EFTA01115312

North America Equity Research J.P. Morgan 19 July 2013 Overweight Google GOOG, GOOG US Price: $910.68 Would Be Buying the Weakness; Remain Positive on V Price Target: $1,015.00 Shift to Mobile and Enhanced Campaigns; $1,015 PT Previous: $1,025.00 We remain positive on Google shares coming out of 2Q earnings and we'd be buying Internet the after-market weakness. Light revenue was largely attributable to self-inflicted Doug Anmuth AC policy changes impacting the Google Network and we're comfortable with the magnitude of increased investment spending given Google's track record on innovation and many large growth opportunities ahead. We continue to believe that Bloomberg JPMA ANMUTH <GO, mobile and display, Enhanced Campaigns, and Google Shopping/PLAs should drive Bo Nam stronger Y/Y growth in 2H13 and into 2014. We reiterate our Overweight rating and $1,015 price target. Kaizad Gotla. CFA • 2Q results modestly below expectations. Google Inc. consolidated gross revenue of $14.18 (+19% Y/Y, +1% Q/Q) was 2.7% below our estimate of $14.58 due to softness in the Google Network (4.6% light) and Motorola (13.2% light). Lower Diana R Kluger revenue and increased investments led to non-GAAP operating income of $3.998 and non-GAAP EPS of $9.56, 8% and 12% below our expectations. Higher expenses were evident in Sales & Marketing and G&A as Google Segment J.P. Morgan Secunties !SC headcount grew 4% Q/Q and the company invested more in marketing. An accounting change related to depreciation also contributed —$60M of 1-time Price Performance expenses. reo • Google Sites and Google Network dynamics similar to IQ. Google Segment net S750 - revenue of $10.1B came in 1.6% below our S10.3B estimate as the Google Network ao was again impacted by ad policy changes, along with higher TAC. Google's ad %4 policy changes should drive a better experience for users and advertisers over time, JIM Cel42 lama 403. APO and we remain encouraged by 16% growth in Google Sites net revenue. - 4000 seers Moe ($1 SISP$00 (rebned) • Motorola priming for Moto X launch. Motorola results were light on both the top TM In 3m 12m Abe 25.9% 1.1% 19.9% 562% and bottom lines as smartphone share remains low and the feature phone business Pei 10.4% -12% 9.3% 33.1% winds down, but the focus is clearly on the Moto X coming this fall. Ahead of the launch and presumably a large supporting marketing campaign already underway, Motorola reduced its headcount by —50% Q/Q, excluding the Home business. • Price target goes to $1,015. We are adjusting our estimates and now look for 2013 and 2014 Google Inc. gross revenue of $59.6B and $70.28 along with non-GAAP EPS of $43.66 and S52.18. Our revenue changes are negligible, but our EPS comes down 6% for 2013 and 4% for 2014. Our S1,015 price target is based on —16x 2015E non-GAAP EPS of$62.14. Google Inc (GOOG;GOOG US) FYE Dec 2012A 2013E 2013E 2014E 2014E 2015E 2015E Company Data (Prey) /Curd (Pnev) (Cuff) (Prey) (Curt) Plies ($) 910.68 EPS - Reported ($) Date Of Price 18 Jul 13 01 (Mar) 10.08 11.58A 11.58A 52-week Range (5) 928.00-576.13 02 (Jun) 10.12 10.92 9.56A Market Cap (S mn) 303,542.40 03 (Sep) 9.03 11.31 10.59 Fiscal Year End Dec 04 (Dec) 10.65 12.49 11.93 Shares 0/S (mn) 333 FY 39.88 46.31 43.66 54.50 52.18 64.09 62.14 Price Target ($) 