop to mobile. We attribute this difference to the most commonly cited industry report on app and browser behavior published by Flurry, which asserts that nearly 90% of time spent on mobile (across ios and Android devices) occurs in app. But Flurry's breakdown of how people are spending their time on mobile matters, as we see that the app time spent data is skewed upward by gaming (32% of time) and social (a total of 29% of time between Facebook at 17%, Other messaging at 10% and Twitter at 2%). 5

6 Exhibit 2: Gaming and social skew the Flurry time spent data toward apps Google September 24, 2015 Source: Flurry Analytics, Morgan Stanley Research 12 Mobile Properties with Larger App Audiences...Positioned to be Category Winners and Take a Larger Share of Ad Dollars In all, only 12 of the top 50 U.S. mobile properties (24%) have larger mobile app audiences than mobile browser audiences (see Exhibit 3). 3 There are multiple interesting findings here. First, 50% (6 of 12) of these app-traffic dominated properties are "daily habits" like (Gmail and Yahoo Mail), checking the weather (Weather Channel), monitoring stock performance (Yahoo Finance), looking up maps/directions (Google Maps) and searching online (Google Search). Of the other 50%, 3 are "social sharing" sites (Snapchat, Instagram, Pinterest) and 3 are streaming media sites (Pandora, Netflix, YouTube)...which you could argue are also daily habits for many Americans. Second, the app user bases of the leading ad "platforms" (like YouTube, Pandora) and social networks (like Instagram, Snapchat and Pinterest) also stand out. This speaks to these players' advantaged app position to continue to garner a larger share of mobile time spent and engagement, which can be used to improve their ad offerings and targeting and grow their overall share of advertiser budget s. In our view, this is also likely to lead to a higher share of mobile display ad dollars moving into "walled garden" ecosystems, rather than toward the mobile web. While we're generally not concerned about the current ios ad blocker trends (as we question whether consumers will adopt them) it is notable that these companies with large app user bases, in our view, are at an lower risk of losing advertising revenue to mobile ad blocking technology. 6

7 Exhibit 3: Only these 12 U.S. mobile properties (of the top 50) have more mobile app traffic than mobile browser traffic Google September 24, 2015 Third, 4 of these 12 app-dominated mobile properties are Google-based offerings Gmail, Google Maps, Google Search and YouTube which speaks to the breadth of the Android ecosystem and Google's strong and entrenched position within users' mobile activity. Facebook more browser-centric, but app traffic strong too Note that Facebook, the leading U.S. internet property in both mobile browser and app audience size (see Exhibit 4), 4 is not shown in the exhibit above because of its strong mobile browser growth which surpassed its mobile app audience last year. This in our view speaks to Facebook's leadership in both consumer mobile use cases. 7

8 Exhibit 4: Facebook's U.S. browser site now gets more traffic than its mobile app, and both its app and browser audiences are larger than any other U.S. mobile property Google September 24, 2015 Addressing the Google "App-lification" Bear Case We are often asked about the Google mobile "app-lification" risk consumers migrating to mobile apps rather than mobile web browsers and, in effect, bypassing Google search. Our analysis shows that G oogle search is still positioned to win on mobile as U.S. mobile traffic in 3 of the top search spend categories Retail, Finance/Insurance, and Travel, which in aggregate make up an estimated 38% of the total U.S. search market materially over-indexes toward browsers. In addition, we find that ~90% of the companies analyzed in these 3 categories are driving over 50% of their mobile traffic growth from browsers (See Exhibit 6). 6 This is bullish for Google as it illustrates how the company, in our view, will continue to monetize user traffic as it transitions from desktop to mobile. We now turn to analyzing mobile consumer behavior in each category in more detail. Exhibit 5: We analyzed mobile audiences in 3 of the top U.S. search ad spending verticals which make up ~38% of U.S. search spend Source: Kantar data, Morgan Stanley Research 8

9 Exhibit 6: ~90% of the companies in the Travel, Finance/Insurance, and Retail categories are driving 50%+ of their mobile traffic growth from browsers Google September 24,

