disappointing 4Q earnings (March 15 th report) and provided modest 1Q guidance that
the BofA Merrill Lynch Hardline Retail team called “a little rich,” though it is difficult to
tell if weak trends are the result of secular home goods weakness or the disruptive
impact of eCommerce players like Wayfair.
Key theme/metric(s) for 1Q: 2Q revenue guidance on easier y/y comps
1Q revenue guidance was a disappointment, though comps ease in 2Q’17, and
opportunity for more stable US growth could aid stock sentiment. Customer growth in
2Q has a 400bps easier y/y comp vs 1Q17, while order growth has a 1700bps easier y/y
comp. Overall, revenue growth faces a 1600bps easier y/y comp. and would expect
guidance anywhere near the Street’s 2Q estimate at 25% y/y growth to be viewed
positively given several quarters of guidance below street estimates.
Internet/e-Commerce | 06 April 2017 41
Biggest 1Q issues/risks:
• Commentary on US customer trends, particularly repeat rates and unit economics
(customer acquisition costs).
• AOV trends given street concerns that some customer metrics are benefitting from
purchase of lower value items.
• Progress with International investments, especially early results from ad spending in
UK, Canada, and Germany.
1Q data points indicate mixed traffic trends
US data indicates that Wayfair PC minutes growth increased 17% y/y in 1Q through
February vs. 14% y/y growth in 4Q’16. Wayfair mobile minutes have decreased 24% y/y
through February in 1Q vs. up 3% y/y in 4Q’16. US PC user growth decreased 16% y/y in
1Q through February, vs. 4Q at -25% y/y. Wayfair mobile user growth increased 2% y/y
in 1Q through February vs. 16% y/y in 4Q.
Estimates vs. Consensus: Expect revenue and EPS upside vs. the Street
For 1Q, we expect revenue/EBITDA of $944mn/($22mn) vs. the Street at
$933mn/($32mn). Total revenue guidance of $905-930mn implies 2-year stacked
growth of 97-101% vs. 121% in 2016, which seems conservative. We expect the
company’s revenue to come in above the high end of the sales outlook as Direct
Revenue sales were up 30% quarter to date (through nearly 2 months of 1Q’17). Our
1Q revenue growth forecast is based on 48% y/y customer growth (up 9% q/q) and 42%
order growth (down 10% q/q). Wayfair expects EBITDA margin of (3.5%)-(3.8%) due to a
lower opex absorption in the quarter on seasonally lower sales. The company continues
to expect little to no ad spend leverage given increase International ad spend.
Table 28: Wayfair Estimate Summary
1Q17 2Q17 2017 2018 2019
Revenue
BofAML est. $944 $980 $4,169 $5,019 $5,872
Growth Y/Y% 26% 25% 23% 20% 17%
Street $933 $987 $4,237 $5,258 $6,585
BofAML vs. Street Above Below Below Below Below
EBITDA
BofAML est. -$22 -$19 -$48 $10 $64
Street -$32 -$20 -$59 $23 $134
BofAML vs. Street Above Above Above Below Below
EPS
BofAML est. ($0.49) ($0.46) ($1.55) ($1.00) ($0.47)
Street ($0.60) ($0.45) ($1.65) ($0.94) $0.04
BofAML vs. Street Above Below Above Below Below
Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4/4/2017
Our PO of $44 is based on 0.7x 2018E EV/sales. We continue to focus on EV/Sales given
Wayfair’s lack of profitability due to US fulfilment investment and Intl. expansion. Our
0.7x target multiple is a discount to Wayfair’s eCommerce comp group at 1.3x and at a
modest discount to a retail peer comp group at 0.8x. We think the multiple is
appropriate given strong revenue growth vs. peers, balanced by lower profitability.
42 Internet/e-Commerce | 06 April 2017
Twitter (Underperform, $14.50)
Stock view: Engagement could be improving, but still trailing peers
On positive note, DAU growth, tweet impressions, and time spent growth have all been
accelerating, and we won’t be surprised if most metrics show stable growth in 1Q17
given event activity (political, sports, awards shows) in 1Q. However, the NFL season is
over, the election surprise is slowing fading, competitive pressure is rising (particularly
Instagram), and new monetization initiatives will take time, so we are more cautious on
2Q. The high level of executive churn also raises an element of strategic uncertainty
that could continue to weigh on sentiment. While it’s possible Twitter could see
moderate residual benefit from recent YouTube/Google Display Network boycotts, we
continue to believe MAU growth acceleration is key to improving sentiment, and we
continue to expect other platforms to grow much faster. The biggest upside driver for
1Q could be conservative guidance, which implied revenues would be down 17% y/y at
the midpoint in 1Q.
Longer-term, our primary concerns are user growth, rising competition in video, and lack
of positive advertiser feedback. Despite execution on the live streaming initiative in
2016, MAU impact was underwhelming and we see risk of rising costs and/or content
loss in 2017. At this point, it’s unclear how aggressively management will push live
streaming in 2017, and early exploration of potential subscription revenue streams
(enhanced Tweetdeck offering beta) could suggest potential strategic shifts. On the
advertiser side, we are still hearing limited traction with Twitter’s ad platform changes
and ROI measurement, and it seems experimental dollars are being moved to Snap.
The biggest risk to our Underperform rating, in our view, is the underlying value of the
Twitter platform for users and potential Artificial Intelligence (AI) signals. We remain on
the sideline for now, with ever-present M&A potential providing some element of a floor
to the stock. We think 3x 2017 revenues plus cash ($12/share in total) is a valuation an
acquirer could see as very reasonable given stabilizing DAU trends and value of Twitter
data.
Key theme/metric(s) for 1Q: Mgmt focus on engagement, investors on users
MAU growth likely remains the primary focus in terms of metrics investors consider.
While DAU growth could continue to growth at high single digits, we do not see much
upside potential to low single digit MAU growth (we model 322mn, 4% y/y), which lags
in comparison to Facebook’s recent17% y/y growth. We expect engagement metrics in
general (tweet impressions, DAU growth, time spent) to be solid, though it’s possible
lack of NFL and fading US election catalysts could have some negative effect. In terms
of monetization, our ARPU estimate for $1.67 implies a 14% y/y decline, which reflects
both weaker Twitter pricing trends and potential competitive pricing pressures.
Biggest 1Q issues/risks:
• MAU growth could slip: We model 4% y/y MAU growth to 322mn, but fading NFL
and election tailwinds could lead to weaker user growth trends in 2Q.
• Competition could impact pricing: Management noted elevated competition in
mid-January (shortly after Snap’s ad API update), which may have continued
throughout the quarter and impacted pricing more than anticipated.
• Live streaming pipeline in question: Amazon recently announced a deal with the
NFL to steam game content, replacing Twitter.
