Social Networking “Show me the money”

Fred Destin

Montreux, 15 November 2007

Social networks are real – usage isn’t hype

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Social networking sites have attracted over 300M users world-wide

Social networks are 1 in 20 UK internet visits

MySpace has over 100M registered users and is 2nd largest web site in page views

85% of US college students have Facebook profiles

More than 90% of UK teens use social networks

In US, 80% of young adults, 60% of teens and 30% of adults

The top 20 social networks receive over 15% of all attention spent online in US

MySpace has 329 monthly page views per unique visitor, more than Google (273) and Yahoo! (223)

60% of Facebook users log in daily and spend an average of 20 minutes

Average UK social network visit duration was 25 minutes, 250% average

StudiVZ had 4.5B page views in September, up from 2.5B in July

Source: ComScore 2007, Forrester 2007, Hitwise 2007, Merrill Lynch 2007

VERY LARGEABSOLUTE SIZE

DEEP REACH IN TOTAL POPULATION

STICKINESS IS UNPRECEDENTED

Huge untapped potential in advertising revenues

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Awareness Education / Information

Branding Direct response (leads, sales, etc.)

Internet $23.7

bnPrint

$147.6 bn

Outdoor $23.0

bn

TV $162.1

bn

DM $166.5

bn

Radio $33.2

bn

Source: eMarketer 2007, Merrill Lynch 2007, Initiative Spheres 2006

Online advertising in general is tiny relative to the importance of the medium

Social networking sites command much more attention (15%) than their current share of online advertising (3%) – and they can target ads well

FACTS:

Advertising on social networks in US is $900M in 2007 and growing at 100% to $1.8bn in 2008

US social network advertising revenues will grow to $3.6bn by 2011

MySpace advertising revenues were $500M in 2007 and expected to grow to $930M

Facebook will have ad revenues of $400M in 2008

Social networks change behaviour and influence commerce

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Traffic to UK online retailers from social networking sites was up 153% 2006-YTD2007

TopShop.co.uk‘s #2 referring website in April 2007 was MySpace (+500% YoY)

Social shopping communities such as Threadless or LaFraise are generating significant revenues

Mobile social network content delivery will generate revenues of $500M in 2007, expected to rise to $5.7bn in 2011

Mobile social network content downloads will increase from 200M in 2007 to 9B in 2011

Korean social network Cyworld is the second largest retailer of MP3s after iTunes, having sold more than 160M songs directly to its members

Average online video consumer watches 100 minutes a month

DailyMotion has grown from 2 to 40M uniques in a year and attracts c. 55% of French broadband users each month

SOCIAL SHOPPINGWILL DRIVE ECOMMERCE

MUSIC & VIDEO CONSUMPTION WILL

CHANGE SIGNIFICANTLY

MOBILE IS A HUGEPOTENTIAL REVENUE

GENERATOR

Source: Juniper2007, Merrill Lynch 2007, proprietary data

With no hard financials, how do acquirors value social networks today?

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Usage statistics have a clear impact on revenues and profitability

Best indicators for advertising revenue are absolute monthly unique visitors (impressions per person) and monthly page views (sell-through)

Good indicator for strategic value is number of registered users (depending on the service)

Value per unique then gets assessed against operational leverage and likely EBIT potential of business model

EXAMPLE: Club Penguin

700K registered users, 10M uniques and 500M page views

$350M TEV implies $0.69 per page view and $35 per unique

Double these figures for $700M TEV with earn-out

However, strategic value is huge given young demographic: $500 per registered user before earn-out!