10 Retail: 30% of the Top 30 Retailers Don't Have App User Bases Large Enough to be Measured We start with Retail (an estimated 18% of the total U.S. search market) where mobile browser traffic is still very important. Indeed, 9 of the 30 retailers (30%) in our sample the 25 largest traditional retailers and 5 ecommerce pureplays still don t have mobile app audiences that are large enough to be measured (See Exhibit 7). 7 Exhibit 7: The retailer median mobile browser audience is 6X larger than the median mobile app audience In addition, of the 21 retailers that have app user bases, the median mobile browser audience is still 6.1x larger than the mobile app audience (ranging from 1.7X larger at Amazon and ebay to 61x at Staples). Said another way, mobile browser audiences are still ~6x larger even among the most successful mobile 10

11 retailers. Given the importance of traffic to retailers (foot traffic or mobile eyeballs), this in our view speaks to the importance for retailers to continue to spend on Google mobile paid search for traffic. We attribute this to the fact that changing consumer behavior is difficult and takes time...and years of desktop based shopping has (largely) conditioned shoppers to start their e-commerce experience and price comparing in browsers and on Google. In addition, Google text search ads and product listing ads present traditional retailers an opportunity to improve their mobile traffic reach vs. Amazon and grow their share of e-commerce dollars. These data speak to Google's entrenched position to continue to monetize the retail category as it transitions to mobile. The retail mobile user data also highlights the strength of the "long-tail" to Google, as 79% of the next 14 largest retailers don't have app audiences large enough to be measured (see Exhibit 8) 8 and therefore are more dependent on browsers and Google traffic to grow. Exhibit 8: The mobile app user bases for 11 of the 14 (79%) next largest Retail sites are not large enough to be measured Google September 24, 2015 Don't Forget About Google's Deep Linking Efforts Either We acknowledge that while mobile browser traffic is larger than mobile app traffic, a higher percentage of transactions may occur in mobile apps. But Google has a strategy to address this too by working to integrate its search product across the mobile browser and app environments through app indexing and deep linking. Via app indexing and deep linking, mobile users who have an app installed will be able to open content within the app directly from mobile browser search results (for example, a product search on mobile browser may show a link directly into the ebay app). This allows Google to display search results in a mobile web environment that are meaningfully more integrated with app content, and speaks to Google s ongoing efforts to harness the power of search if mobile traffic does indeed shift more towards apps. Retailer Mobile Traffic Growth is Even more Skewed toward Browsers Mobile growth is largely coming through browser traffic among the large retailers as well. In all, mobile browsers are driving over 50% of mobile user growth at 28 of 30 (93%) of the retailers in our group. 40% of them saw 100%+ of their year-over-year mobile traffic growth come via browsers (See Exhibit 9). 9 11

12 Exhibit 9: 93% of the top 30 Retailers are seeing over 50% of their mobile traffic growth come from browsers. Google September 24, 2015 Source: Comscore Data, Morgan Stanley Amazon and Walmart Showing Some App Success Only two retailers Amazon and Walmart (covered by Simeon Gutman) drove over 50% of their mobile traffic growth from app users. To us, this is positive for these two players as over time we believe larger app audiences can lead to lower long-term customer acquisition costs, stickier customer bases, and a greater share of consumer wallets. In addition, given these two players size and marketplace structure, this is a potential risk for Google that should be monitored. It is also, in our view, part of the reason we continue to see Google roll out new and improved shopping offerings like Google product listing ads, Google Shopping (fka Froogle), Google Express, and "Purchases on Google" (essentially, a Buy Button on mobile), as Google hopes to bring ecommerce transactions into its ecosystem to more directly link transactions to retailers search ad spending. 12