1,015.00 Bloomberg EPS Pt (5) 39.72 46.10 53.33 83.07 Price Taroet End Date 31-Dec-14 Source: Company data. Bloomberg. J.P. Morgan estimates. See page 12 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. wwwipmorganmarketssom EFTA01115312 Doug Mmuth North America Equity Research 19 July 2013 J.F!Morgan What We Liked: • Solid Google Sites growth. Google Sites net revenue of $8.2B (+16% Y/Y, +2.5% Q/Q) was in-line with our expectation and stable with 1Q13 growth levels. We expect the strong performance of Google Sites will continue, aided by strength in search and YouTube. We remain positive on YouTube's ability to soon attract more TV dollars and also note that YouTube mobile revenue in June was 3x that of the beginning of the year. Google search is also doing well, driven by mobile, farther expansion of the knowledge graph, and PLAs, with Enhanced Campaigns coming in the back half. • Progress with Enhanced Campaigns transition. Heading toward the July 22 deadline next week, advertisers have already transitioned 75% of active campaigns-6M—to Enhanced Campaigns. We believe that the combination of better targeting capability and cross-device analytics will ultimately drive higher ROI for advertisers and increased spend. • Solid paid clicks growth. Paid clicks growth of 23% Y/Y was higher than our forecast for 20.5%, though CPC decline of 4% was below our -3% estimate. We view solid paid clicks growth to be a good indicator of demand strength, driven by the continued shift to mobile. Google noted paid clicks and CPCs are impacted by a variety of factors including policy and product changes. platform mix, geographic mix, and channel mix. There are a lot of moving pieces here, but the higher volume offsets the lower pricing in our view and PLAs likely had some impact given their low CPCs and very high ROI. What Concerned Us: • Network Sites results softer than expected due to policy changes. Network Sites net revenue of $886M was 11% below our 5997M estimate largely driven by policy changes implemented in 4Q12 and 1Q13. Key initiatives include the AdWords policy change in October 2012 to reduce clicks on arbitrage pages and those with poor landing page quality along with the 1Q13 initiative that prohibits developers from directly opting in users to download toolbars and change their default search engine. We believe the impact here should be more stable in 2H13 and the changes should improve the user and advertiser experience over time. • Increased investments weigh on margins. Google Inc.'s overall profit shortfall was attributable to both Google Segment and Motorola. Google Segment non-GAAP operating margins also declined to 32.1% from 34.0% in IQ due to increased investments. Despite the pressure on margins in 2Q, we are incrementally positive on these investments into new products across Google services as we believe the company has been increasing its pace of innovation and focus on the user experience and there are significant market opportunities ahead. We expect core Google to return to leverage and expand margins modestly beyond 2013. • Softer than expected UK results. UK revenue of 51.32B (+12% Y/Y) came in below our $1.39B (+18% Y/Y) estimate due to a warmer spring/less time online, FX headwinds, and tougher Y/Y comps. Excluding FX and hedging impacts, revenue came in at $1348 (+15% VA'). 