PROGRESS REPORT for INTERNET and SOCIAL MEDIAdqkjwx3xr6pzf.cloudfront.net/c154858/Prism_4_2_12_Final_3.pdf · Rovio: Passes 10 Million Downloads, Three Days After Launch Rovio announced

Making diffuse information about the Internet and Social Media crystal clear IN THIS ISSUE:

Fab Rovio Twitter Square Spotify Google

April 2, 2012

THE INFORMATION HEREIN IS ONLY FOR ACCREDITED INVESTORS AS DEFINED IN RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933 OR INSTITUTIONAL INVESTORS. Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, 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. Please see page 14 of this report for analyst certification and important disclosure information.

1000 Wilshire Blvd, • Los Angeles, CA 90017

213.688.8000 • www.wedbush.com MEMBER NYSE/FINRA/SIPC

PROGRESS REPORT for INTERNET and SOCIAL MEDIA

PRISM

Michael Pachter (213) 688-4474 [email protected] Yoni Yadgaran (212) 938-9924 [email protected]

`

2 | P a g e

WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

About Wedbush Securities Private Shares Group The Private Shares Group of Wedbush Securities is a leader in providing research and trading to the rapidly growing industry of privately traded securities, with an emphasis on companies in the social media space. We assist companies in raising growth capital through traditional private placements and provide liquidity options for existing and former employees through tailored selling programs. We also work with venture capital, private equity and hedge fund investors to help them adjust their holdings in some of the most dynamic companies. We endeavor to understand the underlying industries of the private companies we trade, in order to help our clients make informed decisions about their investments. We provide discreet customized solutions for our institutional and accredited private clients through a team of professionals located in New York, Los Angeles and San Francisco.

About Michael Pachter

Michael Pachter is the Managing Director of Equity Research, providing coverage across the Digital Media sector, as well as the Head of Research for the Private Shares Group. He has been recognized as StarMine’s “Top Earnings Estimator” year after year and “Best on the Street” by the Wall Street Journal. Michael brings over 20 years of experience as a financial professional to the Private Shares Group along with extensive knowledge across the social media sector in both public and private companies.

Mr. Pachter holds an M.B.A. from the Anderson School at the University of California at Los Angeles, a juris doctor from Pepperdine University, an LL.M. in Taxation from the University of Florida, and a bachelor’s in Political Science from California State University, Northridge.

About Yoni Yadgaran

Yoni Yadgaran joined Wedbush from Bank of America Merrill Lynch. Originally covering Internet & E-commerce within Equity Research, he later moved on to help pioneer the Private Shares Group’s Research efforts. Yoni is a CFA level 3 candidate and received a B.B.A in Finance from Baruch College. Contact Wedbush Securities Private Shares Group: Michael Pachter Managing Director, Equity Research Head of Research, Private Shares Group (213) 688-4474 | [email protected] Twitter: @michaelpachter Yoni Yadgaran Research Associate, Private Shares Group (212) 938-9924 | [email protected]

About Wedbush Securities

Founded in 1955, Wedbush Securities is a leading investment firm that provides brokerage, clearing, investment banking, equities research, public finance, fixed income sales and trading, and asset management to individual, institutional and issuing clients. Wedbush currently ranks a top liquidity provider for NASDAQ, and was ranked #1 stock picker for 2010, and again in 2011 by Barron’s. Headquartered in Los Angeles, with over 100 offices nationwide, Wedbush focuses on relentless service, client financial safety, continuity, and advanced technology. (www.wedbush.com)

Kevin Cohen Director of Trading, Private Shares Group (213) 688-8089 | [email protected] Cyrus P. Pirasteh Managing Director, Private Shares Group Head of Equity Trading, Technologies & Operations (213) 688-6661 | [email protected]

`

3 | P a g e


Fab: Expects 2012 Revenue of $100 Million Fab partnered with Madonna last week to help the singer sell her new album (MDNA) for $8, which is 47% off retail price. The design centric flash sales site reached three million members in March (≈ 85% of these in the U.S.), up from 1.5 million at the end of 2011. Fab attributes 50% of sign-ups to social media referrals, and over 15% of daily traffic comes from Facebook. Fab has sold over one million items since re-launching in June, and is expecting to generate $100 million in revenue in 2012. More than 40% of daily traffic is through mobile devices (up from 33% in January), and the site’s new Weekly Shops product accounted for 10% of sales in February. Mobile users appear to make purchase decisions twice as fast and visit the site three times as often as desktop users. An estimated 15% of Fab’s current members utilize the company’s iPad app; iPad users are particularly engaged, and on average over 40% make a purchase within three months of joining, and over 70% do within the first seven months. Two-thirds of purchases are made by repeat customers, and over 25,000 customers had made five or more purchases as of the beginning of March. The company has already scaled to over 200 employees in four countries (United States, Germany, Belgium, and India). The February acquisition of German flash-sales site Casacanda (renamed Fab.de) for a reported $11 million in stock, has helped Fab scale its international presence. Upon acquisition, Casacanda had 250,000 members (up from 160,000 a month earlier), and 45 employees (now over 55). Fab.de has an estimated 80% product overlap with Fab’s U.S. presence according to a report published by BetaBeat, and the company expects to generate international revenues of $10 – 20 million (10 – 20% of its total) this year. The company posted the chart on the left to provide a sense of its revenue profile from inception through the end of February. Our earlier report on Fab is available here: http://bit.ly/GUIsg9

