Guy Kawasaki introduced Merrill Lynch report from his broker friend at his blog, “Top Internet Themes for 1H’08”, here is a summary:
- Intensifying 3rd party seller competition (negative)
As the industry giant ($57bn in TTM GMV) eBayâ€™s anticipated listing fee changes could impact the 3rd party market. We think Amazon ($5bn in TTM GMV) might incorporate some of this uncertainty (and consumer uncertainty), into its â€™08 outlook, potentially creating a buying opportunity as we expect little actual impact.
- A bump Online media spending (positive)
We see two events that could build enthusiasm on the Internet advertising market into the summer: elections and the TV writers strike. Direct dollars wonâ€™t be that material ($150mn possible direct benefit to Online adverting in â€˜08), but extensive political spend could crowd non-political spending to Online display markets, which could be a catalyst for Yahoo or Google (YouTube).
- Increasing focus on mobile market initiatives (both)
CES and the spectrum auction will provide greater clarity on Googleâ€™s and Yahooâ€™s mobile strategies, we expect each company to be aggressive in 2008. Difficult to handicap the risk of Google winning the spectrum auction, but losing could be a stock catalyst. Also, we expect Yahooâ€™s to renegotiate its AT&T contract with a mobile partnership component, potentially clearing an overhang.
- Improving display ad targeting technology (positive)
Google/DCLK merger may highlight possibility for improved targeting technology to drive up the value of Online ad inventory. We think Online CPMs at around $2.50, which trail newspapers by 5-10x has room to grow, and targeting will make social networking sites more competitive, but also benefit Yahoo! in â€™08.
- Asset value unlock speculation (positive)
The InterActive split into five entities expected in mid-2008 will be the catalyst and, in addition to potentially creating value for Interactive, the split could be an industry catalyst highlighting the underlying asset value for Yahoo ($10-11/share) and potentially even eBay (we value PayPal ~$10bn) or Expedia (TripAdvisor).
- Social networking revenue model emergence (negative)
Audiences are moving to social networking sites and the â€œinterest targetingâ€ ad sales initiative by MySpace is just a first step in competitive audience monetization. We expect more display/sponsorship/ad network initiatives, followed by peer-to-peer eCommerce and possibly personalized search in a few years. All large cap. Internet stocks (eBay, Google, Yahoo) have some degree of risk, although AOL, MSN and Yahoo! could have most in â€™08.
You can find the report here (PDF).