• Ad product wind-down could impact revenue: Management indicated that it is
reevaluating lower return ad formats, and a decision to wind down certain formats
(like direct response, promoted tweets) could further impact 2Q guidance.
Internet/e-Commerce | 06 April 2017 43
Top 1Q data points
comScore mobile data indicated US monthly active users were up 2% y/y and down 4%
q/q (down 3mn q/q), versus our estimate for +4% y/y, +1% q/q. Total minutes for 1Q17
(2-mo. data) are tracking down 18% y/y, with mobile down 18% and desktop down 23%.
Mobile minutes have averaged a 20% y/y decline for the last 4 months.
Estimates vs Consensus
Our 1Q17 rev/EPS estimates for $535mn/$0.03 are slightly above the Street and above
the implied midpoint of management’s guidance (based on EBITDA and EBITDA margin
outlook). Despite our near-term concerns, we believe the outlook was sufficiently
conservative. That said, we see risk to current consensus estimates for the year, and we
are below Street revenue at $2.3bn for 2017 vs consensus at $2.35bn, though slightly
ahead on EBITDA on more moderate cost assumptions. Our 2017 estimates assume a
conservative 4% MAU growth for the year.
Table 29: Twitter Estimate Summary
1Q17 2Q17 2017 2018
Revenue
BofA ML est. $535 $544 $2,301 $2,339
Growth Y/Y% -10% -10% -9% 2%
Street $510 $548 $2,352 $2,496
BofA ML vs Street Above Below Below Below
EBITDA
BofA ML est. $120 $152 $639 $689
Street $94 $135 $564 $650
BofA ML vs Street Above Above Above Above
EPS
BofA ML est. $0.03 $0.08 $0.33 $0.34
Street $0.01 $0.06 $0.27 $0.37
BofA ML vs Street Above Above Above Below
Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017
Our $14.50 price objective is based on 12x our 2018 EBITDA estimate, which reflects a
discount to the online media group (13x). We believe the Twitter platform has slowing
user and revenue growth and as such, we expect the stock to trade at a sustained
discount to online media peers, with potential M&A adding some offsetting downside
support.
44 Internet/e-Commerce | 06 April 2017
Yelp (Neutral, $43 PO)
Stock view: Likely to be some improvement vs last quarter
Yelp is coming off of a quarter with decelerating app unique devices, weak new
customer adds, and decelerating sales force growth, and it seems likely that one or two
of these metrics will improve. The tone at our recent investor meetings with the CFO
seem to suggest that 4Q issues did not signal a break in the model (see On the road
with Yelp), and we expect an improvement q/q customer adds. We think the company
should be able achieve Street 1Q revenue and EBITDA estimates, though we won’t be
surprised to see the 2Q17 outlook come in slightly below current Street estimates.
For the full year outlook, while we believe the implied expense growth in the 2017
outlook is somewhat conservative, management appears focused on investing in the
business for now and we think upside is more likely to come in 2Q or 3Q. Overall, we
remain somewhat cautious on the stock given potential revenue deceleration due to
tough comps and a deceleration in sales force growth.
On the cost front, management has been clear in its intention to invest in performance
marketing, which could take time to bear fruit. In addition, we believe sales force growth
to stabilize/increase going forward, which would seem to suggest potential cost
headwinds relative to recent quarters. Finally, while we don’t have the specific
financials, the addition of Nowait ($40mn acquisition closed 2/28) likely encompasses a
moderate bump up in opex with limited revenue to offset.
As we look ahead, we are encouraged with the three transitions within company and we
will be looking for progress on the following on the call. The first is connections
between consumers and businesses on Yelp through clicks, reservation services,
ordering, and Request a Quote. The second is a ramp up in performance marketing as
users engage in more measurable events. The third is new customer acquisition via
alternative channels, including national customers from outside sales alongside selfserve
customers via online channels.
Key theme/metric(s) for 1Q: new account adds, app unique devices growth
Given the miss last quarter and pressure on sales force headcount, local advertising
accounts will be important gauge of overall execution. Other key metrics include app
unique devices growth, which has been decelerating since mid-2015 from 51% y/y to
20% in 4Q16. Performance marketing could reverse the trend, but it could take some
time. Finally, while management continues to highlight a decoupling of sales force
growth and topline trends, investors still pay attention to overall sales force growth,
particularly given the three consecutive quarters of deceleration from 44% y/y (1Q16) to
11% y/y (4Q17). Management has indicated that sales force growth in 2017 should be
in the double digits.
Table 30: Key 1Q metrics
Metrics 4Q16A 1Q17E 2Q17E
Claimed Local Business 3,363 3,552 3,727
y/y Growth 27% 25% 24%
Local Advertising Accounts 138 142 150
y/y Growth 24% 17% 17%
Reviews 121,022 127,135 133,635
y/y Growth 27% 25% 23%
Source: BofA Merrill Lynch Global Research, company reports
Biggest 1Q issues/risks:
• Local revenue deceleration: We assume 750bps of y/y growth deceleration in
1Q17 vs 4Q16.
Internet/e-Commerce | 06 April 2017 45
• Metrics could remain under pressure: Investors likely will look for stabilization in
key metrics such as app unique devices growth and local ad account growth, but it
could take time for incremental marketing and sales investments to bear fruit.
• Stock comp could create overhang: With Alphabet’s decision to only report GAAP
profits, Yelp’s high stock comp (67% of 2017E EBITDA) could create overhang to
the valuation.
Leading indicator data points:
Salesforce growth decelerating
While it possible that Yelp sees improving productivity per salesperson, and the mix shift
to national and self-serve reduces reliance on direct sales, the deceleration in salesforce
headcount is a negative leading indicator for revenues.
Chart 16: Salesforce growth versus local advertising revenue growth
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q14A
2Q14A
3Q14A
4Q14A
1Q15A
2Q15A
3Q15A
4Q15A
1Q16A
2Q16A
3Q16A
4Q16
1Q17E
2Q17E
3Q17E
Salesforce y/y % Salesforce y/y % ( 2-qtr shift) Local ad rev y/y %
Source: Company, BofA Merrill Lynch Global Research
Accrued sales bonus and commissions tracking lower
We note that 4Q accrued bonuses and commissions are down y/y and reflect only 0.3%
of NTM revenue, which would be the lowest ratio seen in recent years. Even on an
absolute basis, the total accrued bonuses and commissions of $3.1mn is the lowest
since mid-2013. While this is likely due in part to gains in self-serve and perhaps
increased sales focus on National accounts, the change is noteworthy, in our view.
Chart 17: Accrued bonuses and commissions as a % of NTM revenue
1.2%
1.0%
0.8%
3-year avg: 0.76
0.6%
0.4%
0.2%
0.0%
Source: Company, BofA Merrill Lynch Global Research
46 Internet/e-Commerce | 06 April 2017
In addition, the y/y change in commissions expense disclosed in company filings
continued a downward trend to negative territory. Over the course of 2016, the number
has gone from +$5.7mn in 1Q16, to +$2.4mn in 2Q16, to +$1.4mn in 3Q16, to down
$1.7mn in 4Q16.