Fab: Members (Millions)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jun-11Jul-11

Aug-11Sep-11

Oct-11Nov-11

Dec-11Jan-12

Feb-12Mar-12

Source: Wedbush Securities, Company Data

`

4 | P a g e


Rovio: Passes 10 Million Downloads, Three Days After Launch Rovio announced it surpassed 10 million downloads of its new Angry Birds Space title just three days after launch. The mobile game is the fourth in the Angry Birds franchise (following Original, Rio, and Seasons), and was heavily marketed ahead of the launch. Game play is based on an intergalactic theme, with new rules of physics and the same goal as previous titles, which is to destroy pigs. The iPhone and iPad versions of the game are available for 99¢ and $2.99 respectively, and were the top ranked mobile apps on iOS in 104 countries at launch. Users can purchase in-app items for $0.99 – 19.99, including a 99¢ Danger Zone expansion, pack which adds 30 levels to the 60 the app comes with. There is a free, ad supported version of the game, which is available for Android users, in addition to an ad-free premium version for 99¢ (mobile) and $2.99 (tablet). We note that in-app items are not available on Android versions of the game. For computer gamers, there are PC and Mac versions for $6 and $5 respectively.

Source: AppAnie, Company Site

The Angry Birds franchise has been downloaded over 700 million times as of January, and CEO Peter Vesterbacka reportedly expects that number to exceed a billion by year end. The company has yet to launch the app for Windows Phone 7 (WP7) users, although the company confirmed that it was working on one following media reports that it would not release the game on the less popular mobile platform. The company will also soon be offering five space-themed Angry Birds plush toys online for $16 each. A partnership with Walmart will offer the toys at 2,000 of the retailer’s locations. Rovio currently sells toys themed after previous games at price points of $11 – 105. The Facebook version of Angry Birds, which launched in February (note covering launch: http://bit.ly/HbCto0) gained significant traction, growing Monthly Active Users (MAUs) to 20 million. This makes Angry Birds the 8th most popular game on Facebook on an MAU basis and the only game in the top eight that was not published by Zynga. We note that Daily Active User (DAU) traffic is beginning to falter, down from a peak of three million DAUs in mid-March to about 2.5 million as of the publishing of this note. Angry Birds is 14th on Facebook when measuring by DAUs, far behind Zynga’s Draw Something and Words with Friends, which have 14.6 million and 8.1 million DAUs respectively.

Source: Appdata Following the launch of its new title, Rovio announced that it had acquired Futuremark’s Game Studio division for an undisclosed sum. The acquisition follows Rovio’s purchase of another Finnish company, Kombo Animation Studio, in the beginning of June 2011. Futuremark itself is a PC performance benchmarking company, and had launched its Game Studio arm in the beginning of 2008. The studio has developed a number of mobile games, including a first person shooter title (FPS) that has zero gravity dynamics, similar to Rovio’s own new release.

`

5 | P a g e


Twitter: Opens Self-Serve Ad Platform Twitter began opening up its self serve advertising platform for 10,000 small businesses looking to use its Promoted Trends, Tweets, and Accounts ad products. As we wrote in December (http://bit.ly/uRPFJS), one of the issues Twitter faced was the minimum amount charged per Promoted Tweet or Account being too high ($15,000 over three months) to appeal to a large segment of marketers. Part of Twitter’s rational for setting minimums was due to the costs incurred by a sales-force that had to meet with individual accounts. We estimate that Twitter currently has 900 employees, which is double the 450 employees reported less than a year ago. Last November, Twitter began testing an automated purchasing platform that would make it easier and more economical to accept smaller accounts. In February the company began scaling the platform in a partnership with American Express, who offered merchants that signed up for this week’s launch a $100 credit towards their initial ad purchases. Advertisers only pay for a Promoted Tweet or Account if a targeted user engages with the tweet or follows the account. Marketers are also spared from creating advertising content, as Twitter chooses the most engaging tweets and then broadcasts it to a wider audience when a brand utilizes the Promoted Tweets product.

Global Unique Visitors: Twitter (Millions)

112

70

55

178

0

20

40

60

80

100

120

140

160

180

200

Aug' 09

Sep' 0

9

Oct

' 09

Nov' 09

Dec' 0

9

Jan'

10

Feb' 1

0

Mar

' 10

Apr' 10

May

' 10

Jun' 1

0

Jul' 1

0

Aug' 1

0

Sep' 1

0

Oct

' 10

Nov' 10

Dec' 1

0

Jan'

11

Feb' 1

1

Mar

' 11

Apr' 11

May

' 11

Jun' 1

1

Jul' 1

1

Aug' 1

1

Sep' 1

1

Oct

' 11

Nov' 11

Dec' 1

1

Jan'

12

Feb' 1

2

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%Y-o-Y

Source: Wedbush Securities, comScore

We note that despite Twitter’s rapid user growth, it maintains a low-engagement level relative to other social networks, which makes serving display advertising a less compelling proposition.

Twitter: Global Average Minutes Per User (January 2012)

405

89

21 17 8 30

50

100

150

200

250

300

350

400

450

Facebook Pinterest Twitter Linkedin Myspace Google+

Source: Wedbush Securities, comScore

`

6 | P a g e


Revenue estimates published by EMarketer for Twitter were $139.5 million for 2011. A report published last month by Gawker cited an inside source in Twitter that leaked the company’s financials. Gawker’s source reported that Twitter only generated $28.5 million in 2010, and incurred costs of over $96 million for a net loss of $67.8 million. For Q1:11, Twitter reportedly generated $23.8 million, with costs exceeding $49 million, and a non-GAAP net loss of $25.8 million.