Source: Jefferies 2007, Merrill Lynch 2007, Atlas

Valuations are starting to normalise (thank you Longacre/Jefferies)

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Statistics US$ per

Company Valuation dateEnterprisevalue ($m)

Monthly page views (bn)

Unique monthly

visitors (m)Registered users (m)

Monthly page view

Unique monthly visitor

Registereduser

MySpace Jul-05 580.0 7.8 17.7 22.0 $0.07 $32.77 $26.36

Current 3,750.0 50.6 105.7 75.0 $0.07 $35.48 $50.00

Facebook Apr-06 525.0 7.6 12.9 7.0 $0.07 $40.70 $75.00

Current 15,000.0 33.0 69.3 24.0 $0.45 $216.45 $625.00

Friends Reunited Dec 05 (w/o earnout) 208.0 0.2 5.1 16.4 $0.93 $40.78 $12.68

Dec 05 (w/ earnout) 303.4 0.2 5.1 16.4 $1.35 $59.49 $18.50

Club Penguin Aug 07 (w/o earnout) 350.0 0.5 10.0 0.7 $0.69 $35.06 $500.00

Aug 07 (w/ earnout) 700.0 0.5 10.0 0.7 $1.39 $70.13 $1,000.00

Last.fm May-07 280.0 0.1 11.5 15.0 $2.37 $24.35 $18.67

iVillage Mar-06 616.0 0.3 18.2 NA $2.46 $33.85 NA

AuFeminin Jun-07 382.3 1.9 20.0 NA $0.20 $19.14 NA

StudiVZ Jan-2007 (w/o earnout) 44.7 1.3 2.2 NA $0.03 $20.52 NA

Jan-2007 (w/ earnout) 75.9 1.3 2.2 NA $0.06 $34.88 NA

Fotolog Aug-07 90.0 5.3 15.5 10.0 $0.02 $5.81 $9.00

Median $0.69 $34.88 $26.36

Mean $0.79 $34.49 $238.74

High $2.46 $216.45 $1,000.00

Low $0.02 $5.81 $9.00

Annc

Date Target Acquirer Target Description/Comments Curr

Bid Value

(m)

Stake

(%)

Ent Value

(m)

EV / LTM

LTM

Margin

EV / 1-Year Forward

Forward

MarginSales EBITDA Sales EBITDA

Social networking

27/08/2007 Fotolog HiMedia Photo sharing community website USD 90.0 100% 90.0 NA NA NA 19.4x NA NA

01/08/2007 Club Penguin(1) Disney Online community for children USD 350.0 100% 350.0 7.0x NA NA 5.8x 11.7x 50.0%

01/06/2007 AuFeminin Axel Springer Online women’s community EUR 280.0 100% 280.0 20.5x 36.1x 57.0% 12.3x 20.4x 60.0%

30/05/2007 Last.fm CBS Corp Online music community site USD 280.0 100% 280.0 NA NA NA NA NA NA

09/01/2007 Playahead Modern Times Group Swedish online social networking community SEK 102.0 90% 113.3 4.2x NA NA NA NA NA

08/01/2007 MyBlogLog Yahoo! Blog-based online community USD 10.0 100% 10.0 NA NA NA NA NA NA

03/01/2007 StudiVZ(2) Holtzbrinck German-based online community for students EUR 50.0 100% 50.0 NA NA NA NA NA NA

06/03/2006 iVillage NBC Universal Women's community site USD 600.0 100% 600.0 6.1x 32.5x 18.6% 5.3x 23.9x 22.2%

06/12/2005 Friends Reunited (3) ITV Online community site GBP 120.0 100% 175.0 10.2x 18.8x 54.2% 7.0x 13.5x 51.7%

18/07/2005 Intermix Media News Corp MySpace USD 580.0 100% 580.0 7.3x 53.2x 13.8% 4.9x 37.9x 13.0%

20/06/2005 Neopets Viacom Virtual pet community USD 160.0 100% 100% NA NA NA NA NA NA

25/10/2004 Classmates Online United Online Online community-based networking USD 100.0 100% 100.0 1.4x 8.7x 15.9% NA NA NM

24/05/2004 Tickle Monster Worldwide Matchmaking and social networking services USD 93.9 100% 93.9 3.8x NA NM NA NA NM

Median 6.8x 35.4x 18.6% 6.4x 20.4x 50.0%

Hold on to your Social Network: the bigger exits are yet to come

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