We also consider comScore mobile data, which indicated that US monthly active users
were up 2% y/y (2-months data) while desktop monthly active users were down 14%
y/y. This reflects a moderate deceleration in mobile from 4Q (+4%) and slightly lower
declines in desktop (4Q at -16%). Total QTD US minutes are down 6% y/y for mobile (vs
+4% in 4Q), though App minutes were flat, and desktop was up 6% y/y (vs +1% in 4Q).
The somewhat weaker mobile minutes trend is notable, particularly the lack of growth in
Estimates vs Consensus
Our revenue and EBITDA estimates are slightly above consensus for both 1Q17 and
2Q17, as well as for 2017 and 2018. We expect local ad revenue to grow 28% y/y in 1Q
(vs 36% in 4Q) and transaction revenue to grow 17.5% (vs 19% in 4Q). Our 2017
estimates are near the high end of management’s 2017 outlook, and we would expect
any upside potential to likely surface in the latter half of the year.
Table 31: Yelp Estimate Summary
1Q17 2Q17 2017 2018
Revenue
BofAML est. $201 $218 $895 $1,082
Growth Y/Y% 26% 26% 26% 21%
Street $198 $215 $889 $1,068
BofAML vs. Street Above Above Above Above
EBITDA
BofAML est. $31 $40 $166 $221
Street $27 $37 $161 $217
BofAML vs. Street Above Above Above Above
EPS
BofAML est. $0.18 $0.24 $0.99 $1.28
Street $0.16 $0.25 $1.04 $1.45
BofAML vs. Street Above Below Below Below
Source: BofA Merrill Lynch Global Research, Bloomberg, as of 4/4/2017
We are more constructive on the stock given more negative sentiment and recent selloff,
but maintain our Neutral rating given the decelerating sales leading indicator
metrics and tougher revenue comps. Our $43 price objective is based on 14x 2018E
EV/EBITDA, slightly above online media comps, which we believe is warranted given the
higher margin potential in the model. We believe our multiple balances premium growth
vs peers with medium-term concerns on competition and limited GAAP profitability. We
believe the slight premium valuation is sustainable if the company can continue to
deliver 20%+ y/y topline growth, which would be above the advertising industry.
Internet/e-Commerce | 06 April 2017 47
Zillow (Buy, $42 PO)
Stock view: controversy sounding the mortgage business
While we still expect Zillow’s core business to have a solid quarter on product
improvements, the self-serve platform, and its recent Seller Boost product, the
controversy surrounding Zillow’s mortgage business (which potentially has implications
for Zillow’s core business and the retail estate industry) has been a key recent driver of
the stock. The Consumer Financial Protection Bureau (CFPB) has indicated that it views
Zillow’s mortgage referral system as potentially violating parts of the Real Estate
Settlement Procedures Act (RESPA). RESPA (Real Estate Settlement Procedures Act) is
an act designed to product potential homeowners by outlawing kickback and referral
fees from real estate services, particularly in relation to mortgage brokers who often
receive referrals from real estate agents. Since Zillow’s mortgage referrals involve a
pre-application and a referral directly to a mortgage agent that than a larger entity like a
bank, this could be violating the act. Mortgage brokers often fund some of the real
estate agents online advertising expenses and a crackdown on mortgage agents could
potentially hurt real estate agents ability to spend dollars on Zillow.
For now it is too early to say how this will develop as there are conflicting views for and
against this view with the CFPB not releasing an official stance, but we expect this to be
a near term overhang on the stock until a clear view of the CFPB’s view and intentions
unfold. While a contentious issue, mortgage revenue is still only 8% of total revenue
and even a cut back would have a minimal impact to overall revenue growth. As for the
impact on real estate agent spend on Zillow, we believe at with only roughly 5%
penetration into real estate agents online spend Zillow has plenty of room to grow the
core business and the high ROI of the ad unit will ensure agents buy placements on
Zillow regardless of mortgage broker involvement and continue to like the stock.
Key theme/metric(s) for 1Q: Mortgage requests and revenue per loan
With the controversy surrounding the mortgage business, we think investors will be
extra focused on the mortgage unit and focus on the mortgage revenue per loan request
and consumer load requests. Zillow will be releasing new metrics this quarter to replace
ARPA and premier agent count, but has yet to indicate what those metrics will be. Key
topics for the call will likely include: 1) mortgage business outlook; 2) premier agent
advertising spend; 3) rentals business; and 4) progress on FY17 goals.
Biggest 1Q issues/risks:
• If the CFPB decides Zillow violates RESPA, Zillow could face fines and have to
retool its mortgage platform.
• New metrics for FY17 could give less visibility into the business as a whole.
• Slower than expected penetration of self-service platform leading to increased
S&M costs.
• Potential for a weak 2Q guide if mortgage issues overhang the business as a whole.
Top 1Q traffic data points: comScore suggests usage up in 1Q
comScore desktop data suggests that unique visitors were down 5% quarter to date
(Jan. and Feb.) while usage was up 2% QTD. However, on mobile, comScore data
suggests usage is up 14% y/y on a bigger unique visitor base to 62mn unique users and
usage was up 7%. We note comScore has made several methodology changes which
has impacted the consistency of recent months data.
Estimates vs. Consensus: We are above the Street
Over rev/EBITDA estimates of $239mn/$40mn is above the Street at $236mn/$39mn.
We estimate that ARPA will be up 29% y/y to $629 and premier agent subscribers will
be flat y/y at 91.9K. Overall, we estimate 28% y/y growth, but note that the mortgage
issues could potentially impact revenue. For rentals and other we estimate $32mn in
revenue, up 75% y/y.
48 Internet/e-Commerce | 06 April 2017
Table 32: Zillow estimate summary
1Q17 2Q17 2017 2018
Revenue
BofAML est. $239 $261 $1,062 $1,307
Growth Y/Y% 25% 23%
Street $236 $257 $1,048 $1,258
BofAML vs. Street Above Above Above Above
EBITDA
BofAML est. $40 $51 $215 $313
Street $39 $46 $211 $298
BofAML vs. Street Above Above Above Above
EPS
BofAML est. $0.06 $0.11 $0.48 $0.89
Street $0.05 $0.07 $0.44 $0.80
BofAML vs. Street Above Above Above Above
Source: BofA Merrill Lynch Global Research estimates
Zillow has effectively captured the online U.S. real estate market, allowing them to
accelerate monetization and access to a large TAM with $87bn in total real estate
commissions paid in 2016 and Zillow powering just 5% of the commissions through its
Premier Agent platform. Although there is potential for the mortgage business to
create a headwind if the CFPB issued a negative ruling against Zillow, we still like the
stock into the quarter, as we prefer business with minimal competition, and believe that
the high ROI of the real estate premium platform to real estate agents will ensure
agents buy placements on Zillow regardless of mortgage broker involvement. We
maintain our $42 PO based on a 6x our 2018E EV/Sales and supported by our DCF
valuation. Our multiple is roughly in-line for online real estate lead generation sites in
other countries operating in developed countries.