FY:2010 Q1:11Revenue 28.50 23.80

Cost of Revenue 18.70GrossMargin 5.10% 21%R&D 13.10Sales & Marketing 5.40General Administrative 12.00Total Costs & Expenses 49.20Loss From Operations ‐25.40% ‐107%Loss from Interest and Other 0.40Net Loss ‐67.80 ‐25.80% ‐238% ‐108%

Assets 221.50Liabilities 221.50

Source: Wedbush Securities, Gawker Gawker also reported that there were seven significant stakeholders in Twitter who each owned more than 5% of the company. Reported stakeholders were: Benchmark Capital, Institutional Associates Fund, Institutional Venture Partners, Jack Dorsey, Obvious, Spark Capital, and Union Square Ventures. We believe that the latest trades in the private shares market for Twitter valued the company at ≈ $8 billion.

Twitter Pricing

$0

$5

$10

$15

$20

$25

Feb'09

Apr'09

Jun'09

Aug'09

Oct'09

Dec'09

Feb'10

Apr'10

Jun'10

Aug'10

Oct'10

Dec'10

Feb'11

Apr'11

Jun'11

Aug'11

Oct'11

Dec'11

Feb'12

Source: Wedbush Securities, Gawker Note that Twitter began allowing brands to target mobile Twitter users in March. Brands were able to target users accessing Twitter from a particular mobile operating system with Promoted Accounts, as long as those users shared similar interests with the brand’s existing followers. Facebook has been taking a similar approach of promoting sponsored stories to mobile users, as many free-to-use services grapple with monetizing their mobile users, due to the difficulty of serving display ads on smaller screens.

`

7 | P a g e


Square: Adds Encryption To Devices Square renamed its Card Case app, and added a merchant discovery component as well. The app is available for iOS or Android users, and is now called “Pay with Square”. It can be utilized to find nearby merchants, make payment with just a customer’s name, open tabs automatically, and share a local merchant’s information with friends. To encourage merchant discovery, the new app provides a user interface (UI) that makes it easy to see which merchants are nearest, as well as a list format which sorts businesses by distance. Over one million merchants accept payments using Square’s dongle, although Xyologic estimates that only around 70,000 Pay with Square apps have been downloaded as of March. Square also added an encryption component to all shipped dongles going forward. Verifone, which offers a competing mobile point-of-sale (PoS) solution, had used Square’s previous lack of encryption as a selling point for its own product. Square had previously pointed out that credit card fraud could just as easily be perpetrated with a pen and paper, although many merchants are reluctant to use the service without a guarantee of security. A report published by VentureBeat estimates the cost of the battery component alone in the encryption circuitry would cost the company between 15 – 25¢, and we note that Square offers its dongle at no cost to merchants. Existing users are eligible to have their dongles replaced with the encrypted version. Note that we published a full profile of Square in February (http://bit.ly/Hstxrc).

Source: Company Data

`

8 | P a g e


Spotify: Removes Streaming Limitations, Payout $250 Million For Content Spotify is reported to be in talks with Internet service providers (ISPs) in Ireland, according to a report published by paidContent, with the intent of bundling its premium streaming service with current home Internet and mobile data packages. Users can have the service with billed to their phones, and data consumed by the service does not count towards a user’s monthly data cap. Spotify first utilized this method in 2009, when the company partnered with Sweden’s largest ISP (Telia). As of November 2011, about 25% of Spotify’s premium subscribers in Sweden had been acquired through that partnership. We note that Ireland’s largest ISP (Eircom) made clear that it was in not partnering with Spotify, which means the company is likely negotiating with a smaller provider or may choose to enter the market without any type of partnership. An article published by Gizmodo Australia reports that Spotify will announce its expansion into Australia, which is the second country where Spotify will be available in outside Europe, after the United States. Earlier this month, the music service expanded into Germany, and is now available in 13 countries. Last week, Spotify announced that users of its free ad-supported package would continue to have unlimited listening time. Users in five countries who had been using the free version for over six months had a previous limitation to five monthly listens for any particular song removed, although they continue to be limited to 10 hours of streaming per month. The service has been available for nine months in the United States, and will eventually curtail the amount of time per month non-paying users can utilize the service. In March, an article published by Business Insider cited several sources that disclosed a large venture backed round of funding in Spotify was under way, at an estimated $3.5 billion valuation. Spotify sought that valuation level, and potential venture participants were apparently hesitant to invest, with both TCV and Andreessen Horowitz reportedly passing on the round. We note that Spotify raised $100 million in 2011 at a reported $1 billion valuation. Founded in 2006, the company has grown to over 10 million registered users, three million paying users, 300 employees, and over 15 million tracks licensed globally. It appears to us that investors are reluctant to assign a high value to the company, given that Spotify must license its content, and is at the mercy of licensors should its service become immensely profitable. Spotify has successfully grown its service on a global scale, engineered a strong underlying streaming technology platform, and has integrated with Facebook in a manner that has significant impact to its user experience. However, Spotify’s lack of control over content costs reminds us of Netflix, suggesting that Spotify may be required to raise price in order to continue its access to the breadth of content that has made it successful so far. We expect perpetual inflation of licensing fees, which could limit Spotify’s profitability, in turn limiting its potential valuation. Spotify may be able to leverage its critical mass much in the same way that Netflix has, and may be viewed by record labels as an indispensable part of the digital distribution value chain. However, Spotify’s rapid growth over the past year may hamper its negotiating leverage, as labels may view the short time it took to gain users as evidence that any other startup could do the same with their backing. As of February, Spotify has paid labels over $250 million for content. The company generated nearly £63.2 million in revenue in 2010, but lost over £26.5 million. Advertising served to non-paying users accounted for £18 million or 29% of 2010 revenue, subscriptions generated £45 million (71%), with only £42,000 coming from users who downloaded songs they liked through the service. We believe that the vast majority of subscribers opt for the more expensive subscription plan ($/£/€10 per month, depending on country) which we would suggest that an average global user pays about £7 per month when taking into account currency conversion; this means that Spotify is generating revenues at a £250 million annual run-rate from its three million paying subscribers.

