Addressing Addressable Markets

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• Two subjects continue to stand out in our investor conversations: 1) judging the shift of ad dollars between TV and internet, and 2) gauging the emerging programmatic advertising landscape.

• To better address these questions, we revisit the topic of advertising's addressable market, with a focus on video ad formats and the total addressable market for ad tech vendors. There are three main conclusions to the report:

• The Total Addressable Market (TAM) for ad-supported media and internet companies is regularly under-appreciated. The typical market size of ~$175B in the US and ~$500B globally normally includes little to no direct marketing, and as CPG companies begin to sell more goods online, trade promotion dollars should enter the TAM for our covered companies too.

• TV vs. Internet is a false choice. Not only do share analyses regularly under-size the TAM (see above), but they also often do not give consideration to the manner in which economics shift as digital moves from DR to branding. We have forecasts out to 2020 for our 10 largest media and internet companies.

• There is a major difference between the programmatic TAM and the TAM available to ad tech vendors. We've seen more industry figures aiming to gauge the programmatic TAM of late, and most fail to take one additional important step: applying take rates.

1Q15 Earnings Preview: Searching for Fresh Ideas

• Ahead of 1Q15 earnings, we find ourselves lacking conviction across our entire group. Our favorites (DIS, LNKD, ADS) continue to perform well, while intriguing Market Perform rated names (e.g., GOOG, TWX, ACXM) continue to have cross-winds and remain range-bound. In our recent downgrades of both OMC and PUB-FR, we see the agency group as fully valued and return to focusing on stocks with company-specific levers (IPG, MDCA).

• We are raising our FB price target to $80 from $72 to reflect higher 2015 and 2016 estimates. We are raising our estimates due to better ad monetization assumptions.

• We are raising our VIAB price target to $73 from $69 as we are raising our estimates to reflect the costs savings from corporate restructuring and realignments.

• We are lowering our YHOO target to $49 from $55, largely for updated BABA valuation. Our target implies 2.1x 2015 core Yahoo! adjusted EBITDA, or $8.55/share, $34.10/share for BABA, and $5.70/share for Yahoo Japan.

• Most likely "beats and/or raises": FB, DIS, LNKD, TWTR, TUBE.

• Most likely "misses and/or guide lower": FUEL, the more FX-exposed (FOXA, NLSN, Agencies).

• Pecking order: FOXA, ADS, LNKD, CBS DIS and IPG. MDCA and TUBE for small-cap investors. These are all rated Outperform

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