Internet/e-Commerce | 06 April 2017 49
Zynga (Underperform, $2.70)
Stock view: Live events can improve franchises, but still need new titles
Zynga launched Dawn of Titans end of 4Q, and although it progressed into the top 20
grossing games in the U.S. Apple store, it has fallen out of the top 100 at some points
during the quarter suggesting that its overall revenue contribution has been fairly low.
While this is somewhat disappointing, we think investor expectations for the game are
now at reasonable (lower) levels.
Instead of big new title launches, Zynga has indicated it is focused on strengthening its
current franchises with better engagement and monetization through live events and
new features, and progress in this area is key for the 2017 stock outlook. Zynga Poker
(up roughly 80% y/y YTD) appears to be benefiting from the focus on engagement and
live events with much stronger monetization, which could offset declines in other titles.
Overall, we think it could be hard to get the Street excited on the stock without a strong
future title that could drive more than single digit growth.
Key theme/metric(s): DAUs, and live events impact on DAU trends
After launching 10 new games in 2016, Zynga is focusing more heavily on live events to
drive engagement with in franchises rather than launching additional titles. This should,
if successful, translate into better DAU metrics as consumer engage with a title more
often. With Dawn of Titan likely coming below Street expectations, stronger
engagement will be necessarily for Zynga to drive a stronger DAU base. For the quarter,
we model 17.9mn online game DAUs for 1Q, down slightly q/q, and down 6% y/y.
Biggest issues/risks:
• Dawn of Titans revenues: Zynga spend several years developing the game and lack
of title success could impact sentiment.
• Expense leverage and cost-cutting benefits do not materialize: Zynga plans to
further improve operational efficiency and potentially cut non-profitable franchises,
but this may be hard to do without impacting long term growth opportunities.
• Lack of new releases: Zynga gave no indication of when it will release its next
title leaving current franchises to carry revenue and earnings.
Top data points: Zynga game bookings tracking in-line to slightly below est.
Zynga’s largest revenue generating franchises, Zynga Poker was up significantly in 1Q.
Zynga Poker appears to be benefiting from live events and is tracking up roughly 89%
QTD. Combined slots titles appear a bit more challenged with total revenue down 30%
QTD y/y, in part due to lower monetization on Wizard of Oz slots which is tracking down
in gross gaming rankings. Overall, QTD (January and February) Zynga online game
bookings (ex-ad revenue) is tracking up 7% y/y vs our 1Q est. of bookings up 9% y/y.
Chart 18: Zynga Poker y/y revenue growth
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: Superdata Research, BofA Merrill Lynch Global Research
Chart 19: Zynga slots y/y revenue growth
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Source: BofA Merrill Lynch Global Research estimates, company report
50 Internet/e-Commerce | 06 April 2017
Estimates vs. Consensus: Mostly inline to the Street
We are slightly above the street on revenue at $189mn vs. $188mn, but in-line on
EBITDA at $20mn. Cost cutting could improve EBITDA and Zynga has restructured some
of its workforce and is focusing on driving more engagement with live events in its
game franchises. For 2017, we are below the Street on revenue at $779mn vs. $805mn,
but above on EBITDA at $101mn vs $99mn.
Table 33: Zynga Estimate Summary
1Q17 2Q17 2017 2018
Revenue
BofA ML est. $189 $196 $779 $786
Growth Y/Y% 41% 41% 5% 1%
Street
BofA ML vs Street
$188
Above
$200
Below
$805
Below
$875
Below
EBITDA
BofA ML est.
Street
$20
$20
$20
$24
$101
$99
$106
$122
BofA ML vs Street Above Below Above Below
EPS
BofA ML est. $0.01 $0.01 $0.05 $0.06
Street $0.02 $0.02 $0.07 $0.08
BofA ML vs Street Below Below Below Below
Source: BofA Merrill Lynch Global Research estimates, company report
Zynga is improving profitability while engaging players better with live services but we
remain cautious on the company’s ability to materially grow its audience and still favor
the console gaming group. Zynga should have downside support given roughly $1.50 in
cash and assets and strategic franchise value (we estimate Poker/Slots generates over
$250mn+ in revenue annually). Our $2.70 PO is based on 11x 2018E EBITDA (which is a
premium to the Mobile gaming peer group due to margin expansion potential), plus
$1.41/share in cash and assets (building).
Internet/e-Commerce | 06 April 2017 51
Company referenced Ticker Price
Alphabet A GOOGL 848.91
Alphabet C GOOG 831.41
Amazon.com AMZN 909.28
Bankrate RATE 9.75
Care.com CRCM 11.68
eBay EBAY 33.81
Expedia EXPE 124.97
Facebook FB 141.85
Fitbit FIT 5.71
GrubHub GRUB 33.27
LendingTree TREE 117.8
Match Group MTCH 16.45
Netflix nflx 143.62
ONDK ONDK 4.62
Pandora P 11.82
priceline.com PCLN 1761.77
Quotient QUOT 9.4
Snap SNAP 20.7
TripAdvisor TRIP 41.76
Trivago TRVG 12.81
Twitter TWTR 14.53
Wayfair W 40.21
Yahoo! YHOO 46.38
Yelp YELP 33.22
Zillow A ZG 33.49
Zillow C Z 33.47
ZYNGA ZNGA 2.78
Source: BofA Merrill Lynch Global Research, Prices as of 5 April 2017
52 Internet/e-Commerce | 06 April 2017
Price objective basis & risk
Alphabet (GOOGL / GOOG)
Our price objective is $1025/$1025, representing 17x our core 2018 Google non-GAAP
EPS estimate (excluding non-Google losses), plus $118/share in cash, or 21x core
Google GAAP EPS plus cash. Alphabet has traded at 12-24x forward P/E over the last
five years and we think our 17x multiple is reasonable given shareholder friendly actions
that include the non-core revenue and operating loss disclosures, and stock buybacks.
Downside risks to our PO are: 1) Search revenue growth decelerates faster than
anticipated due to market maturity, 2) mobile transition drives negative search behavior
changes, 3) revenue growth pressure from competitor initiatives, 4) margins disappoint
due to revenue mix and investment initiatives, and 5) negative regulatory changes,
including EU antitrust. The stock has been subject to heavy volatility in the past based
on revenue growth and margin trends and this volatility could increase if economic
conditions deteriorate.