Spotify: Paying Subscribers (000)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan-1

0

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-1

0

Jan-1

1

Mar

-11

May

-11

Jul-1

1

Sep-1

1

Nov-1

1

Jan-1

2


`

9 | P a g e


Below are Spotify’s filed financials for 2008 – 10, the last of which was filed in October and did not reflect the company’s July 2011 expansion into the United States.

2008 2009 2010

Sales £382,772 £11,320,388 £63,167,926 Advertising 2,231 4,507,106 18,055,523 Subscriptions 380,541 6,805,946 45,069,957 Other (Music Sales) 0 7,336 42,446Cost of Sales 409,753 18,823,093 64,801,478Gross Margin (26,981) (7,502,705) (1,633,552)Operating Expenses 293,218 9,494,742 27,704,571 Distribution 8,270 608,235 1,370,014 Administrative 284,948 8,157,390 23,729,462 Other Expenses 0 729,117 2,605,095Other Income 0 390,270 2,796,812Operating Income (320,199) (16,607,177) (26,541,311)Finance Income 3,653 51 0Finance Costs 0 (86) (277)Net Loss (316,546) (16,607,212) (26,541,588)

Non Current Assets: 217,498 540,435 1,386,435PP&E 212,498 430,996 1,053,357Investments 0 84,439 100,564Other 5,000 25,000 232,514Current Assets: 4,280,269 13,607,279 28,398,731Cash & Equivalents 559,799 1,846,875 7,954,094Trade Receivables 3,720,470 11,760,404 20,046,388Other 0 0 398,249Total Assets 4,497,767 14,147,714 29,785,166

Liabilities: 4,713,313 20,941,642 63,120,682Trade Payables 4,713,313 20,941,642 63,098,398Other 0 0 22,284Net Liabilities (215,546) (6,793,928) (33,335,516)

Equity:Share Capital 1,000 1,000 1,000Shareholder Contributions 100,000 10,128,832 10,128,832Retained Earnings (316,546) (16,923,760) (43,465,348)Total Equity (215,546) (6,793,928) (33,335,516)

Net Loss (316,546) (16,607,212) (26,541,588)Depreciation 53,125 130,782 450,402Loss on Disposal of PP&E 0 0 393,322Recievables (3,720,471) (8,045,664) (8,673,289)Accounts Payable 4,713,313 26,237,159 41,971,526Operating Cash Flow 729,421 1,715,065 7,600,373Capital Expenditures (265,622) (349,280) (1,466,085)Net Investments 0 (63,192) (16,125)Cash From Investments (265,622) (412,472) (1,482,210)Cash From Financing 104,653 0 0FX (8,653) (15,516) (10,944)Net Increase In Cash 559,799 1,287,077 6,107,219

Spotify: Financials (£GBP)

Cash Flow Statement

Balance Sheet


`

10 | P a g e


Google: Launches Apps for Hangouts Google rolled out a number of new features and products across its platform, exploiting its engineering expertise and scale to diversify its offerings and compete with other online services. In order to leverage its search product, Google added a “Play” tab in the recently added black bar on the top of its main search page. Play was originally a mix of Music, Apps (Android Marketplace), Books, and Movie content offerings, but these were consolidated last month. We note that Google added the +You tab in September in order to promote its newly launched social network, which resulted in an initial spike in traffic. Other recent promotions include both an on- and off-line ad campaign, heavily focused on some of its most recent products. Kantar Media published a report which estimated that Google spent $213 million in the U.S. on advertising in 2011, up from $56 million a year earlier. The company spent $69.3 million on TV ads (up from $8 million), $123.3 million on Internet ads, $20.7 million on other offline media and $12 million on promoting Google+.

Source: Company Site, Marketing Land

Despite difficulty building engagement around its own social network, Google has spent significant resources in enhancing its underlying product. Last week Google announced that it was launching apps that would enhance its Hangouts feature on Google+. Hangouts is a video chat feature that facilitates up to 10 participants at a time. The new apps (Google is launching with six initial apps) would add functionality that includes face-to-face poker (+Aces), shared drawing with friends (+Scoot & Doodle), and a feature that would allow presentations and documents to be presented and viewed in a collaborative form (+SlideShare).

