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April 19, 2013

Michael Pachter

(213) 688-4474 Michael.pachter@wedbush.com

Yoni Yadgaran

(212) 938-9924 Yoni.yadgaran@wedbush.com

Nick McKay

(213) 688-4343 Nick.mckay@wedbush.com

Twitter

Twitter is an online social networking and micro-blogging service that enables its users to send and read text-based posts of up to 140 characters, known as "Tweets."

The service has 200 million active users as of April 2013, generating an average of 400 million Tweets every day.

Twitter is the 11th most-visited website worldwide, according to Alexa's web traffic analysis, with over 55% of Twitter users from mobile devices, according to a TechCrunch report from September 2011.

Twitter activity is highly correlated with global events and news, ranging from political events to the Olympics.

We estimate the company will nearly triple revenue to $750 million in 2013, with net income of $145 million.

Twitter's position as a mobile-oriented platform with access to users' "interest graphs" and locations gives the company a first-mover advantage in the emerging hyper-local targeted-advertising space. In 2012, CEO Dick Costolo announced that mobile ad revenue had surpassed desktop revenue on many days.

Stakeholders are reported to include: Benchmark, Bezos Expeditions, Charles River Ventures, Digital Garage, DST Global, Insight Venture Partners, Institutional Venture Partners, Jack Dorsey, JPMorgan Chase, Marc Andreessen, Morgan Stanley, Obvious, Spark Capital, T. Rowe Price, and Union Square Ventures, among others.

Twitter - Estimated valuation based on private market transactions: ≈ $10.5 billion

Source: Wedbush Securities Private Company Strategies Group*

(Pricing is based on private secondary market trading activity observed by our Private Company Strategies Group)*

2

Conclusion, Valuation and Financial Forecast

Without detailed financial data to rely upon, our model was difficult to put together. We accepted many third-party accounts of Twitter's financials to build our model, and we caution investors that we have cited the sources for our assumptions, but that our "model" is not based upon hard and verifiable data.

With that said, we think that the Twitter business model presents significant monetization opportunity. We listed the various current sources of revenue: Promoted Tweets, Promoted Accounts and Promoted Trends; we believe each of these will scale in line with user growth and any increase in the frequency of Tweets. We believe that as Twitter continues to grow, advertisers are likely to recognize the inherent value of its platform in attracting eyeballs, and especially in engaging its users. This should allow Twitter to steadily increase advertising rates, driving overall revenue higher. In addition, we think that Twitter has significant opportunity to further localize its promoted products, allowing location-based local advertisement, which in turn should drive CPMs higher. Finally, we note that on the desktop, Twitter has a lot of white space, and yet the company has not attempted to monetize with banner ads.

As we built our model, we did not take into account new products. We took data from several sources to build out Twitter's revenue, which grew from an estimated $90 million to an estimated $260 million from 2011 - 2012. Our best estimate of the company's run rate for revenue was almost $88 million in Q4:12, and we have modelled a sequential increase in revenue for Q1:13 of over $50 million. Growth going forward is somewhat more modest, with revenues in our model growing by approximately $100 million from Q1 to Q4. We ended up with an estimate of $750 million in revenue for 2013, and a run rate approaching $1 billion.

We also made simple assumptions about costs and expenses. We believe that the company should begin to see significant operating leverage from its R&D line, and while we increased R&D spending from an estimated $77 million in 2012 to almost $130 million in 2013, the category dropped from almost 30% of revenue to about 17%. We expect sales and marketing expense to scale at a rate closer to revenue growth, so we kept the category at around 21% of sales. While we believe it is likely that Twitter can gain significant leverage from keeping its general and administrative expenses low, we expect some continuing build out of infrastructure to support international growth and expansion of mobile. We therefore grew G&A by over 80%, but shrunk the category as a percentage of sales from nearly 24% to 15%.

With all of these assumptions, we arrived at net income of $145 million for 2013. Our $10.5 billion valuation is not based upon this figure; rather, we believe that Twitter's net income has the potential to dramatically increase as its revenue growth continues, and we believe that it is more reasonable to determine a contribution margin on future growth, determine the level of sustainable growth, and discount the company's future cash flows to arrive at an enterprise value.

In our view, Twitter is likely to generate 35 - 50% operating margins on future revenue growth, with the potential to generate significantly higher profits should margins continue to expand. Once the company reaches approaches saturation international ly and on mobile, we expect to see R&D shrink to a sustainable 10% of sales and S&M shrink to a sustainable 15% of sales, with G&A flattening out at around $200 million. We believe current gross margin of an estimated 72.5% is a reasonable assumption for all periods going forward. If our assumptions are close to the mark, this means that if Twitter will generate around $230 mil lion in operating profit at the $1 billion revenue level, and 47.5% margins on all revenues above this level. Thus, should Twitter grow revenues to $2 billion, its operating profit will rise from the current estimated $145 million level to over $700 million.

It is difficult to assess the potential for Twitter's growth, other than to say that we think it will continue unabated for at least a few more years. We are highly confident that Twitter can grow revenues to the $2 billion level, and can generate operating profits of $700 million, but any growth beyond that level will require the company to launch new products, such as banner ads, or to better monetize its existing products through use of localization or integration with other media. We are just beginning to see the tip of the iceberg in Twitter integration with other media, as film advertising and broadcast television have begun to incorporate Twitter as a matter of course. We think that the Twitter brand will become ubiquitous in the coming years, and believe that the company's platform will become an essential weapon in advertisers' arsenals to engage prospective customers.

Our $10.5 billion valuation reflects a 15x forward multiple on $705 million in operating profit. This essentially values Twitter at a 7% yield, before tax. We think the multiple is justified due to the company's significant growth potential, and we think that there is room for both revenue growth and gross margin expansion in the coming years.

3

Projected Income Statement

Twitter, Inc.