13 Finance/Insurance: Still "Browsing" on Mobile... We find a similar mobile situation in the financial category (an estimated 14% of the total U.S. search market), as 8 of the 14 insurance companies (57%) don t have mobile app audiences large enough to be measured (See Exhibit 10 ). In addition, even among insurance companies that have mobile apps, mobile web traffic is still ~4.5X larger than mobile app traffic. This, in our view, again speaks to the difficulty in changing consumer behavior as people looking for insurance in a mobile world are still ( at least) 4.5X more likely to do their product/price comparing through a browser (and probably Google) rather than a brandspecific app downloaded on their mobile device. The insurance companies mobile traffic growth is predominantly coming from browsers too, as all of them except Geico (which had its app contribute 54% of mobile growth y/y) and Esurance (which saw its browser traffic's mobile contribution to growth fall y/y) are getting over 50% of their mobile traffic growth from mobile browsers (See Exhibit 11). This again speaks to the browser s entrenched position in mobile consumer behavior and the importance for insurance companies to continue to spend on Google paid search for traffic and new customer acquisition even through the mobile transition which is important to Google s long-term earnings power given the size of this category. Exhibit 10: Consumers looking for insurance on a mobile device are ~4.5X more likely to do their search on a mobile browser than an app Exhibit 11: Only 2 insurance companies Geico and Esurance drove over 50% of their mobile traffic growth from apps The Banks and Networks have Had Success Building App User Bases (we believe) because of Personal Banking On the other hand, the banks and card networks have had more success building mobile app user bases (we believe, in large part, for personal banking purposes), but even here mobile browser audiences are still ~1.5x larger than mobile app audiences. We attribute this in large part to the convenience of personal mobile banking (checking account balances, etc.) rather than the ability to search for financial products within providers' apps (see Exhibit 12). After all, it is still important to shop and compare rates and offerings when purchasing financial products, which in our view is still a process that is more likely to begin on Google or in a browser. 13

14 Exhibit 12: Almost all U.S. consumers (92%) use mobile banking/finance apps to check their account balances and recent transactions Google September 24, 2015 Source: Board of Governors of The Federal Reserve System, Morgan Stanley Research Exhibit 13: The banks and card networks have had more success building mobile app user bases, but mobile browser audiences are still ~1.5x larger... Exhibit 14:...And only 3 of 8 sites drove over 50% of their mobile traffic growth from apps 14

15 Travel: OTA Mobile Browser Audiences Over 4X Larger Travel makes up an estimated 6% of the total U.S. search market and here again we see browser traffic continuing to be important as consumers migrate from desktop to mobile. First, consider the online travel agencies/intermediaries (see Exhibit 15), where 10 of 11 (91%) have mobile apps, but mobile browser audiences are still ~4.5x larger than mobile app audiences (among those with mobile apps and browsers). The browser reach advantage ranges from 1.4X (at Airbnb) to 19.2x (at Booking.com). Given its small size and rapid growth, Airbnb's current browser vs. app traffic mix speaks to how this player (in our view) is likely best positioned to eventually grow its app user base to be larger than its browser base. But it is telling that despite the online travel agencies (OTAs') continued efforts over the past 2 years to grow their mobile app install bases to generate more direct traffic and reduce their dependency on Google and lower their customer acquisition costs nearly 4.5x more mobile travel shoppers still visit via browser than app. The OTAs mobile traffic growth is largely coming from browsers too, as anywhere from 52% to over 100% of OTA mobile traffic growth is coming via browser (see Exhibit 16). This again, in our view, s peaks to the difficulty in changing consumer behavior as travel shoppers are more accustomed to searching and researching their travel in mobile browsers from their years doing the same activity on desktop. Many consumers prefer to visit multiple online travel agencies as well (as the mobile traffic over-lap among the OTAs ranges from 14% to 58%) which again makes people more likely to use a browser than an OTAs' specific app. These data again speak to how the OTAs are likely to continue to be dependent on Google as travel migrates to mobile (which is important given the size of the travel search spend category). Exhibit 15: OTAs browser audiences are still ~4.5x larger than mobile app audiences... Exhibit 16:...and the OTAs mobile traffic growth is largely coming from browsers too And Hotels Remain Dependent on Google for Traffic too In the U.S., the large hotel chains (covered by Thomas Allen) are even more dependent on Google, as 6 of 9 (67%) don t have mobile app audiences large enough to be measured (See Exhibit 17). This speaks (again) to the entrenched browser consumer behavior in travel research, as well as the lack of a hotel chain app use case. That is, it is arguably less efficient to use a Starwood app, then a Hyatt app, then a Marriott app, etc. when planning a vacation instead of opening one browser window and performing a broader Google search. We acknowledge that the most loyal hotel rewards club members are likely exceptions to this rule, but (as the data show) this segment is a small percentage of the total population. Hotels are trying to generate greater app use with offerings like mobile check-in, mobile room selection, and keyless entry. However, these mobile efforts by hotels are still in the early innings as they are only available in limited locations and are not yet garnering material app traction. Here again, we see the hotels continuing to need to spend on Google search to grow. 15