Source: Company Site

A report published by The Next Web speculates about an upcoming launch of a third-party commenting system by Google, which would tie into Google+ in a similar fashion to Facebook’s existing commenting system. Google is well positioned to capitalize on its Blogger division, as it can eliminate integration friction and may see a significant increase in engagement and traffic metrics if it counts comments made on affiliate platforms while logged into Google+ as time spent on the platform. Although this would heavily distort traffic metrics, it would give Google a medium to increase Google+’s profile among web users. Another recent report published by GigaOm anticipates the launch of Google Drive this week. Drive is reported to be Google’s alternative to cloud services like Dropbox, and will be integrated with Google Docs and Apps. The service is expected to offer 1 Gigabyte (GB) to non-paying users (vs. 2 GB on Dropbox and 5 GB on Box), and will charge a monthly fee for additional storage, although we note that Google’s access to its own servers (Dropbox rents space from Amazon) positions the company to offer more storage, if necessary. Dropbox is already competing with larger players (Apple, Microsoft, etc.), and continues to maintain its lead due to its focus on user experience and multi-platform integration. However, Google is particularly strong in those two areas, and likely poses a significant threat to Dropbox’s business.

`

11 | P a g e


Key News Items

6waves Announces Partnership with 32 Game Devs, Half Based in Asia: http://bit.ly/GZzoae 6waves drops “Lolapps” name entirely, announces publishing deals with 32 social developers: http://bit.ly/GYcTyz Airtime: Sean Parker's Video Chat Startup Airtime Already Has 2,000 Users: http://read.bi/H19DIz AOL: CHART OF THE DAY: A Look At AOL's Big Patent Portfolio (AOL): http://read.bi/GZHD2b AOL's Patents Are Only Worth $290 Million, Says Firm http://read.bi/HoS00p Best Buy To Shut 50 Stores In Streamlining Effort http://tcrn.ch/HuZQ8S Box Slams Microsoft While Introducing New iPad Cloud Service: http://read.bi/HmANXZ Bump now lets you hand out money by tapping your phone: http://bit.ly/GZNuEL CloudLock Raises $8.7M To Help Secure Enterprise Data In The Public Cloud: http://tcrn.ch/HsiQq8 Color: A Year Later, $41 Million Startup Color Has A Pathetic 30,000 Daily Users http://read.bi/GTLAEU comScore Professionally-Produced Video Content And User-Generated Product Videos: http://bit.ly/H1tas6 ComScore: Value And CPMs Are Out Of Whack: http://bit.ly/H0Foha Disney and DeNa to collaborate on mobile social games http://bit.ly/H0qypg Disney, Japan's DeNA to jointly develop mobile games http://reut.rs/H2iX9b Disney: Forget Time Traveling, Disney’s New Facebook Game Has Players Poking Through Nature http://tcrn.ch/GR6x5F Draw Something Bubble Has Burst For Me: http://read.bi/GSt2H8 Epson Beating Google to the punch, Epson ships its Android-powered glasses: http://bit.ly/GZLQED Evernote for Android now includes speech-to-text transcription: http://vrge.co/GZM2ld Fab.com Teams Up With Madonna For New Album Sale http://tcrn.ch/H31dzR Face.com adds age detection to its photo-scanning API http://vrge.co/HoGYM3 Facebook adds contact form to ad dashboard, aims to respond in 4 hours: http://bit.ly/H6OMRi Facebook Amends Initial Public Offer Filing A Third Time: http://bit.ly/H3NGkU Facebook amends S-1 filing to note Yahoo patent suit, Ceglia updates: http://bit.ly/Hd81d9 Facebook At Work Makes Employees Happy: http://read.bi/GUuFaS Facebook Boosts Emphasis Of Apps On Timeline Profiles: http://bit.ly/H1zHmC Facebook Calls Ownership Claim 'Fraud' http://on.wsj.com/H47GKW Facebook Has A HUGE Opportunity That People Are Ignoring (FB): http://read.bi/GZoXmY Facebook introduces comment permalinks, automatically hides spam ones: http://vrge.co/HmfbcV Facebook Is Going On A Hiring Spree: http://read.bi/HlBIsB Facebook logins still in limbo: Congress doesn't help FCC protect online privacy: http://vrge.co/GZAa5o Facebook Nudges Page Owners To Update Content: Facebook Password (Comic): http://dthin.gs/GYIXWm Facebook Refreshes IPO Paperwork With Yahoo Patent Spat: http://on.wsj.com/HfuAeT Facebook Starts Upgrading Profiles To Timeline http://bit.ly/GXVlnq Facebook Targeting May IPO: http://on.wsj.com/HgGuq4 Facebook Tests More Marketing Friendly Ad-Creation Tool http://bit.ly/H02rH1 Facebook to adjust calculations for total check-ins displayed on place pages: http://bit.ly/HlPMRO Facebook updates investors on Yahoo and Ceglia suits in amended S-1: http://bit.ly/H0HMoa Facebook: ‘Offers’ on Facebook exclusive to premium advertisers for now, will be free for all pages later this year

http://bit.ly/H9PGcs Facebook: 20/20 Hindsight http://dthin.gs/Hn4pQP Facebook: 4 In 5 Top Brands Accept Facebook Timeline Messages: http://bit.ly/Hoc96W Facebook: As Zuckerberg Visits Japan, Dentsu Extends Facebook Ad Sales Deal http://bit.ly/H6PiLF Facebook: DEAR FACEBOOK INVESTORS: Here's What Mark Zuckerberg's Letter Really Means: http://read.bi/GZvpKJ Facebook: Local Facebook pages outperform corporate pages in terms of reach, engagement percentage, study finds