2 EFTA01115313 Doug Anmulh North America Equity Research 19 July 2013 J.F!Morgan Summary of the Quarter Google reported 2Q consolidated net revenue, EBITDA, and PF EPS of $11.09B, $4.94B, and $9.56, compared to our estimates of $11.41B, $5.26B, and $10.92, respectively. Figure 1: Google 2Q Performance vs. J.P. Morgan Estimates $ in millions. except per share data 2013 ($ in millions) JPME Actual. DM(%) Consolidated Gross Revenue 14,492 14,105 -2.7% Consolidated Net Revenue 11,411 11,092 -2.8% Google Gross Revenue 13,342 13,107 -1.8% Googie Web Sites' 8.915 8.868 -0.5% Google Network Sues' 3.347 3.193 -4.6% Other 1.080 1.046 -3.1% TAG' 3.081 3.013 -2.2% % or Total Gross Advertising Revs 23.1% 23.0% Google Net Revenue 10,261 10,094 -1.6% Google Web Sites 8,184 8.162 -0.3% Google Network Srtes 997 886 -11.2% Other 1.080 1.046 -3.1:4 Clicks WY 20.5% 23.0% PPC WY -3.3% 4.0% Google Operating Income 3,817 3,465 -9.264 Margin - Gross 29% 26% Google PF Operating Income 4,505 4,208 -6.6% Margin - Gross 34% 32% Motorola Revenue 1,150 998 -132% Operating Income (268) (342) Margin -23% -34% PF Operating Income (157) (218) Margin -14% -22% Consolidated EMMA 5.255 4.936 EBITDA Margin - Gross 36.3% 35.0% PF EPS 510.92 59.56 -12.5% GAP EPS 59.01 59.54 5.9% WY Growth Gross Revenue 18.6% 15.5% Net Revenue 18.7% 15.4% EBITDA 13.7% 6.8% Sequential Growth Gross Revenue 3.7% 1.0% Net Revenue 3.7% 0.8% EBITDA 5.8% -0.7% Source: Company reports and J.P. Morgan Sim tee. EFTA01115314 Doug Anmuth North America Equity Research 19 July 2013 J.RMorgan Adjusting Estimates Given Google's 2Q13 results modestly below expectations due to lower than expected Network Sites revenue, softer UK results, lower margins, and higher losses at Motorola, and we are adjusting ow estimates as follows: Figure 2: Adjusting J.P. Morgan Estimates - Consolidated Google Inc S in millions, except per share data Consolidsted Gavle Inc 3013 JPME 4013 JPME 2013 JPME 2014 JPME 2015 JAME (Sin tram Old New Old New Old New Old New Old New Google Inc. Gross Revenue 15.084 14.811 16.789 16.676 60.313 59.561 70.367 70.201 80.615 80.927 WV Mosta 70% 5.0% 75.4% 15.7% 17.4% 15.9% 184% 17.9% 14.6% 15.3% 092 Growth 4.1% 5.0% 71.3% 118% % sag vs. old 4.5% -03% -1.3% 42% 0.4% Google Inc. Net Revenue 11.828 11.629 13.169 13,147 47,414 48,878 55.279 56.548 83.043 84.012 Ylii Growth 4.4% 2.6% 75.1% 15.9% 17.3% 16.0% 18.6% 185% 14.0% 15.2V, CVO Growth 16% 4.8% 71.4% 111% % Ng vs. aid -I.7% 4.2% .1.1% 0.5% 7.5% EBITGA 5.484 5.265 5,989 5,857 21,877 21,028 25,879 24214 29,959 29.317 YIY Gasser 18.1% 13.8% 14.6% 121% 14.5% 11.1% 194% 19.9% 15.8% 16.3% Ma*, (%) - Grass 36.2% 35.5% 35.7% 35.1% 35.9% 35.3% 38.8% 35.9% 37.2% 362% % elv vs. aid -3.6% 1.2% .3.0% .26% -2.1% PF EPS $11.31 $10.59 $1249 $1193 248.31 $43.86 $54.50 152.18 384.09 382.14 WV Mose 25.3% 17.3% 17.3% 110% 161% 9.5% 17.7% 115% 17.6% 19.1% % c1, vs. old -6.4% -4.5% 5.7% -41% -10% Scarce: Lawny repots and J.P. Margin estralet 4 EFTA01115315 Doug Anmulh North America Equity Research 19 July 2013 J.FtMorgan Figure 3: Adjusting J.P. Morgan Estimates - Google Segments S in millions. except per share data Geese 3013 JPME 4013JPME 2013 JPME I 2014JPME 2015 JPME 55 in unions) Old New Old New Old New Old New Old