16 Exhibit 17: The large hotel chains are very dependent on Google, as 6 of 9 (67%) don t have mobile app audiences large enough to be measured... Exhibit 18:...and most of their mobile traffic growth is coming from browsers Google September 24, 2015 Source: Comscore Data, Morgan Stanley Researc The Airlines have had the most App success in the Travel Vertical, but Still Over-index toward Browsers Among the U.S. travel players, the airlines (covered by Rajeev Lalwani) have been most successful at growing their app user bases, but even here we see that mobile browser traffic is still ~3X larger than mobile app traffic (Exhibit 19). We attribute part of the airlines app success to mobile check-in and other in-travel functionality (flight notifications, etc.) rather than a strong travel search-and-research-and-book use case. That said, given the importance of airfare and ticket prices for shoppers, we believe that cross airline flight search and comparison remains a frequent mobile activity which speaks to why the airlines will continue to have to buy Google paid search advertising. In addition, browser traffic is important for growth, as anywhere from 63% to over 100% of the airlines mobile traffic growth is coming via browser (see Exhibit 20). Here again we don t see any signs that the airlines will be able to pull away from spending on paid search as consumer behavior transitions to mobile. Exhibit 19: The airlines have been more successful than the hotels at growing their app user bases, but their browser traffic is still ~3X larger than app traffic... Exhibit 20:...and most of their mobile traffic growth is coming from browsers 16

17 Appendix The top 50 mobile sites in the U.S. (below) were selected from monthly Comscore data. We ranked them by total mobile browser plus mobile application unique visitors across all mobile platforms (smartphones and tablets). This lists comprises the top 50 sites by unique visitors from July The below list is ranked by "Browser Reach Advantage" a metric that captures the size of mobile browser traffic relative to mobile app traffic. A Browser Reach Advantage above 1.0x indicates more mobile browser traffic than mobile app traffic. 17

18 Exhibit 21: Top 50 U.S. Mobile Properties by Unique Visitors, Browser vs. App- July 2015 Google September 24,

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Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. 19

20 COVERAGE UNIVERSE INVESTMENT BANKING CLIENTS (IBC) STOCK RATING CATEGORY COUNT % OF TOTAL COUNT % OF TOTAL IBC % OF RATING CATEGORY Overweight/Buy % % 30% Equal-weight/Hold % % 24% Not-Rated/Hold 94 3% 11 1% 12% Underweight/Sell % 83 10% 14% TOTAL 3, Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price, Price Target and Rating History (See Rating Definitions) 20

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Third-party data providers make no warranties or representations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. INDUSTRY COVERAGE: Internet COMPANY (TICKER) RATING (AS OF) PRICE* (09/23/2015) Brian Nowak, CFA Amazon.com Inc (AMZN.O) O (04/24/2015) $ ebay Inc (EBAY.O) E (04/23/2015) $25.59 Etsy Inc (ETSY.O) E (05/11/2015) $14.61 Expedia Inc. (EXPE.O) E (05/01/2015) $ Facebook Inc (FB.O) O (04/23/2015) $93.97 Google (GOOGL.O) O (08/11/2015) $ HomeAway, Inc. (AWAY.O) U (02/25/2015) $27.12 IAC/InterActiveCorp (IACI.O) E (06/26/2015) $68.08 LinkedIn Corp (LNKD.N) O (02/25/2015) $ Priceline Group Inc (PCLN.O) E (02/25/2015) $1, Twitter Inc (TWTR.N) E (11/03/2014) $26.79 Yahoo! Inc (YHOO.O) O (03/26/2015) $29.74 Yelp Inc (YELP.N) E (07/29/2015) $23.10 Dean J Prissman Groupon, Inc. (GRPN.O) E (02/25/2015) $3.73 GrubHub Inc. (GRUB.N) O (02/25/2015) $25.59 King Digital Entertainment PLC (KING.N) O (07/13/2015) $13.76 RetailMeNot Inc (SALE.O) E (07/13/2015) $8.66 Shutterstock Inc (SSTK.N) U (07/13/2015) $30.46 TrueCar Inc (TRUE.O) E (07/13/2015) $5.52 Zillow Group Inc (Z.O) O (07/13/2015) $27.49 Zynga Inc (ZNGA.O) E (07/13/2015) $2.39 Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted Morgan Stanley 22