http://bit.ly/HsK5CV Facebook: Report: Performance Targeting Coming To Facebook Ads http://bit.ly/HqaXmE Facebook: Senator Al Franken: 'privacy is a casualty' of Google and Facebook's success http://vrge.co/HzT5S1 Facebook: The Idea That Facebook Is Going To Take On Google In Web Search Is A Hallucination http://read.bi/HqeNJ0 Facebook: UPDATE: FTC Releases Privacy Framework Via Facebook Chat http://bit.ly/GVahoz Facebook: Users spent more than 10.5B total minutes per day on Facebook in January, not including mobile use:

http://bit.ly/GV1a7E Facebook: Zuckerberg visits Asia, incites rumors Facebook may finally launch in China: http://bit.ly/GZCIlz Facebook’s New S-1: An ‘Unfavorable Outcome’ In The Yahoo Patent Lawsuit ‘Could Be Material To Our Business’:

http://tcrn.ch/Hmaot7 Facebook’s success: Identity: http://bit.ly/GXLOLa FTC Worried About Big Online Platforms, Only Sort Of Means Facebook and Google http://tcrn.ch/H7a4vL FTC: New FTC consumer privacy report advocates for a “Do Not Track” option, greater transparency http://bit.ly/GUpiTw

`

12 | P a g e


FTC: web needs 'privacy by design,' more transparency about data collection http://vrge.co/GQoIvg Global Payments: Breach Hits Card Processor Global Payments http://dthin.gs/Hs5UkK Google Adds “Play” To Its Navigation Bar, Pushes New Google Play Content Area: http://bit.ly/GVhf8Q Google banks four times more revenue from iOS devices than Android devices: http://bit.ly/HkniDQ Google Drive cloud storage launch planned for early April, sources tell GigaOm: http://vrge.co/HgZNNP Google Facing Legal Challenge in Japan Over Autocomplete http://bit.ly/GSOlu8 Google launches ‘Account Activity’: Monthly insight reports based on Web interaction: http://bit.ly/H1pVRB Google ordered to censor some autocomplete results in Japan over privacy concerns http://vrge.co/GQ7Bty Google planning to launch a third-party commenting system: http://bit.ly/Hg1euT Google Scared This 27-Year-Old Entrepreneur Into Changing, Company Is Worth More Than $500 Million http://read.bi/Hka61V Google Vault Will Help Gmail Users With An Ugly Legal Problem (GOOG): http://read.bi/HtIN5X Google Warms to Advertising: http://on.wsj.com/HdxyzG Google+ Hangout Apps Come Out Of Hiding, Offer Games, Screensharing, Presentations & More: http://tcrn.ch/HkpAV5 Google+ Strategy: Cut & Paste Your Facebook Content?: http://bit.ly/GVVAON Googlers Can't Wait Till Facebook Is A Public Company That Has To Put Up Or Shut Up http://read.bi/H6PLOW Google's ad spending quadrupled in 2011, $70 million on TV spots alone: http://vrge.co/GTAq3L Google's Stock Is Ready To Go On A Monster Run (GOOG): http://read.bi/H3Vi79 Gree launches second U.S. social mobile game, Alien Family http://bit.ly/GUIEey GREE’s Second Game for North America: http://bit.ly/H1b9Ks Groupon Is Hiring An Army Of Engineers In Silicon Valley (GRPN): http://read.bi/H1cQb0 Halio: Mobile Taxi Network Hailo Raises $17M From Accel And Atomico To Take On Uber In The U.S.: http://tcrn.ch/HiXAWP HootSuite: Confirmed: Canadian VC Firm OMERS Ventures Takes $20M Stake In HootSuite At $200M Valuation:

http://tcrn.ch/GZBkiW House Republicans push info-sharing cyber bill: http://reut.rs/H4E5iz http://bit.ly/GXM90w IDC: By 2016, Android Devices To Outnumber Traditional Windows PCs: http://tcrn.ch/HnmnpH iOs: Rumor: iOS to Add Baidu Search Next Month http://bit.ly/GQONJC JackThreads: How A Tiny Ohio Clothing Site's Revenue Exploded From $5 To $50 Million In 1.5 Years: http://read.bi/H48B8l Kabam buys Battle Punks social game creator Gravity Bear (exclusive): http://bit.ly/H1xSWU Kabam: Social Games Developer Kabam Buys Gravity Bear for Undisclosed Sum: http://dthin.gs/GZSmQ0 libspotify 11 is available: http://spoti.fi/GVKgEt Livingsocial: Confirmed: LivingSocial Co-founder Eddie Frederick Steps Down From Leadership, Board

http://tcrn.ch/GWFsgY Mark Zuckerberg is in China…Who Cares?: http://bit.ly/HlJQt4 MediaPass: Subscription Manager MediaPass Raises $1.75M: http://tcrn.ch/H0NeaN Microsoft: Seeking The Next Rovio, Microsoft, Nokia Commit Up To $24 Million Into A New Push To Get Apps On Windows