New Germ), Gross Revenue Advertising 12.687 12.509 13.966 13.828 50.837 50.300 59.060 58.203 67.895 86.890 WVGrowth 15.8% 15.2% 15.8% 14.5% 16.4% 15.1% 16.2% 15.8% 15.0% 14.8% CO Growl', 3.5% 3.7% 10.2% 10.5% % cirg vs. old •1.4% -1.1% -1.1% -1.4% •1.5% Licensing d Other 1.199 1.232 1.393 1.530 0320 4.861 6.042 6.805 7.069 8.506 WY Growth 80.0% 85.0% eta% 85.0% 100.5% 1065% 28.0% 40.0% 17.0% 25.0% QM Grover 11.0% 17.856 16.2% 24.5% % dig vs. old 2.8% 10.1% 3.0% 12.6% 20.3% Total Gross Revenue 13.886 13,701 15,379 15.362 55.558 55.161 65.102 65.048 74.980 75.397 WY Growth 20.5% 192% 19.2% 190% 20.7% 19.8% 17.2% 17.9% 15.1% 15.9% CYO GroMb 4.1% 4.8% 10.8% 11.8% %ens vs. aid -1.0% 4.1% -0.7% -0.1% 0.6% Total TAG 3258 3.181 3.619 3.529 12.920 12.685 15,088 14.653 17.571 16.915 % of Gross Reams 25.7% 25.4% 25.9% 25.5% 25.4% 25.2% 25.5% 25.2% 25.9% 25.3% Y/Y Growth 17.6% 14.8% 17.5% 14.6% 17.9% 15.7% 15.8% 75.5% 18.5% 15.4% %siva,. old •2.4% -2.5% -1.8% -2.9% 37% Goo -Me Net Revenue Advertising 9.429 9328 10.387 10.299 37.917 37.615 43.972 43.590 50.323 49.975 WY Growth 16.6% 15.3% 15.2% 14.5% 15.9% 14.9% 16.0% 15.9% 14.4% 14.6% 0/0 Growth 2.7% 3.1% 99% 10.4% %tag vs. old -1.1% -0.7% -0.8% -0.9% -0.7% Licensing d Other 1.199 1232 1.393 1.534 0320 4.861 6.042 6.805 7,069 8,506 WY Growth 80.0% 85.0% aim 85.0% 100.5% 106.5% 28.0% 40.0% 17.0% 25.0% OM Growth 11.0% 17.8% 16.2% 24.5% %dig vs. old 2.8% 10.1% 3.0% 12.6% 20.3% Total Net Revenue 10.628 10.560 11.760 11.833 02,638 42.475 50.014 50.395 57.393 58.481 WY Growth 21.4% 20.6% 19.7% 20.4% 21.5% 21.1% 77.3% 166% 14.8% 16.0% 0/0 Grover 3.6% 4.6% 10.6% 12.1% %tag vs. old -0.6% 0.6% -0.4% 0.8% 1.9% Motorola Revenue 1.198 1.070 1,410 1,310 0.776 4,400 5265 5.153 5.651 5.531 Y/Y &oath -53.5% -S9.5% -8.9% -112% -10.5% -17.6% 10.2% 17.1% 7.3% 7.3% % dig vs. ord -10.7% 4.7% -7.9% -2.1% -2.1% GOOG Op Interne 3.879 3.736 4,245 4212 15.690 15.160 18.755 18.293 21.752 21404 % Margin - Gross 27.9% 27.2% 27.6% 27.4% 28.2% 27.5% 28.8% 28.1% 29.0% 28.4% % Mg vs. old -3.6% -0.8% -3.4% -2.5% -1.6% GOOG PF Op Income 4.613 0.077 5,057 5.041 18.577 18.129 22.156 21.770 25.655 25.381 % Margin • Gross 33.2% 32.6% 32.9% 32.8% 33.4% 32.9% 34.0% 33.5% 34.2% 33.7% % Mg vs. old -2.9% -0.3% -2.4% -1.7% .1.1% Motorola Op Income (201) (342) (163) (380) (903) (1.316) (569) (1.073) (388) 41.048) % Matraq -168% -32.0% -11.5% -27.4% -18.9% -29.9% -10.8% -20.8% -6.7% -190% % eng vs. old NM NM NM NM NM Motorola PF Op Income (107) (287) (52) (268) (495) (933) (376) (940) (165) (864) % Margin 4.9% -25.0% -3.7% -20.4% -10.4% -21.2% -7.1% -18.2% -3.3% -15.6% % dig vs. old NM NM NM NM 367.1% Scarce: J.P. Morgan esbmales. Care ay data. 5 EFTA01115316 Doug Mmuth North America Equity Research 19 July 2013 J.F!Morgan Investment Thesis, Valuation and Risks Google (Overweight; Price Target: $1,015.00) Investment Thesis Overall, we continue to believe Google fundamentals are strong. The Paid Clicks and CPC divergence is tightening, but more importantly we are projecting organic gross revenue to grow 20% in 2013. Core search growth remains solid and Google is now getting significant lift from display and mobile, which we forecast to combine for more than 30% of gross revenue in 2013. We are encouraged by the growth potential driven by mobile and