Income Statement ($ in millions) Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Dec-13

Fiscal Year End: December 31 1QE 2QE 3QE 4QE FYE 1QE 2QE 3QE 4QE FYE 1QE 2QE 3QE 4QE FYE

Revenue by product:

Promoted Accounts $4.9 $5.9 $7.0 $8.2 $26.0 $12.4 $15.6 $19.1 $22.9 $70.0 $34.1 $43.9 $54.9 $67.1 $200.0

Promoted Trends 4.1 4.4 4.7 5.0 18.0 10.5 12.0 13.5 15.0 51.0 22.8 24.3 25.8 27.3 100.0

Promoted Tweets 5.3 8.2 11.6 15.6 40.7 18.4 25.3 33.4 42.9 120.0 73.6 90.1 108.2 128.0 400.0

Other 0.8 1.0 1.5 2.0 5.3 2.5 4.0 5.5 7.0 19.0 9.5 11.5 13.5 15.5 50.0

Total revenue $15.0 $19.4 $24.8 $30.8 $90.0 $43.8 $56.9 $71.5 $87.8 $260.0 $140.0 $169.8 $202.4 $237.8 $750.0

Costs and expenses:

Cost of revenue 11.8 13.9 15.9 17.9 59.3 20.4 22.9 25.4 26.3 94.9 38.5 46.7 55.7 65.4 206.3

Research and development 8.2 10.3 12.3 14.3 45.2 16.3 18.3 20.3 22.3 77.3 26.3 30.3 34.3 38.3 129.3

Sales and marketing 3.4 4.4 5.5 6.8 20.0 9.6 12.3 15.3 18.6 55.8 29.4 35.3 41.7 48.5 154.9

General and administrative 7.5 8.5 9.5 10.5 36.2 12.5 14.5 16.5 18.5 62.2 22.5 26.5 30.5 34.5 114.2

Total costs and expenses 30.9 37.1 43.2 49.5 160.8 58.8 68.0 77.5 85.8 290.2 116.8 138.9 162.2 186.8 604.7

Income (loss) from operations (16.0) (17.7) (18.4) (18.7) (70.8) (15.0) (11.1) (6.0) 2.0 (30.2) 23.2 30.9 40.2 51.0 145.3

Loss from interest and other (0.4) (0.4) (0.4) (0.4) (1.6) (0.3) (0.3) (0.3) (0.3) (1.2) (0.2) (0.2) (0.2) (0.2) (0.8)

Net income (loss) ($16.4) ($18.1) ($18.8) ($19.1) ($72.4) ($15.3) ($11.4) ($6.3) $1.7 ($31.4) $23.0 $30.7 $40.0 $50.8 $144.5

Costs and expenses:

Cost of revenue 78.6% 71.3% 63.9% 58.0% 65.9% 46.4% 40.2% 35.5% 30.0% 36.5% 27.5% 27.5% 27.5% 27.5% 27.5%

Research and development 55.0% 53.1% 49.7% 46.5% 50.2% 37.2% 32.2% 28.4% 25.4% 29.7% 18.8% 17.9% 17.0% 16.1% 17.2%

Sales and marketing 22.7% 22.4% 22.2% 22.0% 22.3% 21.8% 21.6% 21.4% 21.2% 21.4% 21.0% 20.8% 20.6% 20.4% 20.7%

General and administrative 50.4% 43.9% 38.5% 34.2% 40.2% 28.6% 25.6% 23.1% 21.1% 23.9% 16.1% 15.6% 15.1% 14.5% 15.2%

Total costs and expenses 206.7% 190.8% 174.3% 160.8% 178.6% 134.1% 119.6% 108.4% 97.8% 111.6% 83.4% 81.8% 80.2% 78.5% 80.6%

Income (loss) from operations NM NM NM NM NM NM NM NM 2.2% NM 16.6% 18.2% 19.8% 21.5% 19.4%

Loss from interest and other NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM

Net income (loss) NM NM NM NM NM NM NM NM 1.9% NM 16.4% 18.1% 19.7% 21.4% 19.3%

User and Tweet assumptions:

Avg. global unique visitors (from

comScore), in mm 118 136 153 170 577 183 193 171 185 732 185 190 195 200 770

Monthly active users, in millions 130 145 165 185 625 195 210 185 200 790 200 205 210 215 830

Tweets per day, in millions 260 290 330 370 1,250 390 420 370 400 1,580 400 410 420 430 1,660

Tweets per day per monthly active user 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00

Tweets per quarter, in millions 23,400 26,100 29,700 33,300 112,500 35,100 37,800 33,300 36,000 142,200 36,000 36,900 37,800 38,700 149,400

Promoted Accounts revenue:

Promoted Accounts per day 35 40 45 50 170 60 70 80 90 300 110 130 150 170 560

Days 90 90 90 90 360 90 90 90 90 360 90 90 90 90 360

Promoted Accounts 3,150 3,600 4,050 4,500 15,300 5,400 6,300 7,200 8,100 27,000 9,900 11,700 13,500 15,300 50,400

Followers per Promoted Account 1,050 1,100 1,150 1,200 4,500 1,225 1,250 1,275 1,300 5,050 1,315 1,330 1,345 1,360 5,350

Total followers (in mm) 3.3 4.0 4.7 5.4 17.3 6.6 7.9 9.2 10.5 34.2 13.0 15.6 18.2 20.8 67.5

CPF (cost-per-follower, in $) $1.47 $1.49 $1.51 $1.53 $1.50 $1.88 $1.98 $2.08 $2.18 $2.05 $2.62 $2.82 $3.02 $3.22 $2.96

Promoted Accounts rev. (in mm) $4.9 $5.9 $7.0 $8.2 $26.0 $12.4 $15.6 $19.1 $22.9 $70.0 $34.1 $43.9 $54.9 $67.1 $200.0

Promoted Trends revenue:

Promoted Trends per day 5 5 5 5 20 5 5 5 5 20 5 5 5 5 20

Days in Quarter 90 90 90 90 360 90 90 90 90 360 90 90 90 90 360

Avg. days per Promoted Trend in Q 30 30 30 30 120 30 30 30 30 120 30 30 30 30 120

Quarterly Cost per Trend $0.027 $0.029 $0.031 $0.033 $0.150 $0.070 $0.080 $0.090 $0.100 $0.425 $0.152 $0.162 $0.172 $0.182 $0.833

Promoted Trends rev. (in mm) $4.1 $4.4 $4.7 $5.0 $18.0 $10.5 $12.0 $13.5 $15.0 $51.0 $22.8 $24.3 $25.8 $27.3 $100.0

Promoted Tweets revenue:

Promoted Tweets 25 35 45 55 160 70 85 100 115 370 135 155 175 195 660

Engage. per Promoted Tweet (in mm) 0.16 0.17 0.19 0.20 0.18 0.21 0.22 0.23 0.24 0.23 0.25 0.25 0.26 0.26 0.25

Total engagements (in mm) 3.9 6.0 8.3 11.0 29.2 14.7 18.7 23.0 27.6 84.0 33.1 38.8 44.6 50.7 167.2

CPE (cost-per-engagement, in $) $1.36 $1.38 $1.40 $1.42 $1.40 $1.25 $1.35 $1.45 $1.55 $1.43 $2.23 $2.33 $2.43 $2.53 $2.39

Promoted Tweets rev. (in mm) $5.3 $8.2 $12 $15.6 $40.7 $18.4 $25.3 $33.4 $42.9 $120.0 $73.6 $90.1 $108.2 $128.0 $400.0

Other (in mm) $0.8 $1.0 $1.5 $2.0 $5.3 $2.5 $4.0 $5.5 $7.0 $19.0 $9.5 $11.5 $13.5 $15.5 $50.0

Total revenue $15.0 $19.4 $24.8 $30.8 $90.0 $43.8 $56.9 $71.5 $87.8 $260.0 $140.0 $169.8 $202.4 $237.8 $750.0

Sources: Wedbush Securities estimates and Gawker.

Income statement ratios (% of revenue):

4

Company Overview

Founded in 2006 by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams, Twitter is the global leader in micro-blogging, with over 500 million registered users, 200 million active users, and 400 million Tweets on a daily basis in over 33 different languages. Twitter is headquartered in San Francisco, CA.

Celebrities, non-celebrities, and corporations use Twitter to communicate with large user bases by “Tweeting” text-based messages of up to 140 characters through Twitter’s website, SMS, email, or instant messaging. Sponsored Tweets are the primary form of advertising on the platform and share the same ‘consumption dimensions’ and format as user-generated content, making for high potential engagement from users on web and mobile.

While competitor Facebook is an opt-in, one-to-many, two-way communication network designed for sharing life experiences with several hundred friends and acquaintances using text, photos and video, Twitter is a one-way, one-to-many broadcasting network that allows users to find and follow anyone (including non-acquaintances) who Tweets based on the user’s interests. Users opt-in to the “interest-graph” by choosing what sources they follow, and Tweeters (the person who broadcasts the Tweet) are not required to “allow” users to follow them, making large crowd discussions possible between people who would never otherwise become acquainted.

Much of the world’s news now breaks through Twitter. While breaking news is in progress, a Twitter user will typica lly Tweet in real time about the event. During the most recent Democratic National Convention, more than 3 million people posted Tweets that included the hashtag "#DNC2012" on just the first night of the event, with activity peaking at 28,003 Tweets per minute during Michelle Obama's speech, according to Twitter.

Twitter has become a ubiquitous brand, with 3 million websites featuring a Twitter button to invite users to the brand’s twitter page.

Twitter employs about 1,000 people. About 500 employees were hired in 2012 alone, with over 120 in advertising sales as of February. Twitter had no employees in advertising sales just two years ago.

We believe that Twitter is in the early stages of monetizing its large user base. Facebook and Google have 2 – 3 million advertisers in their networks, suggesting that Twitter has a large potential addressable market that it has only just begun to monetize.

Redesigned and Revamped for Mobile, Local and "Interest-Graph" Adoption

In December, Twitter launched a redesigned format for both its web and mobile offerings. The changes were meant to facilitate content discovery and increase adoption of the service, particularly for mobile and local content.

Expanded Offering for Brands: With the redesign, marketers are able to customize brand account profiles with visuals (e.g., logo and tagline) that are prominently displayed on the top of the page. Other new features include the ability to promote those Tweets that are deemed most engaging to followers directly to the top of a profile page.

Advertisers on Twitter: Twitter disclosed in November 2011 that it had over 2,400 ad partners, a 300% increase from 600 in June 2011 (advertising launched in April of 2010 with only six partners). The level of engagement for Twitter ads is substantially higher than traditional display offerings, with conversion rates varying between 3 - 5% as of October 2011.

Location: It currently utilizes geo-targeting on its ad platform. Twitter can tier feeds by geographical location in a way that is similar to the way news is currently broadcast at the global, national, regional, and personal levels. We believe Twitter's ability to extrapolate a user's interests by observing which accounts they follow and engage with will allow it to evolve its ad offerings by enhanced targeting, which will drive ad engagement, conversion rates, and inventory pricing.

Mobile: We believe the textual nature and immediacy of content generated on Twitter positions the company to take advantage of the shift to mobile content consumption. According to a TechCrunch article from September 2011, 55% of Twitter's active users were active on mobile, representing 40% sequential growth.

International

According to data published by comScore, about 80% of Twitter’s traffic comes from outside the U.S., indicating a large opportunity for future international monetization. To grow revenues internationally, in March 2013 Twitter hired Richard Alfonsi from a senior sales position at Google to be its new vice president of global online sales, according to a report published by TechCrunch.