Phone http://tcrn.ch/GRbcJe Millennial Media Sets Price Range For IPO At $11 To $13 Per Share, Valued At $974M: http://tcrn.ch/GVeSHG Millennials Will Lose 'Face-To-Face Social Skills' And 'Deep-Thinking Capabilities' By 2020: http://read.bi/HlBFcI MOG Arrives On iPad, Still No Sign Of Spotify http://read.bi/GRVZXo Mojang: 'Minecraft' hits $80m in revenues, 25m registered players; Mojang CEO Carl Manneh mentions possible TV

adaptation: http://vrge.co/GR5ohr Netflix acquires DVD.com domain, has no plans to split DVD and streaming http://vrge.co/Hqei5c Netflix separates DVD and instant catalogs, distancing the two services for users: http://vrge.co/GZ2rKU Netflix: Why Americans Can’t Really Use Netflix’s Facebook App: http://bit.ly/HsqEGR Obama administration announces $200 million 'big data' research and development initiative http://vrge.co/GYCMi0 OMGPOP's Founder Had Just $1,700 In His Bank Account Before Selling The Hottest App In The World To Zynga

http://read.bi/GQKtMP Path snatches Spotify’s head of special projects for international growth http://bit.ly/H43qLC Path: Texas man sues Path, claims it stole more than just his contacts http://bit.ly/GWHP3s PayPal Teams Up With Gas Station Chain On A Payment App And Fuel Discounts http://tcrn.ch/Hstjmf Pinterest Is Scared Of Having A 'Twitter Problem' http://read.bi/GT03jV Pinterest Opportunities & Strategies for Brands: http://bit.ly/Ht0vrt Pinterest Says to Pin Your Own Stuff: http://on.wsj.com/Ha6VMX Pinterest: PERFORMICS RETAILER CLIENT LEVERAGES PINTEREST TO BOOST PARTICIPANT ENGAGEMENT, TRAFFIC &

SALES http://bit.ly/H19OCt

`

13 | P a g e


Pinterest: We’re “Actively Working” To Fight Spam; It’s A “Tremendous Priority”: http://bit.ly/H3ZJ5Z Rdio will launch across Europe, Asia on the horizon: http://vrge.co/GZfXhH Report: Facebook’s Timeline Gives Brands 46% Higher Engagement Per Post: http://bit.ly/HjY3ll Report: Number of U.S. mobile gamers reaches 100 million: http://bit.ly/HsndS8 ReverbNation adds feature to let artists compare their Facebook ad campaigns to those in similar genres:

http://bit.ly/HsBGvM RockYou settles with FTC after allegedly leaving 32 million accounts vulnerable to hackers: http://vrge.co/GTDNfJ RockYou settles with FTC over security flaw charges: http://bit.ly/HlNNvx ROGER MCNAMEE: Passed On Investing In Twitter Because Management Was A Bunch Of Know-It-Alls: http://read.bi/HiM2Tt Rovio: Angry Birds maker buys Finnish gaming studio: http://reut.rs/GZuA0O Rovio: Angry Birds Space Downloaded 10M Times In 3 Days http://tcrn.ch/GTPIc2 Rovio: Angry Birds Space introduces the age of the mobile game blockbuster http://bit.ly/GTGpF0 Rovio: 'Angry Birds Space' triples the pace: 10 million downloads in just three days http://vrge.co/HaAvAX Rovio: Angry Birds’ Maker Rovio Ups Its Game, Buys Futuremark’s Games Studio: http://tcrn.ch/Hga66w Sean Parker’s Airtime Uses Facebook For Early Signups http://bit.ly/GUnYzV Seismic Games: With $2 Million In The Bank, This Company Is Trying To Take Facebook Back From FarmVille (ZNGA):

http://read.bi/HnY2lD SharesPost: This Is Facebook’s Last Private Auction: http://bit.ly/H1ayIg ShoeDazzle hits 10M members and steps out of its comfort zone: http://bit.ly/H0Tmj3 ShoeDazzle, Now 10M Members Strong, Expands To Offer Women’s Clothing: http://tcrn.ch/HsZvUp ShoeDazzle's New CEO Tweaks Business to Make Subscribing Pinch Less: http://dthin.gs/GYN3hE Sojern Raises $7.5 Million For Its Push Into Travel Tech And Targeted Travel Ads: http://tcrn.ch/H3Oies Spotify extends unlimited free listening 'honeymoon' for US users: http://vrge.co/GXEaS6 Spotify to announce Irish and Australian availability soon? http://vrge.co/GQZvLn Spotify’s Special Projects Head Shakil Khan Moves to Path to Do Same http://dthin.gs/HrG5Tl Square adds encryption to its Square reader: http://bit.ly/H3Jn9h Square Fires Back Against PayPal http://read.bi/GRCbjr 'Temple Run' for Android available now in the Google Play Store: http://vrge.co/HelsGp Tencent CEO: Weixin Group Messaging App Hits 100 Million Users: http://bit.ly/HlKvr0 The 10 Most Successful Y Combinator Startups: http://read.bi/GZxRgo The Music Industry Is Finally Turning Around!: http://read.bi/HdZljg ThreatMetrix Picks Up $18 Million To Expand Its Fight Against Cybercrime: http://tcrn.ch/H3NLsX Twitter acknowledges 'unfollowing' bug, is working on fix: http://vrge.co/GYKaic Twitter coverage of court gets struck down: http://reut.rs/GVI0OX Twitter Launches Advertising Program For Small Business In Partnership With American Express http://tcrn.ch/GSBpqA Twitter opens up promoted tweets to 100,000 small businesses: http://vrge.co/GQRoo0 Twitter: Self-Serve Twitter Ads Open Up To Select SMB American Express Cardholders http://bit.ly/H7Ur7g Twitter’s Ad for Its Ads (Video) http://dthin.gs/H5Spbg Wikipedia: Techies Team Up to Make Wikipedia Smarter http://on.wsj.com/HvYkoM Wildfire: Facebook Developer Wildfire Adds Video Contests: http://bit.ly/H3LX3l WPP Does $200 Million U-Turn On Facebook (WPPGY): http://read.bi/HsEbzM Yahoo to begin major layoffs next week as part of restructuring: AllThingsD http://vrge.co/HqdKfQ Yelp Offers More Detailed Engagement Metrics To Business Owners: http://bit.ly/HggPPq Zynga: I Spent $1,000 In A Year Playing A Stupid Facebook Game: http://read.bi/HsKvWp Zynga: The post-OMGPOP boost: Zynga prices secondary offering at $12 a share: http://bit.ly/H1rjn4 Zynga's Chief Engineer Has Resigned http://read.bi/HwywY1