display, Enhanced Campaigns, and PLAs. We also believe that Google will ultimately pare Motorola losses and potentially come out with Google- designed devices that are more competitive. Valuation Reiterating Overweight rating, lowering our PT from $1025 to $1015 on our lower estimates. Our December 2014 price target of $1,015 is based on —16x 2015E PF EPS of $62.14. We note that large tech peers on average trade at 1.2x PEG, a premium to Google's current PEG of 1.0x (based on our estimates). Additionally, we believe shares of Google should trade at a premium to the S&P500 PIE, which trades at —12.5x 2015 estimates, as Google is one of the few companies in the S&P 500 growing revenue and EPS both above a 2012-2015E CAGR of 16%, respectively. Risks to Rating and Price Target Downside risks include: I) potential for a return to heavy investment spending and margin compression; 2) continued competition for engineering talent; 3) Motorola integration risk; and 4) increased regulatory scrutiny. 6 EFTA01115317 DOLlg (211(11391 North America Equlty Research 19 July 2013 J.PMorgan Figure 4: Consolidated Google Inc Incarne Statement 3.4114 3.924 0.97.4 30171 39134 07124 036 171131 70136 rut 004411.4400 63100 4104441 3113144 114 lot , 11. 4- / , 131310 31060 04.1010 114.1101 04404 1104111 10401 $11.1111 tan< 40.41.01.99...% CAC, 40:60 115700 62701, 'IO 766 0 124420 310130 331813 53021 $12034 $14-633 3 34.9164 111•11bnensodwir6143 -12110.7.4 MIMA 10144 y I .:- . - : 7 ' - " 1424119 111.01111 1111121 14140.3 111.1423 $41,11731 176.34111 111241111 Onee (77.73173.3.0 $4.1110 1200 23140 -.. , -,., 100760 29420 2.9/40 300111 6510.1 12909.1 147201 169432 00141 00111 24914.9 4.00.4 2.11711 7.741.0 43774 14.1419 0.0220 1.117.0 11471 MW 32110 44.417.1 474401 Op-non •9399•49 board" 4.049,4werrI 49010 1.1420 1340 1.6110 Iµ13 54320 1.4760 14140 1900 1901.1 4404,3 1µY4 bµ99 Sain 4. 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Morgan estrroses 9 EFTA01115320 Doug Anmulh North America Equity Research 19 Job/ 2013 J.F.'Morgan Figure 7: Google Inc Segment Summary 2•110. 3112A 40121. 124124 20124 3413* 61134. 413E 12,13E 3013E 2014E 2015E REVENUE Gool•• Orms Raelaue 37.905 10.646 10.964 11.624 12.9» mhote 12.961 13.107 13.741 15,362 55.161 66048 74397 Y/V Clio.ve »3% 24.1% 214% 186% 21.9% 214% 21.7% 195% 192% 190% 19.8% 17.9% 15.9% cooye - TAC 4204 2510 2.600 2.770 3.0» 10.910 2.962 3.013 3.141 3429 12645 14.663 16.915 YN Gretel, Zea 23.2% 23,2% 25.3% 25.7% 24.4% 190% 159% 14.4% 144% 15.7% 15.4% 154% I AC es% of Geie 23.2% 234% 23,7% 240% 239% 234 229% 230% »2% »0% 234% 215% 224% So». •N•11082•449 211.007 113$ 064 4.750 99221 39010 9,9119 10404 10.9» 11.433 422475 59305 SM» YN Gretel, 32% 24% 21% 12% 21% 21 23% 21% 21% 20% 21% 1» 16% %of To» Reime en, 71% 67% 91% 91% 91% 90% 91% 91% 91% 1.1“40:441.10814 • • 843 1.778 1514 4.1» 1(318 9» 1,070 1.314 4.400 5.153 4531 VN C110•11 IN 18% -40% .13% 6% 17% 7% 1.430,0»118224 • • 407 797 1.201 YN Clrown Me44•418 - 1.290 2.675 1.514 5.3» 1.018 9» 1.070 1.314 4.400 5.153 5.531 829 °Nee 144 .20% -54% .13% .18% 17% 7% %of Total Revenue 13% 23% 13% 13% » 9% 9% 10% 9% 9% 9% 10434 reress Reneee 38101 10.441 18214 19101 19419 51,371 13.964 14.10$ 14,311 14474 11301 70)01 80.927 TAC 8404 2.510 2.600 2.7» 3.040 10.960 2.»2 3.013 3.181 3.529 12.485 14.453 15.915 Uta Renlaus 28.087 8.135 4514 11.331 11.310 40219 11287 11.032 12108 13.147 448713 55.548 64012 Ynt Grimme. 