TweetDeck: The platform allows users to manage multiple accounts on different sites from a single interface, an important tool for power users on Facebook and Twitter.

Self-Serve Ad Platform: In March 2012, Twitter began opening up its self-serve advertising platform for small businesses looking to use its Promoted Trends, Tweets, and Accounts ad products. InsideIPO reported in November 2011 that Promoted Tweets and accounts were sold to advertisers at a minimum monthly spend of $5,000 for three months, and an estimated $120,000 for a 24-hour Promoted Trend.

5

Funding History

Round Date (mm/yy) Participants Amount ($mm)

Series A 07/07 Charles River Ventures, Union Square Ventures, Marc

Andreessen, Dick Costolo, Naval Ravikant, Ron Conway,

Chris Sacca, Greg Yaitanes, Brian Pokorny, S.V. Angel

$5.0

Series B 05/08 Union Square Ventures, Bezos Expeditions, Spark Capital,

Digital Garage, Kevin Rose, Timothy Ferriss

$15.0

Series C 02/09 Benchmark, Institutional Venture Partners, Spark Capital,

Union Square Ventures, Charles River Ventures, Digital

Garage

$35.0

Series D 09/09 Insight Venture Partners, T. Rowe Price, Spark Capital,

Benchmark, Institutional Venture Partners, Morgan Stanley

$100.0

Series E 01/10 n/a $5.2

Series F 01/10 Kleiner Perkins Caufield & Byers $200.0

Series G (Venture Round) 08/11 $400.0

Series G (Venture Round) 09/11 $400.0

Total $1,160.2

DST Global, JPMorgan Chase, T. Rowe Price, Chris Sacca,

institutional clients

Source: Wedbush Securities, AllThingsD, TechCrunch, and Twitter.

Management Team

Chairman and Co-Founder. Jack Dorsey sets the direction and product strategy for the company. Mr. Dorsey founded the business

in 2006, stepped down as CEO in 2008, and returned as Executive Chairman in March 2011 to work alongside CEO Dick Costolo. Mr. Dorsey is also CEO of Square, a mobile payments company.

Chief Executive Officer. Dick Costolo oversees the day-to-day operations of the company including sales, marketing, and business

development. He was COO of Twitter from September 2009 to October 2010, when he took over the role of CEO from Evan Williams who was on paternity leave.

Chief Financial Officer. Mike Gupta oversees the finance department at Twitter. Prior to working for Twitter, he was Zynga’s

Treasurer.

Chief Operating Officer. Ali Rowghani oversees day-to-day operations at Twitter. Prior to his current role, he was CFO at Twitter,

and CFO and senior VP of strategic planning for Pixar.

President of Global Revenue. Adam Bain is the President of Global Revenue at Twitter. Prior to working for Twitter, he was

President of Audience Network at Fox Interactive Media.

General Counsel. Alex Macgillivray is the General Counsel of Twitter. Prior to working for Twitter, he was the associate general

counsel of Product and IP at Google and an attorney at Wilson Sonsini Goodrich & Rosati.

VP of Infrastructure Engineering. Adam Messinger is the Vice President of Infrastructure Engineering at Twitter. Prior to working

for Twitter, he was Vice President of Development at Oracle, and a venture capitalist at Smartforest Ventures and O'Reilly AlphaTech Ventures.

6

User Metrics

In March 2012, Twitter reported having over 500 million registered users and over 140 million active users worldwide, with 50% of active users using Twitter daily. The number of active users has grown to 200 million, with those users sending an average of 400 million Tweets on a daily basis. The company is one of the leaders in social media today.

Twitter: Global Unique Visitors

(Millions)

65

105

176190

175

0

50

100

150

200

250

May

. '09

Aug. '

09

Nov.

'09

Feb. '

10

May

. '10

Aug. '

10

Nov.

'10

Feb. '

11

May

. '11

Aug. '

11

Nov.

'11

Feb. '

12

May

. '12

Aug. '

12

Nov.

'12

Feb. '

13

(25%)

0%

25%

50%

75%

100%

Y-o-Y Growth

Source: Wedbush Securities, comScore

Twitter also reported that users generate over 400 million Tweets per day as of June 2012, double the amount generated a year earlier, and over four times the amount generated in November 2010. In October 2008, when Evan Williams was appointed as Twitter's CEO, users generated only 1.25 million Tweets per day.

According to comScore, as of February 2013, Twitter ranked 29th amongst the top-50 U.S. websites as measured by number of unique visitors with 36 million. About 63% of Twitter's U.S. unique visitors used the company's mobile app, with the number of U.S. app users having grown from less than 16 million in April 2012 to over 22.5 million.

Twitter: U.S. Unique Visitors

(Millions)

23

38

41

36

0

10

20

30

40

50

Feb.

'11

Mar

. '11

Apr

. '11

May

. '11

Jun.

'11

Jul.

'11

Aug

. '11

Sep

. '11

Oct

. '11

Nov

. '11

Dec

. '11

Jan.

'12

Feb.

'12

Mar

. '12

Apr

. '12

May

. '12

Jun.

'12

Jul.

'12

Aug

. '12

Sep

. '12

Oct

. '12

Nov

. '12

Dec

. '12

Jan.

'13

Feb.

'13

0%

20%

40%

60%

80%

100%

U.S. Online Penetration % Using Mobile App

Source: Wedbush Securities and comScore.

7

According to Twitter's blog, as of September 2011, the majority of users accessed Twitter to follow their interests rather than Tweet. In fact, 40% of Twitter users were in listen-only mode. This implies lower user interaction with the platform, as most users read Tweets for several minutes per day, providing lower overall engagement and fewer opportunities to sell advertising. Twitter's average user session is significantly shorter than it is on Facebook.

Not surprisingly, the frequency of Tweeting is often correlated with the number of followers a user has.