Amazon.com (AMZN)
Our PO of $1,100 is based on our SOP that values AWS at $127bn or $259 per share
and the retail business at $413bn or $841 per share. Our 5.5x AWS multiple is a modest
premium to the software/SaaS comp group at 5.0x on 2018 sales, and 0.9x multiple is a
premium to a retail general merchandise comp group at 0.7x. We think the premiums are
warranted given share gains and superior growth. Our $1,100 price objective implies
2.8x 2018E Price/Sales, a multiple above the high end of Amazon's historical range of
1.0-2.5x. We argue the historical P/S multiple should increase given positive 3rd party
sales (3P) that is reported on a net basis, a higher AWS revenue contribution, and record
gross profit margins.
Downside risks to our price objective are a consumer spending slowdown, rich P/E
multiple, margin or growth pressure from the digitization of media, more aggressive
offline competition, hardware strategy, AWS investments and/or price cuts, Prime
Instant Video content costs, and decelerating growth. The stock has been subject to
heavy volatility in the past, based on margin trends, and this volatility could increase due
to economic uncertainty.
Bankrate (RATE)
Our $13 price objective is based on 9x our 2018E EV/EBITDA, a slight discount to the
online lead-gen and marketplace peer group average of 11x. We believe it is reasonable
for RATE to trade at a slight discount given RATE's recent challenges to both growth
and margins and its position as a turnaround in the space.
Downside risks to our PO are: 1) limited visibility into intra-quarter trends, 2) stock
dependent on economic outlook, 3) card issuer spending is volatile and the turnaround is
short lived, 4) slower growth in personal loans than expected, 5) higher than expected
marketing spending to drive traffic to Bankrate sites, resulting in lower margins, 6)
Google changes have a negative impact on marketing margins and EPS, 7) competition
with other consumer finance sites, and 8) a large acquisition.
Care.com (CRCM)
Our $9 price objective is based on 1.3x 2018E EV/Sales or 10x 2018E EV/EBITDA, in line
with small cap ecommerce and subscription peers. Care.com has category leadership
and a large TAM, but we do not believe 7% 2-yr expected revenue growth warrants a
premium to peers. At the same time, we believe that the Google Capital investment
could provide some downside support on take-out potential.
Downside risks to our PO are 1) need to add more customers each year to grow given
high churn, 2) competition from SitterCity and Homestead, and 3) new care offerings
Internet/e-Commerce | 06 April 2017 53
(mobile apps, premium nanny, date night payment services etc.) may not see much
traction, 4) lower conversion rates on mobile, 5) mobile conversions with 30% fee to
Apple and Google Play marketplaces could negatively impact margins, and 6)
international expansion may not be successful given different demographics.
Upside risks to our PO are 1) lower marketing spend resulting in higher margins and
better leverage in 2016, 2) revenue upside from cross-selling and word of mouth, 3)
increase length of stay for paid subscribers, reducing churn, and 4) traction from new
care offerings, Care at Work, and international expansion.
eBay (EBAY)
Our $38 price objective is based on 17x our 2018E EPS. Our 17x P/E multiple is slightly
ahead of the retail comp group average of about 16x, reflecting eBay's potential for a
Marketplace growth acceleration in 2017.
Risks to our price objective are: 1) competition from Amazon and other new
Marketplaces in the U.S., competition from Amazon, Alibaba and local incumbents in
International markets, and competition from multi-channel retailers that are
aggressively investing in the online channel, 2) vulnerability to future Google algorithm
changes, 3) decelerating user growth, resulting in eCommerce market share losses, and
4) currency risk including FX volatility impact on cross border trade. The stock has been
subject to heavy volatility in the past based on GMV growth and market share trends
and this volatility could increase due to economic uncertainty.
Expedia (EXPE)
Our $146 price objective is based on our sum of the parts (SOP) that assumes 9x 2018E
EBITDA for the core OTA business (a discount to Priceline at approx. 15x due to slower
organic growth and higher taxes on earnings), 8x 2018E EBITDA for Egencia (we expect
single digit growth), 60% ownership of Trivago (using our PO), and HomeAway at 15x
2018 EV/EBITDA.
Downside risks to our PO are: 1) economic downturn leading to fewer travel bookings, 2)
competition for European traffic lowering the company's growth or margin opportunity,
3) hotels favoring lower-cost alternative distribution channels and limiting Expedia's
access to inventory, 4) Google and/or TripAdvisor disintermediation, and 5) the negative
impact of terrorism and disease on global travel trends.
Facebook (FB)
Our $165 price objective is based on 24x our non-GAAP 2018E EPS and 27x GAAP EPS,
multiples equal to about 1x 2018E revenue growth, mostly in-line with its social and
online media peers.
Risks are: 1) high valuation that discounts strong growth, 2) changes in user
engagement impacts optimism on revenue opportunities and compresses the stock
multiple, 3) privacy issues or pushback on Facebook's policy changes impact revenue
generation, 4) risks to executing Messenger & WhatsApp monetization, 5) potential for
higher investment to negatively impact margins, and 6) a macroeconomic impact on
advertising pricing.
Fitbit (FIT)
Our $6.50 price objective is based on 0.5x EV/S multiple which is below the device
manufacturer peer group at 1.8x, but justified in our view given declining revenue and
profitability, FCF burn, market saturation, and limited visibility into the next product cycle.
Upside risks are: 1) international product launches and expansion, 2) higher-thanexpected
ASPs, 3) new product launches domestically, 4) slower-than-expected OpEx
ramp, 5) software monetization and 6) corporate wellness program growth.
54 Internet/e-Commerce | 06 April 2017
Downside risks are: 1) integration risk from smartwatches and other wearables
cannibalizing the fitness tracker market, 2) fad risk, as fitness trackers could be simply a
fitness fad with consumers, 3) competitive risk from competitors out-innovating, and 4)
execution risk on channel build and inventory management.
GoPro (GPRO)
Our $8 price objective is based on 10x our 2018E EBITDA, in line with the peer average
of 10x, which we believe is appropriate given its slightly higher growth and potential for
EBITDA margin expansion after restructuring. GoPro is the leading action camera
company in the world but has been challenged by execution issues limiting its ability to
drive strong product cycles.
Downside risks to our PO are: 1) new products fail to resonate with consumers, 2)
competitive pressure pushing down ASPs, and 3) failure to meet market demand during
holidays.
Upside risks to our PO are: 1) better than expected sales on new products, 2) better than
expected holiday sales from extra manufacturing capacity, 3) better than expected drone
sales, or new product announcements, and 4) new direct sales partnerships
internationally
GrubHub (GRUB)
Our PO is $49, based on 32x our 2018E P/E (vs. high growth internet at 31x). We believe
GRUB warrants a premium to eCommerce peers due to the attractive margins of the
core business and, relative to the overall small-cap sector, GRUB has more attractive
margins and growth potential.