`

14 | P a g e


Covered Companies Mentioned in this Report (priced intraday April 2, 2012)

COMPANY TICKER RATING PRICE PRICE TARGET

APPLE AAPL OUTPERFORM $599.55 $750.00 EBAY EBAY OUTPERFORM $36.90 $48.00 VERIFONE PAY NEUTRAL $51.87 $40.00 ZYNGA ZNGA OUTPERFORM $13.15 $17.00 NETFLIX NFLX UNDERPERFORM $115.04 $45.00 WPP WPPGY OUTPERFORM $68.37 $71.00

IMPORTANT DISCLOSURES

The information contained herein is intended for accredited investors as defined in Rule 501 of Regulation D under the Securities Act of 1933 or institutional investors.

WEDBUSH SECURITIES Wedbush does and seeks to do business with companies covered in its research reports. Thus, 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. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities. ANALYST CERTIFICATION I, Michael Pachter, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not, directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report. Disclosure information regarding historical ratings and price targets is available at http://www.wedbush.com/ResearchDisclosure/DisclosureQ411.pdf INVESTMENT RATING SYSTEM Outperform: Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).* Rating Distribution (as of December 31, 2011)

Investment Banking Relationships (as of December 31, 2011)

Outperform:60% Neutral: 35% Underperform: 5%

Outperform:12% Neutral: 1% Underperform: 0%

The Distribution of Ratings is required by FINRA rules; however, WS’ stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS’ stock ratings are on a relative basis.

`

15 | P a g e


The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities. Capital Markets Disclosures as of April 2, 2012

Company Disclosure

APPLE 1 EBAY 1 VERIFONE 1 ZYNGA 1 NETFLIX 1 WPP 1

Research Disclosure Legend

1. WS makes a market in the securities of the subject company. 2. WS managed a public offering of securities within the last 12 months. 3. WS co-managed a public offering of securities within the last 12 months. 4. WS has received compensation for investment banking services within the last 12 months. 5. WS provided investment banking services within the last 12 months. 6. WS is acting as financial advisor. 7. WS expects to receive compensation for investment banking services within the next 3 months. 8. WS provided non-investment banking securities-related services within the past 12 months. 9. WS has received compensation for products and services other than investment banking services within the

past 12 months. 10. The research analyst, a member of the research analyst’s household, any associate of the research analyst, or

any individual directly involved in the preparation of this report has a long position in the common stocks. 11. WS or one of its affiliates beneficially own 1% or more of the common equity securities.

Private securities may involve a high degree of risk and are intended for sophisticated investors who are capable of understanding and assuming the risks involved.

Private securities may have a high level of volatility. High volatility investments may experience sudden and large drop in their value causing losses that may equal your original investment.

Private securities are illiquid and may not be readily realizable and it may be difficult to sell or realize those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.

Investors should obtain advice from their own financial advisor and only make investment decisions on the basis of the investor’s own objectives, experience, risk tolerance, and resources.

The information herein is based on sources that we consider reliable, but its accuracy is not guaranteed. The information contained herein is not a representation by this corporation, nor is any recommendation made herein based on any privileged information.

This information is not intended to be or should it be relied upon as a complete record or analysis; neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein.

`

16 | P a g e


This firm, Wedbush Securities, its affiliates, officers, employees, members of their families, or any one or more of them, and its discretionary and advisory accounts, may have a position in any security discussed herein or in related securities and may make, from time to time, purchases or sales thereof in the open market or otherwise.

The information and expressions of opinion contained herein are subject to change without further notice.

The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm.

Any reference to past performance is not a guarantee of future results.

Supporting documentation will be furnished upon request for any claims, comparisons, recommendation, statistics or other technical data. Additional information with respect to the information contained herein may be obtained upon request.

Applicable disclosure information is also available upon request by contacting the Business Conduct Department at (213) 688-8090. You may also submit a written request to the following: Business Conduct Department, 1000 Wilshire Blvd., Los Angeles, CA 90017.

RESEARCH DEPT. • (213) 688-4505 • www.wedbush.com EQUITY TRADING Los Angeles (213) 688-4470 / (800) 421-0178 * EQUITY SALES Los Angeles (800) 444-8076 CORPORATE HEADQUARTERS (213) 688-8000

Documents

PROGRESS REPORT for INTERNET and SOCIAL MEDIAdqkjwx3xr6pzf.cloudfront.net/c154858/Prism_4_2_12_Final_3.pdf · Rovio: Passes 10 Million Downloads, Three Days After Launch Rovio announced