24% 39% 51% 39% 38% 38% IS% 3% 16% 16%. 16%, 15%, 1 121 1 pe 1 20141 00ERATIN0 4C01.18 2001214 12.242 3.3111 3.434 3.253 2.741 12170 3.744 3.443 3.730 4212 111144 13293 21.404 WY Grpie 21% 1916 1% I% 13% 11% 1% 13% 12% /0% 21% 11% Corteuten 124298 42% 42% 41% 38% »X 39% 33% 34% 36% 34% 34% 36% V% Moletela • 1233) 2527) 135» 11.1131 12711 ( 3421 ( 3421 (3601 11.3161 11.0731 (1.044) 'WGraste 18% .18% Cagrtuten104,90 .19% .201. .23% .21% .27% .34% -32% .27% -30% .21% .19% Te41110.1.1411.11144.44 12242 3.358 3.203 2.730 3.314 12.722 3477 3.123 3.108 3402 13.848 17.220 24354 1781320412. 21% 11% .11% 4% 3% .2% 24% 13% 9% 24% 16t UMS, 42% 42% 33% 24% 30% 31% 32% 28% 29% 29% 30% 31% 32% PI0 9404013 1,140m4 14210 2.1141 3..50 3.101 4272 15147 4.224 3.1110 4210 4772 17.111 24430 2401? 'en Geest, 22% 19% 3% 6% 12% 2% 2% 12% 12% 8% 21% in stran 49% 45% 41% 3.19, Y3,4 40% 33% 36% 34% 34% 37%. 31%. 394., Scurce: Ccmpany regorts and J.P. Margal estrafes 10 EFTA01115321 North America Equity Research 19 July 2013 J.IlMorgan Google: Summary of Financials Income Statement -Amur FY12A FY13E FY14E FY15E Income Statement - Quarter 1C/13A 2013A 3913E 4013E Gross Reverues 51279 80398 68.755 77393 Groes Revenues 14.141A 14,492A 15.142 16,622 Revenues 40.419 46.876 55.548 54,012 Revenues 11.007A 11,092A 11.629 13,147 Cperabng income 12.722 13.848 17220 20,356 Operating income 3.477A 3,123A 3.396 3,852 D8A 2.962 4.068 4.383 4,880 BSA 8994 1,030A 1.055 1,084 EBITDA 15.684 17.916 21.603 25,1% EMMA 4.378A 4,153A 4.451 4,936 Net interest income ((expense) Net interest income / (expense) Other income ((expense) 625 888 1359 2,124 Other income / (expense) 134A 247A 239 268 Pretax income 13.347 14,736 18.579 22.480 Pretax income 3.611A 3,370A 3.634 4,120 Income taxes (251(3) (2,576) (3.530) (4,159) Income taxes (287$ (816)A (691) (783) Net Income 10.758 12,1% 15.049 18,321 Net Income 3.324A 2,554A 2.944 3.338 Weighted average diluted shares 332 339 344 349 Weighted average diluted shares 337A 338A 340 342 United EPS 39.88 43.66 52.18 62.14 Diluted EPS 11.58A 9.56A 10.59 11.93 Balance Sheet and Cash Flow Data FY12A FY13E FY14E FY15E Ratio Analysis FY12A FY13E FY14E FY15E Cash and cash equivalents 14.778 25.667 44.103 86,355 Sales growth 38.9% 16.0% 18.5% 152% Accounts receivable 7.885 8.020 8.610 9,602 EMMA growth 17.8% 11.1% 19.9% 16.3% Other ascent assets 3.976 3.665 3.709 3.729 EPS growth 10.6% 9.5% 19.5% 19.1% Caren; assets 60.454 75.820 94.689 117.954 PPSE 11.854 14.013 18.047 18,180 EOM margn 46.8% 44.9% 454% 45.8% Taal assets 93.798 119850 132.209 157.623 Net margin 32.8% 31.6% 32.4% 33.9% Taal debt 5.537 5,988 5.988 5,988 Debt/ EBITDA 0.3 0.3 0.2 02 Total liablities 22.083 25.517 32.027 39,120 Shareholders eqtity 71.715 85.133 103,182 118.503 Reban on assets (ROA) 15.9% 14.5% 14.8% 15.0% Return on equity (ROE) 20.4% 18.9% 19.4% 19.9% Net Income (ncludng charges) 10.737 12.855 15.049 18.321 D8A 2.982 4.068 4.383 4.800 Enterprise value / EBITDA 15.5 13.5 10.5 83 Change in *snag capita/ 898 468 718 8% Enterprise value / Free cash tow 21.4 19.4 14.4 10.9 Other PiE 28.2 24.0 20.8 17.4 Cash flowfrom operatiors 17.010 19.871 23.430 27.848 Capex (3273) (5.264) (5.039) (5.556) Free cash now 13.737 14.888 18.390 22.292 Cash flowfrom imesbng acne (13.056) (8.694) (5.039) (5.556) Cash flowfrom hlancng activities 1229 (592) (40) (40) Dividends Dividend yield Souse: Company reports and J.P. Morgan estimates. Note: Sin mi0ons (except per-share data).Fiscal year ercls Dec 11 EFTA01115322 Doug Anmulh North America Equity Research 19 July 2013 J.IlMorgan Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC" on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (I) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no pan of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures • Market Maker: JPMS makes a market in the stock of Google. • Client: J.P. 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Eloogle (0000. 0000 US) Peke Chat Date Rating Share Price Price Target ($) (5) OW 6649 ow Se ow sue OW6160 07-Jul-10 OW 450.20 566.00 16-Jul-10 OW 494.02 558.00 OW 6706 Ow 6707 OW $736 OW WOO OW $502 05-Oct-10 OW 534.35 569.00 15-Oct-10 OW 540.93 625.00 - OW OW $625 OW OW $705 OW $730 I_l OW OW61,025 21-Jan-11 OW 611.83 706.00 13-Jul-11 OW 534.01 660.00 PricalS) 776 15-Jul-11 OW 528.94 707.00 10-Oct-11 OW 537.17 685.00 14-Oct-11 OW 591.68 705.00 13-Jan-12 OW 624.99 730.00 20-Jan-12 OW 585.99 686.00 13-Apr-12 OW 624.60 730.00 06-Jun-12 OW 580.57 670.00 Jul Oct Jon Apo Jul Oct Apr Oct Jul 12-Oct-12 OW 744.75 850.00 e Jon Jul Jut JOt 10 10 10 II II II 11 12 12 12 12 IS 13 13 19-Oct-12 OW 681.79 802.00 23-Jan-13 OW 741.50 860.00 Unmet tocembto and JO warn: pnse chla .4,ad Ice crock Iphls inninuol cavern. Jul 07. 2010 24-Jun-13 OW 869.79 1025.00 The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight. N= Neutral, UW Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the 12 EFTA01115323 Doug Anmuth North America Equity Research 19 July 2013 J.P.Morgan average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.) Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack ofa sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock's expected total return is compared to the expected total return of a benchmark country market index, not to those analysts' coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst's coverage universe can be found on J.P. Morgan's research website, wmv.jpmorganmarkets.com. Coverage Universe: Anmuth, Doug: Amazon.com (AMZN), Bankrate Inc (RATE), CafePress, Inc. (PRSS), Expedia, Inc. (EXPE), Facebook (FB), Google (GOOO), Groupon (GRPN), liomeAway Inc (AWAY), Linkedln Corp (LNKD), Netflix Inc (NFLX), Pandora Media Inc (P), Priceline.com (PCLN), QuinStreet, Inc. (QNST), ReachLocal (RLOC), TripAdvisor, Inc. (TRIP), Trulia Inc. (TRLA), Yahoo Inc (YHOO), Zynga Inc (ZNGA), eBay, Inc (EBAY) J.P. Morgan Equity Research Ratings Distribution, as of June 28. 2013 Overweight Neutral Underweight (buy) (hold) (sell) I.P. Morgan Global Equity Research Coverage 44% 44% 12% IB clients• 56% 50% 40% JPMS Equity Research Coverage 42% 50% 8% IB clients• 76% 66% 55% •Percentage of investment banking clients in each rating category. For purposes only of F1NRANYSE ratings distribution mks, our Overweight rating falls into a buy rating category: our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation arc not included in the table above. 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