A Sysomos survey published in December 2010 found that 23% of users are doing 90% of the Tweeting. This gives a substantial minority of users a large audience, with many users Tweeting to communicate directly with their followers. For example, over 35 global heads of state (including President Obama) use Twitter as one of the primary ways to communicate with their constituencies, and 87% of Billboard's Top 100 musicians of 2010 were on Twitter, according to the company. These users and their PR teams are doing the heavy Tweeting.

96% of U.S. adults who use social networking sites are on Facebook, 28% on LinkedIn and 24% on Twitter, according to a Forrester survey published in November 2011. Each of these sites has different functionality, so it is not uncommon for people to use all three. Facebook allows users to keep tabs on friends and family, Twitter provides real-time information on topics of general interest and provides breaking news to users seeking information, while LinkedIn provides work-related networking. In other words, Twitter is positioned to co-exist with many other services on the Internet.

Revenue Drivers

Growth in Advertising Base. According to the company, Twitter had 2,400 advertisers as of November 2011 versus 1,600 six

months previously, and only six advertisers two years earlier. According to eMarketer, only 2% of ad agencies and PR firms use Twitter to place ads, relative to 4% on LinkedIn and 13% on Facebook. We think that Twitter has a large potential advertising market, and think it is in the early stages of adding advertisers. Facebook and Google each have 2 - 3 million advertisers in their networks, suggesting that Twitter (with only 1% penetration of the global advertising base) has significant room to grow its advertising sales. The company has begun to address the revenue opportunity by hiring over 100 new advertising sales professionals in 2011 (from a base of zero the prior year), along with opening offices in several countries. In 2011, Twitter opened offices in London, Tokyo, and Dublin. We expect more to follow. Over 90% of revenues came from the U.S. in 2011, but Twitter's international user base is sizable, and we expect international revenue contribution to grow dramatically in both absolute terms and as a percentage of the overall business.

Self-Service Advertising. In November 2011, Twitter began testing self-service advertising with a handful of existing advertisers.

These advertisers can now set up and run their own Promoted Products (Accounts, Trends, and Tweets) campaigns and pay via a credit card without directly contacting a Twitter staffer. The company intends to roll out self-service ads to more advertisers in the coming months, and we expect self-service tools to help Twitter grow the number of small to medium-sized businesses advertising on the site. A large portion of Facebook's advertising is self-service, suggesting that the self-service tool can help to quickly broaden the advertising pool and allow Twitter to scale its business more profitably.

Promoted Tweets. The ability for advertisers to promote products through "Promoted" Tweets may be the biggest revenue

opportunity for Twitter. Promoted Tweets were launched in April of 2010, with the product originally pushing an advertiser's Tweet to the top of search results; however Twitter recently started distributing Promoted Tweets into the top of user feeds directly. When in-feed Promoted Tweets launched in July of 2011, brands were allowed only to push Promoted Tweets to their respective followers. At the end of 2011, Twitter began allowing advertisers to target non-followers, and Promoted Tweets within news feeds saw 15 times the impression volume of Twitter's Promoted Tweets seen within its search function, while maintaining the same engagement rates, according to a leaked internal email disclosed by ClickZ. Promoted Tweets are short text messages written by advertisers that include a link to their website or some other call to action. An advertiser can bid on a keyword at the national or local level that appears in a search result or user timeline, or can pay to include the Promoted Tweet on user feeds based on geography, followers, or any other metric. Promoted Tweets are priced on a cost-per-engagement (CPE) basis, so the advertiser pays when a user clicks, favorites, re-Tweets, or replies to the message. Promoted Tweets have an engagement rate of 3 - 5%, according to Twitter, which is much higher than normal click-through rates of 0.03 - 0.05% for display ads. Another big advantage of a Promoted Tweet over sponsored search is that Promoted Tweets are often re-Tweeted to other users at no cost to the advertiser, acting as a valuable viral branding tool. We think the number of keywords and their pricing will continue to climb as advertisers discover Twitter's large user base and attractive ROI. Competitive pricing is estimated to be $0.75 - 2.50 per keyword.

Promoted Accounts. Promoted Accounts allow brands to purchase placement in Twitter's "Who to Follow" feature, with a clear

indication that the account is promoted. Such placement is based on a keyword auction process just like Promoted Tweets, with competitive bids (cost-per-follower) ranging from $2.50 - 4.00. Other Tweets listed in the "Who to Follow" list are algorithmically-generated based on the user profile.

Promoted Trends. Promoted Trends allow advertisers to be featured at the top of the Trends List that shows up on a user's

homepage. Users choose whether to follow major trends at the country level or by region within a country (such as major metropolitan areas within the US). Advertisers pay a negotiated fee for placement on the Trends List, which can range between $100,000 and $150,000 per day.

8

Source: Twitter

Brand Pages. On December 8, 2011, Twitter joined Facebook and Google by launching "Brand Pages" for marketers, according to

Mashable. Brand Pages enable advertisers to better feature their products or services within the Twitter ecosystem rather than having users click through to their websites. Twitter previously disclosed that 20 - 40% of users follow a brand, and typically, one of the first ten follows by a new user is a brand. Marketers will soon be able to customize their brand's account profile with visuals (e.g., logo and tagline) that are prominently displayed on the top of the page in larger font sizes. Other new features include the ability to present Tweets that are deemed most engaging to followers directly to the top of a profile brand page. The company rolled out the new brands feature in the first quarter of 2012, together with the upgraded website, and made the tool available to all brands for free. According to the company blog, Twitter launched Brand Pages with 21 marketers: American Express, Best Buy, Bing, Chevrolet, Coca-Cola, Dell, Disney, General Electric, Hewlett-Packard, Intel, JetBlue, Kia, McDonald's, Nike, PepsiCo, Staples, Verizon Communications Wireless, NYSE Euronext, Heineken, Subway, and Paramount Pictures.