Downside risks to our PO are:
Revenue and sales metrics are trailing KPIs for Diners and Restaurant and the potential
for diminishing returns on future restaurant and user additions is a risk. GrubHub has
significant room for growth in the US ahead, but will need to invest internationally if
domestic growth stalls.
LendingTree (TREE)
Our $140 price objective represents 14x 2018E EV/EBITDA, a premium to the lead
generation services and marketplace peer group average of 11x due to market position
(category leader in mortgage and personal loans) and faster revenue growth.
Risks to achieving our estimates and price objective are: 1) interest rate risks given the
demand for leads for mortgage and other loan products, 2) competition with other
consumer finance sites and ad networks, 3) potential for search engine
disintermediation and traffic competition, 4) potential for recessionary impact on loan
products (lower traffic and demand for leads) and credit card markets, 5) premium
valuation vs. lead generation and marketplace peers, and 6) acquisition risk.
Match Group (MTCH)
Our PO is $21 based on 12x our estimated 2018 EBITDA of $562mn and our DCF
valuation analysis. The basis for our PO is in-line with the eCommerce group, but a
premium to the consumer internet subscription services group due to MTCH's
combination of market dominance, profitability, and cash flow. We think fundamentals
help MTCH stand out from its ecommerce peer group and MTCH should be seen as a
more defensible platform that is unlikely to see disruption in its core markets.
Downside risks are: market share losses to an emerging dating business, potential for
higher acquisition costs on mobile, lower conversion rates that lead to lower PMC
growth, the need to acquire competing sites to maintain growth or market share, and
Internet/e-Commerce | 06 April 2017 55
higher-than-expected International investments. The biggest downside risk is lower
revenue if Tinder experiences a decline in popularity or public perception.
Netflix, Inc. (NFLX)
Our $154 price objective is based on a peak penetration sum-of-the-parts analysis
which discounts back future EPS at peak penetration by 10%. At peak penetration, we
assume domestic streams peak at 65mn subscribers in five years while the international
segment reaches 200mn seven years later. We assume APRU of $9.99 and 40%
contribution margins for the domestic business and a $8.50 APRU and 40% contribution
margin for the international business. We also assume a $1.50 price increase
domestically over six years and a $3.60 price increase internationally over twelve years
which will be 75% incremental to operating income. We assume a US tax rate of 40%
and an international tax rate of 25%. At peak penetration, we assume a 15x S&P
average multiple.
Downside risks to our price objective are: 1) increasing content costs, 2) potential new
competitors in the company's streaming business, 3) execution challenges and
competition potentially limiting growth in new markets, 4) U.S. saturation point
approaching quicker than expected, and 5) net neutrality repeal causing ISPs to look to
recoup higher rents from Netflix's high bandwidth requirements for streaming.
Upside risks to our price objective are: 1) content costs rising slower than expected, 2)
total subscriber growth is faster than expected, and 3) international expansion into new
large markets (e.g. China).
OnDeck Capital (ONDK)
Our $6 price objective is based on 10x our 2018E EBITDA. This is below the internet
ecommerce comparable group (11x) which is justified in our view given OnDeck's double
digit revenue growth and potential to expand margins starting in 2018 as it gains scale
and operating leverage, but tempered by a slower FY18.
Upside risks to our PO are: 1) faster than expected originations growth, 2) signing of
new large strategic partners, and 3) lower than expected operating expenses.
Downside risks to our PO are: 1) higher than expected loss rates from worsening macro
environment, 2) credit market freeze shutting down liquidity access, 3) lower effective
yield from competition, and 4) increased marketing spend.
Pandora Media, Inc. (P)
Our $9 price objective is based on 1x our 2018 revenue estimate, a significant discount
to online media and subscription service peers, but justified in our view as the multiple
takes into account the company's difficult transition to a subscription on-demand
service and lack of near term profitability balanced by the value of its data and user
base.
Upside risks to our PO are: 1) direct licensing agreements for lower royalty rates, 2)
international expansion announcements, 3) ad-load increases in key demos, increasing
monetization rates, 4) faster than expected launch of on-demand service, and 5) the
company is acquired.
Downside risks to our PO are: 1) emerging competition from both other Internet models
like Spotify and Apple Music, as well as large, established radio companies like
iHeartMedia embracing Internet streaming, 2) slow down in the company's ability to
grow monetization, 3) lack of historical or near-term GAAP profitability, and 4) delayed
on-demand service launch
56 Internet/e-Commerce | 06 April 2017
priceline.com (PCLN)
Our price objective is $1,920 based on 22x our 2018 adj. EPS estimate. The 22x
multiple is towards the upper end of Priceline's historical multiple range of 13-23x and
represents a PEG of 1.4x. We think a 22x forward P/E multiple is appropriate given midteens
EPS growth, strong booking trends, Priceline's leadership position in the global
online travel sector, track record of EPS upside, and increased access to the China
market via the Ctrip investment.
Risks to our PO are 1) a global economic downturn, especially macro-weakness in
Europe, leading to fewer travel bookings and pressure on room rates, 2) competition for
traffic lowering the company's growth or margin opportunity, 3) hotels favoring their
own distribution channels, 4) FX volatility, 5) increased competition from Expedia,
TripAdvisor and potentially Google, and 6) the impact of terrorism/disease on global
travel trends. The stock has been subject to heavy volatility in the past based on travel
industry trends and this volatility could increase due to greater economic uncertainty,
especially with macro-trends in Europe.
Quotient Technology Inc (QUOT)
Our $13 price objective is based on a 16x 2018E EBITDA, a premium to eCommerce
peers (11x), which we think is justified given stickiness of the Retailer IQ platform and
the slightly higher growth of 14% in FY17 vs. eCommerce group at 11%). Quotient is a
lead operator in online couponing, has a strong technological platform, relationships
with CPGs and a platform that is slowly spreading across grocers in the U.S.
Downside risks are: 1) further delays in point-of-sale system rollout with retailers, 2)
loss of major retailers or CPG, 3) higher-than-expected R&D and S&M costs due to
investment, and 4) limited float may contribute to volatility.
Upside risks to our analysis are: 1) additional retailers launching on their point-of-sale
system, 2) quicker-than-expected transition to digital couponing, 3) new additional
digital coupon retail clients (such as Walmart). and 4) targeted couponing lifting average
transaction pricing.
Snap (SNAP)
Our $25 PO is based on our DCF model as we do not expect the company to be
profitable until mid- to late-2019 and any earnings-based valuation exercise would
require discounting back future earnings. Our DCF assumes approximately $28bn
revenue by 2027 based on 525mn DAUs and $50+ in ARPU. Our PO implies 15.5x EV /
Revenue, above the peer group at 4x, as we believe Snap's early stage of ad
monetization and potential future leverage in the business model warrants a premium
valuation multiple to the social media group.