In addition, brands can now insert a simple line of code in their own website software that allows visitors to engage with Twitter by clicking the "subscribe", "reply", "re-Tweet" and "favorite" buttons. By pressing "subscribe" on a brand's website, a user will begin receiving public updates from that brand directly in his Twitter newsfeed. The new button will also notify friends upon subscription, creating the potential for the viral spread of brand subscriptions due to the actions of a single user.

Promotional Events. Companies are finding that Twitter works especially well for promoting special events. An early case was

Coca-Cola, which in 2010 was the second buyer of a Promoted Trend, according to Mashable. The ad generated 86 million impressions and a 6% engagement rate (re-Tweets, replies, or clicks). Also according to Mashable, in 2011, Audi was the first company to include a hashtag, #ProgressIs, in a Super Bowl ad. Similarly, Twitter promoted the movie "Super 8" in 2011 for Paramount, which resulted in more than 1.5 million tickets being sold, according to CNN. Virgin Airlines had its fifth-largest sales day ever with one Tweet, according to the Wall Street Journal. It appears that many advertisers are pleased with their early advertising experience on Twitter, as the renewal rate is reportedly close to 80%.

Licensing Data Streams. Twitter also licenses a feed of Tweets to other search engines such as Bing and Yandex. The company

does not expect this to be an important revenue driver, but it helps build brand awareness of the Twitter service in other highly trafficked locations on the web.

Location-Based Filtering Tools. Although Twitter has yet to expound on its plans to utilize a user's location beyond the new

"relevant stories" feature announced in early December (Tweets around a topic that may interest a user based on location, popularity, or connections), we believe that geo-targeted streams will be a significant step to improving user content relevance. The use of location-based technology has the potential to enable users to select their news feeds at the global, national, regional, or city levels, in much the same way as broadcast TV offers national or local options.

Size of Market Opportunity

Beyond the Internet. According to InternetWorldStats as of June 2012, there were 2.4 billion Internet users globally. We expect

total Internet users to grow by 8 - 12% annually for the next few years. Due to the small size and simplicity of a Twitter message and similarity of use to text messaging, we believe that Twitter has a larger addressable market than most social media companies that require a PC or smart phone. We believe there are five billion mobile subscribers worldwide that could receive Twitter text messages. Twitter has only 500 million registered subscribers, or 10% of this total.

Social media continues to grow in user popularity across all age groups, and social media tops the list of marketer's highest priority investments in 2012, given online usage rates of over 90% in many countries around the world, according to comScore.

Potential to expand beyond advertising. We also believe that Twitter provides a platform to sell media and services to consumers

who are searching for and Tweeting about their affinity for those products. While it is far from clear that Twitter intends to become a retailer of music, movies or merchandise, we think that the potential exists, adding other important revenue drivers to the model.

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Acquisition History

Acquisitions Date (mm/yy) Description Amount ($mm)

Bluefin Labs 02/13 Social TV analytics $80.0

Crashlytics 01/13 Mobile crash-reporting tool $100.0

Cabana 10/12 Mobile app development platform n/a

Vine 10/12 Video-sharing service $30.0

Clutch.io 08/12 A/B testing for mobile apps n/a

nclud 06/12 Web design agency n/a

Hotspots.io 04/12 Social analytics n/a

Posterous 03/12 Blogging and sharing platform $10.0

Dasient 01/12 Spam and malware protection service n/a

Summify 01/12 Social aggregation service focused on news stories n/a

Whisper Systems 11/11 Mobile security n/a

Julpan 09/11 Social media data analytics n/a

Bagcheck 08/11 Sharing and discovery platform n/a

BackType 07/11 Social analytics platform n/a

AdGrok 05/11 Web advertising $10.0

TweetDeck 05/11 Social media dashboard app for management of Twitter

and Facebook accounts

$40.0

Fluther 12/10 Crowd-sourced Q&A service n/a

Smallthought Systems 06/10 Web analytics n/a

Cloudhopper 04/10 Mobile messaging n/a

Atebits 04/10 Developer of Tweetie iPhone app and Mac desktop app n/a

Mixer Labs 12/09 GeoAPI developer $5.2

Values of n 11/08 Social software development n/a

Summize 07/08 Twitter search engine $15.0

Total $290.2

Source: Wedbush Securities, BostInno, Business Insider, Engadget, GigaOM, Mashable, Mediabistro, PC Magazine, TechCrunch, and Wikipedia.

U.S. Mobile Ad Revenue

According to an eMarketer report released in September 2012, Twitter's mobile ad revenue is projected to increase over 340% in the next two years, from $130 million in 2012 to $444 million in 2014. While we cannot substantiate the data from the eMarketer report, the revenues include display (banner, rich media, and video) and search.

Source: eMarketer.

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Redesigned: Brands, Ads, Location, TweetDeck

Source: Twitter.

In addition to enhancing the user experience, Twitter has also expanded its offering for brands. Marketers are able to customize a brand’s account profile with visuals (e.g., logo and tagline) prominently displayed on the top of the page in larger font sizes. Other new features include the ability to promote Tweets deemed most engaging to followers directly to the top of a profile page. The Tweet that is promoted displays any photo or video that it is linked directly in the stream.

Brands can embed Tweets on their websites by inserting a simple line of code, allowing visitors to engage with the brand’s account directly from their websites by clicking the “reply”, “re-Tweet”, and “favorite” buttons.

Source: Twitter.

Facebook also has rolled out a “subscribe” button for websites, which is similar in nature to a feature that Twitter added earlier this year, allowing users to follow a brand directly from a brand’s site. By pressing “subscribe” on a brand’s website, a user will begin receiving public updates from that brand directly in his Facebook newsfeed. The new button also notifies friends upon subscription, potentially instigating a chain of subscriptions from the actions of a single user. We believe that the Facebook and Twitter “subscribe” buttons will most often be embedded on brand websites together.

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In January 2013, Twitter introduced Vine, a mobile app for iOS devices that enables short (six seconds or less) video recordings to be shared as posts on Twitter, replayed on a constant loop. Vine was developed prior to a recent acquisition of the company by Twitter, and the app will remain separate from Twitter, with sharing capabilities to both Twitter and Facebook. The app’s functionality is closest to Instagram, SocialCam, and Viddy, although the six-second time limit reflects Twitter’s focus on content brevity.

Source: Twitter.

Shortly after the app’s launch, Facebook began blocking Vine’s access to Facebook’s API, blocking the ability of new Vine users to find friends on Facebook that also have accounts on Vine. Facebook’s decision to block Vine follows a recent conflict over the embedding of Instagram photos within Twitter’s feed, which Facebook also disabled. While Vine allows its users to easily share their videos to Facebook, it does so in the form of posting a link that takes a user back to Vine’s site, effectively diverting con tent consumption (and subsequent ad dollars) away from Facebook’s platform.

In February 2013, Twitter made it largest cash acquisition to-date, with the purchase of Bluefin Labs, a company that specializes in social analytics. Twitter paid $80 million in stock for Bluefin Labs, according to BostInno. Twitter’s largest prior cash dea l was its $40 million purchase of TweetDeck (a dashboard application that helps users manage accounts on multiple social networks) in May 2011, according to a Business Insider report. In July 2008, Twitter acquired Summize, a real-time search engine that indexed Tweets, for $15 million in equity and cash, according to Business Insider. Also according to Business Insider, the equity used for the Summize acquisition is currently valued at nearly $800 million, which would make it the most expensive acquisition made by Twitter to-date.

Bluefin Labs was founded in 2008, is based in Cambridge, MA, and had received a little over $20 million in venture funding prior to the acquisition, according to Business Insider. The company’s most recent financing was a Series B venture round led by Time Warner Investments in the beginning of 2012, with participation by SoftBank Capital, Redpoint Ventures, and Lerer Ventures, according to a report published by AdAge. At the time, the company employed 40 people and was planning on expanding internationally with a focus on the Japanese social media market, according to the report.

Bluefin’s service tracks comments about TV shows on Twitter or Facebook, and offers a suite of analytic tools for broadcast networks, providing demographic statistics and engagement metrics for each individual show. In a presentation prepared by Twitter’s UK subsidiary, which utilized analytics provided by SecondSync (a competitor to Bluefin Labs), the company noted that Tweets-per-minute (TPM) is a metric that can be used to measure engagement around an event, with TPM typically peaking at the beginning and end of popular episodes.

Source: The Twitter blog.

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Bluefin’s product allows broadcast networks to better understand which characters or segments are driving the highest user engagement, based on the number of relevant Tweets, re-Tweets, and comments generated. The value of an analytics suite to Twitter includes the ability to prove to advertisers that a Twitter ad product can drive consumer engagement around a brand, and should also help the company’s demographic targeting by allowing it to better understand user preferences and characteristics.

Source: The Twitter blog

This year’s Super Bowl generated 30.6 million Tweets on Twitter (91% of total comments) and Facebook (9%), up 150% y-o-y, according to data published by Bluefin Labs.

Event Driven Social Media Comments: Facebook & Twitter (Millions)

30.6

28.3

13

12.8

12.2

0 5 10 15 20 25 30 35

Super Bowl XLVII

Election Night 2012

2012 Grammy Awards

2012 MTV Video Awards

Presidential Debate #2

Source: Wedbush Securities and Bluefin Labs.

There are over 400 million Tweets generated daily on Twitter, and according to SecondSync, about 40% of these Tweets during peak viewing periods are about TV shows. According to a report published by Marketing Land, Twitter hashtags were included in 26 out of 52 (50%) commercials during this year’s Super Bowl, up from only eight of 59 commercials in the 2012 Super Bowl. According to data published by Nielsen, between January and June 2012, the share of active U.S. Twitter users Tweeting about TV content increased from 26% to 33%.

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% Of Active U.S. Twitter Users Tweeting About TV

26%

28%27%

30%29%

33%

0%

5%

10%

15%

20%

25%

30%

35%

Jan. '12 Feb. '12 Mar. '12 Apr. '12 May. '12 Jun. '12

Source: Wedbush Securities and Nielsen.

Advertisers on Twitter

Promoted Tweets: Promoted Tweets were introduced in April 2010, and were designed to drive conversations and spread a

message virally. The product originally pushed a Tweet to the top of search results; however Twitter recently started distributing Promoted Tweets into the top of user feeds directly. When in-feed Promoted Tweets launched in July 2011, they allowed brands to advertise only to followers; in late 2011, Twitter began allowing advertisers to target non-followers.

Promoted Tweets are priced via auction on a cost-per-engagement (CPE) basis. Engagements are defined as any click, add to favorites, re-Tweet or reply from a targeted user in response to a Promoted Tweet. Competitive pricing was estimated to be between $0.75 - 2.50 per engagement. The two Tweets below illustrate what a successful Promoted Tweet will often look like. According to the Twitter blog, AMC Theatres managed to generate a 5.5% engagement rate by providing a deal, while Best Western Hotels generated a 5% engagement rate on its campaign by offering a chance at a prize in exchange for action.

Source: Twitter.

Promoted Accounts: This feature allows brands to purchase placement in Twitter's "Who to Follow" section, with a clear indication

that the account is promoted. This section suggests accounts that a user isn't currently following as ones that he may find interesting. In comparison to a Promoted Tweet, a Promoted Account is generally more valuable, as the latter provides a brand with recurring access to its new follower through promotional Tweets that can be sent for free with Promoted Account status. Promoted Accounts can be targeted so that a brand can acquire an audience with characteristics that are most valuable to that brand based on a user's interests and location, among other attributes. Cost-per-follower (CPF), the price a Promoted Account will pay for a converted follower, is determined through an auction, with competitive bids per follower typically ranging in the $2.50 - 4.00 range.