Upside risks to our PO are: 1) greater than expected reacceleration in North America
DAU growth, 2) more rapid monetization of existing user base with increased ad load
and/or new ad formats, and 3) better traction and monetization in International markets.
Downside risks to our PO are: 1) further deceleration in user growth that would raise
concerns on long-term revenue opportunity, 2) pressure on usage due to competing
services, and 3) performance into the first lock-up expiration on 7/29/17.
TripAdvisor (TRIP)
Our price objective of $40 is based on 25x our 2018 non-GAAP EPS estimate. This
multiple represents a modest premium to the group for possibly depressed margins and
re-accelerating top-line growth.
Downside risks to our price objective are: 1) increasing competition (e.g. Yelp), 2) macroeconomic
factors (e.g. recession in Europe) impacting the travel industry, 3) challenges
Internet/e-Commerce | 06 April 2017 57
to the credibility of online reviews, 4) Instant Book transition puts pressure on revenue
growth, and 5) mobile monetization headwinds.
Upside risks to our price objective are: 1) improved mobile monetization 2) major OTA
sign on for instant booking 3) high non-hotel shopper dollar capture and 4) improved
global macro environment.
Trivago NV (TRVG)
Our PO of $15 is based on a 3.5x 2018E EV/Sales multiple. We note that 3.5x is roughly
in line with the lead generation peer group average 2018E EV/Sales multiple. We think
our EV/Sales multiple is warranted as a balance between Trivago's higher growth and
lower profitability. Our price objective is supported by our DCF analysis.
Downside risks to our price objective are: 1) Growing competition, 2) Elevated marketing
spend, 3) High Customer concentration, 4) Macro and FX risks, and 5) Potential for loss
of hotel inventory.
Twitter (TWTR)
Our $14.5 price objective is based on 12x our 2018 EBITDA estimate, which reflects a
discount to the online media group (13x). We believe the Twitter platform has slowing
user and revenue growth and as such, we expect the stock to trade at a sustained
discount to online media peers, with potential M&A adding some offsetting downside
support.
Downside risks to our PO are: 1) decelerating user growth that may raise concerns on
long-term revenue opportunity, 2) pressure on usage due to emergence of competing
services, 3) new ad initiatives may not perform well, resulting in lower advertiser
demand for Twitter ads, 4) monetization of logged-out users and third party application
users are slow to materialize, and 5) on a EV/EBITDA basis Twitter is more attractive
today than in the past, but stock remains subject to multiple compression.
Upside risks to our PO are: 1) User adds could ramp on new product initiatives in the 2H,
and accelerating user growth may increase optimism on long-term revenue opportunity,
2) with new demographic targeting initiatives, Twitter is able to capture more TV dollars
(vs online ad dollars) that are incremental with video ads, 3) the NFL broadcasts and
other video content (live political, entertainment, etc.) could help Twitter grow users
meaningfully in the long term, 4) guidance could prove to be conservative, 5) traction
from monetization of logged-out users and 6) potential that Twitter could be acquired.
Wayfair (W)
Our price objective of $44 is based on 0.7x 2018E EV/sales. We continue to focus on
EV/Sales given Wayfair's lack of profitability to date. Our 0.7x target multiple is a
discount to W's eCommerce comp group and at a modest discount to W's retail comp
group. We think the multiple is appropriate given stronger revenue growth vs. peers,
balanced by lower profitability and competitive risks.
Downside risks are: 1) GAAP operating losses expected through 2018, making valuation
analysis more complex, 2) competition from several well capitalized companies including
Amazon, 3) brand complexity (5 brands), 4) category limitations, 5) partner segment
revenue headwinds, and 6) execution risk on International expansion.
Yahoo! (YHOO)
Our price objective of $57 is based on our sum-of-parts valuation assumptions. Our $53
estimated asset value represents $39/share from the remaining Alibaba stake (using
$122 Alibaba valuation {10% discount rate, mid-term FCF FY18-25E CAGR of 18%, 4%
terminal growth} x 384mn shares at 20% discount rate), $6.1 for Yahoo Japan, $0.5 for
Excalibur patents, and $6.9 in cash and cash equivalents on Yahoo's balance sheet. We
58 Internet/e-Commerce | 06 April 2017
assume $4.7/share in value for the core business based Verizon's pending acquisition
value of $4.83bn less $300mn for potential revisions.
Downside risks to our PO are: 1) Alibaba stock valuation declines, 2) Alibaba valuation
discount is higher than expected, 3) Verizon's pending acquisition of Yahoo core assets
is delayed/challenged, 4) valuation of Yahoo! Japan falls, and 5) valuation of Excalibur
patent portfolio falls.
Yelp (YELP)
Our $43 price objective is based on 14x 2018E EV/EBITDA, slightly above online media
comps, which we believe is warranted given the higher margin potential in the model.
We believe our multiple balances premium growth vs peers with medium-term concerns
on competition and limited GAAP profitability. We believe the slight premium valuation
is sustainable if the company can continue to deliver 25% y/y topline growth with y/y
margin improvement.
Downside risks are Google and Facebook's ambitions to build a review ecosystem to tap
into local ad spending, competition from a variety of online and offline locally focused
advertising businesses, Google traffic dependency, and advertiser churn.
Zillow (ZG / Z)
Our $42 price objective is based on a 6x our 2018E EV/Sales and supported by our DCF
valuation. Our multiple is roughly in-line for online real estate lead generation sites in
other countries operating in developed countries. In addition, this multiple represents a
relative discount given Zillow's higher sales growth and a larger US TAM in comparison
to its peers in smaller developed markets like Australia and Japan. We are positive on
Zillow's long term opportunity to capture the majority of realtor's dollars moving from
offline channels to online marketing channels.
Downside risks are: 1) traffic cannibalization between Zillow properties, 2) new lawsuits
again Zillow, 3) potential for multiple compression, 4) a U.S. housing market down turn,
and 5) lack of profitability support for valuation.
Upside risks are: 1) faster than expected growth and S&M leverage, 2) Zillow Digg
monetization, 3) accelerated grow the in rentals market, and 4) new market expansion.
ZYNGA (ZNGA)
Our $2.70 PO is now based on 11x 2018E EBITDA (which is a premium to the Mobile
gaming peer group due to margin expansion potential), plus $1.41/share in cash and
assets (building).
Downside risks to our price objective are mobile market share losses, challenges in
establishing successful new content given employee departures, and player churn due to
greater competition given low barriers to entry. Upside risks are successful new title
releases that accelerate growth, or potential acquisition of Zynga for its game portfolio.
Analyst Certification
We, Justin Post, Jason Mitchell and Nat Schindler, hereby certify that the views each of
us has expressed in this research report accurately reflect each of our respective
personal views about the subject securities and issuers. We also certify that no part of
our respective compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or view expressed in this research report.
Internet/e-Commerce | 06 April 2017 59
Special Disclosures
BofA Merrill Lynch is currently acting as financial advisor to eBay Inc in connection with
the extension of a dual branded retail credit card with General Electric and committing
to purchase the loan portfolio in 2016. Deal announced along with Second Quarter
Earnings on July 16, 2014.
BofA Merrill Lynch is currently acting as financial advisor to Verizon Communications
Inc in connection with its proposed acquisition of Yahoo! Inc's operating business, which
was announced on July 25, 2016. The proposed transaction is subject to approval by
shareholders of Yahoo! Inc. This research report is not intended to (1) provide voting
advice, (2) serve as an endorsement of the proposed transaction, or (3) result in the
procurement, withholding or revocation of a proxy.
60 Internet/e-Commerce | 06 April 2017
US - Internet Coverage Cluster
Investment rating
BUY
NEUTRAL
UNDERPERFORM
RVW
Company
BofA Merrill Lynch
ticker Bloomberg symbol Analyst
Alphabet GOOGL GOOGL US Justin Post
Alphabet GOOG GOOG US Justin Post
Amazon.com AMZN AMZN US Justin Post
Bankrate RATE RATE US Nat Schindler
eBay EBAY EBAY US Justin Post
Expedia EXPE EXPE US Justin Post
Facebook FB FB US Justin Post
GrubHub GRUB GRUB US Nat Schindler
IAC InterActive IAC IAC US Nat Schindler
LendingTree TREE TREE US Nat Schindler
Match Group MTCH MTCH US Nat Schindler
Netflix, Inc. NFLX NFLX US Nat Schindler
OnDeck Capital ONDK ONDK US Nat Schindler
priceline.com PCLN PCLN US Justin Post
Take-Two Interactive TTWO TTWO US Justin Post
Trivago NV TRVG TRVG US Nat Schindler
Wix.com WIX WIX US Nat Schindler
Yahoo! YHOO YHOO US Justin Post
Zillow ZG ZG US Nat Schindler
Zillow Z Z US Nat Schindler
Activision ATVI ATVI US Justin Post
Electronic Arts EA EA US Justin Post
Quotient Technology Inc QUOT QUOT US Nat Schindler
Snap SNAP SNAP US Justin Post
Wayfair W W US Justin Post
Yelp YELP YELP US Justin Post
Care.com CRCM CRCM US Justin Post
Fitbit FIT FIT US Jason Mitchell
GoPro GPRO GPRO US Jason Mitchell
Pandora Media, Inc. P P US Nat Schindler
TripAdvisor TRIP TRIP US Nat Schindler
Twitter TWTR TWTR US Justin Post
ZYNGA ZNGA ZNGA US Justin Post
Chegg CHGG CHGG US Nat Schindler
Internet/e-Commerce | 06 April 2017 61
Disclosures
Important Disclosures
Equity Investment Rating Distribution: Electronics Group (as of 31 Mar 2017)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 29 59.18% Buy 14 48.28%
Hold 5 10.20% Hold 2 40.00%
Sell 15 30.61% Sell 5 33.33%
Equity Investment Rating Distribution: Media & Entertainment Group (as of 31 Mar 2017)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 40 56.34% Buy 21 52.50%
Hold 16 22.54% Hold 6 37.50%
Sell 15 21.13% Sell 6 40.00%
Equity Investment Rating Distribution: Technology Group (as of 31 Mar 2017)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 126 59.43% Buy 70 55.56%
Hold 35 16.51% Hold 17 48.57%
Sell 51 24.06% Sell 17 33.33%
Equity Investment Rating Distribution: Global Group (as of 31 Mar 2017)
Coverage Universe Count Percent Inv. Banking Relationships* Count Percent
Buy 1578 51.33% Buy 979 62.04%
Hold 690 22.45% Hold 434 62.90%
Sell 806 26.22% Sell 381 47.27%
* Issuers that were investment banking clients of BofA Merrill Lynch or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A
stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell.
FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential
price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii)
attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total
return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than
Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12
month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be
referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation).
Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*
Buy ≥ 10% ≤ 70%
Neutral ≥ 0% ≤ 30%
Underperform N/A ≥ 20%
* Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.
INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays
no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s
coverage cluster is included in the most recent BofA Merrill Lynch report referencing the stock.
Price charts for the securities referenced in this research report are available at http://pricecharts.baml.com, or call 1-800-MERRILL to have them mailed.
MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc, Facebook, Fitbit,
GoPro, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, Pandora, priceline.com, Quotient, Snap, TripAdvisor, Trivago, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA.
MLPF&S or an affiliate was a manager of a public offering of securities of this issuer within the last 12 months: Match Group, priceline.com, Trivago.
The issuer is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Alphabet, Amazon.com, Bankrate, eBay, Expedia Inc, Facebook,
Fitbit, LendingTree, Match Group, OnDeck Capital, priceline.com, Trivago, Yahoo!, Zillow.
MLPF&S or an affiliate has received compensation from the issuer for non-investment banking services or products within the past 12 months: Alphabet, Amazon.com, Bankrate, Care.com,
eBay, Expedia Inc, Facebook, Fitbit, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, priceline.com, Quotient, Snap, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA.
The issuer is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: Alphabet, Amazon.com, Care.com, eBay, Expedia Inc, Facebook,
Fitbit, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, priceline.com, Quotient, Snap, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA.
MLPF&S or an affiliate has received compensation for investment banking services from this issuer within the past 12 months: Alphabet, Amazon.com, Bankrate, eBay, Expedia Inc, Match
Group, priceline.com, Trivago, Yahoo!, Zillow.
MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer or an affiliate of the issuer within the next three months: Alphabet,
Amazon.com, eBay, Expedia Inc, Facebook, Fitbit, LendingTree, OnDeck Capital, priceline.com, Trivago, Yahoo!.
MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this issuer. If this report was issued on or after the 9th day of the month, it reflects the
ownership position on the last day of the previous month. Reports issued before the 9th day of a month reflect the ownership position at the end of the second month preceding the date of
the report: eBay, Match Group, Pandora, Yahoo!.
MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the issuer on a principal basis: Alphabet, Amazon.com, Bankrate, Care.com, eBay, Expedia Inc,
Facebook, Fitbit, GoPro, GrubHub, LendingTree, Match Group, Netflix, OnDeck Capital, Pandora, priceline.com, Quotient, Snap, TripAdvisor, Trivago, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA.
The issuer is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: Alphabet, Amazon.com, Bankrate, Care.com,
eBay, Expedia Inc, Facebook, Fitbit, GrubHub, LendingTree, Match Group, Netflix, priceline.com, Quotient, TripAdvisor, Twitter, Wayfair, Yahoo!, Yelp, Zillow, ZYNGA.
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