Promoted Trends: This feature allows the buyer to promote a trend to the "Trending" section of a particular geography. It is similar

in many ways to Promoted Accounts.

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While social networks continue to develop their ad offerings and improve targeting, we note that these products are still in their infancy, with significant runway for adoption as larger ad agencies gain familiarity with new mediums such as those offered by Twitter.

According to eMarketer, only 2% of ad agencies and PR firms currently advertise on Twitter, relative to 4% on LinkedIn and 13% on Facebook. The same survey found that only 23% of ad agencies spent over $10,000 on social ads, a potential roadblock for Twitter's advertising growth given the $15,000 minimum commitment required for Promoted Tweets. Twitter's new ad platform has an opportunity to eliminate this barrier, providing ad agencies with the opportunity to test the new medium in smaller denominations with less risk, eventually scaling if ad campaigns prove successful.

Location

Although Twitter has yet to expand upon its plans to utilize a user's location beyond the new "relevant stories" feature, we believe that geo-targeted streams have the potential to significantly improve Twitter's functionality and augment its advertising revenue growth. Theoretically, Twitter could tier feeds by geographical location in a way that would be similar to the way news is currently broadcast at the global, national, regional, and personal levels. Local brands would be inclined to promote Tweets to a geographically targeted audience, while users would have an additional tool to parse through their data streams. Due to its international user base (just under 80% of users, according to comScore), Twitter will seek to ensure that users maintain a sense of its global presence while providing customized data when necessary. The company currently utilizes geo-targeting on its ad platform. However, incorporating location into its user base could be harder. An example of the continued prevalence of location on Twitter is the display of a Foursquare check-in as a location on a map rather than as simply a link; this feature was rolled out with the upgrade.

Interface

Twitter recently redesigned its user interface (UI). The changes were meant to generate content discovery in an attempt to drive adoption of the service. Application speeds on the new Android and iOS apps have reportedly greatly improved, with additional user interface changes, including a "Connect" tab in place of a "Replies", and a new "Discover" tab where "Direct Messages" had once been. The "at" (@) and "hashtag" (#) symbols have been rebranded as "Connect" and "Discover" in order to reduce confusion over terminology among less-experienced users. The mobile interface now has four distinct quadrants that remain mostly consistent throughout Twitter's multiple platforms:

Source: Twitter.

Home: The main tab remains mostly unchanged, with a redesigned "follow" button, some formatting changes as to how Tweets are

displayed, and the ability to see replies to a Tweet when clicked on. Rather than a dual pane interface, Tweets that include media will expand in the stream, increasing engagement and reducing friction.

Connect: Segmented into "interactions" that show a user what others on the platform have done in relation to his Tweets (new

followers, re-Tweets, favorite Tweets, and additions to lists). The second "mentions" segment shows instances where a user's Twitter handle has been mentioned in a Tweet.

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Discover: Presents relevant stories (Tweets around a topic that may interest a user based on location, popularity, and connections)

in an interface that includes a picture and headline text, trending topics (designated by a #hashtag), a list of suggested accounts to follow based on user habits and previous follows, and a list of friends that are not being followed, based on imported contacts. A "categories" segment shows which accounts are prolific for particular topics (e.g., @jimcramer or @FinancialTimes for business), in addition to a dedicated stream of relevant Tweets under each category that can be accessed even if the Tweet's contributor has not been followed.

Me: Provides access to a user's direct messages, history of Tweets and re-Tweets, as well as a list of who is following him and who

those followers are following, lists that are maintained, saved searches, and other account settings.

Many reviews of the app by power users express frustration over friction when switching between accounts and the additional step required when accessing direct messages. The overall reaction to the upgrade has generally been positive, as most users are pleased with the increased speed, ease of navigation, and content discoverability. Throughout our coverage universe, we continue to see a common theme revolving around manipulating and reformatting content into more relevant and targeted streams. Twitter realizes the need to evolve the product beyond a simple RSS feed, and remains cognizant of the fact that the volume of data generated on its platform can overwhelm even its most experienced users.

TweetDeck

In addition to upgrading its primary offering, Twitter rolled out an update for its desktop client, TweetDeck, which was acquired in 2011. The client allows users to manage multiple accounts on different sites from a single interface, an important tool for power users on Facebook and Twitter. The update was coded in HTML5 rather than Adobe Air, and has been branded with the Twitter symbol in place of the similar TweetDeck logo. Most importantly, the new client no longer provides support for any service other than Facebook and Twitter, eliminating the ability to manage services such as Foursquare and LinkedIn, among others.

Open Self-Serve Ad Platform

Twitter has opened up its self-serve advertising platform for 10,000 small businesses looking to use its Promoted Trends, Promoted Tweets, and Promoted Accounts ad products. As we wrote in December 2011 (http://bit.ly/uRPFJS), one of the issues Twitter faced was that the minimum amount it charged per Promoted Tweet or Promoted Account was too high ($15,000 over three months) to appeal to a large segment of marketers. Part of Twitter's rationale for setting such lofty minimums was the cost incurred by the sales force having to meet with individual accounts. We estimate that Twitter currently has 1,000 employees, double the 450 employees reported nearly a year ago. Last November, Twitter began testing an automated purchasing platform that makes it easier and more economical to work with smaller accounts. In February, the company began scaling the platform in a partnership with American Express, which offered merchants that signed up for the launch a $100 credit towards their initial ad purchases. Advertisers only pay for a Promoted Tweet or Promoted 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 broadcasts them to a wider audience when a brand utilizes the Promoted Tweets product. 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.

Gawker reported that Twitter only generated $28.5 million in revenue 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 in revenue, with costs exceeding $49 million, and a non-GAAP net loss of $25.8 million. According to a report published by Bloomberg, which quoted two sources, Twitter expects to generate $1 billion in revenue in 2014. We believe the company has grown revenues substantially over the last year as it aggressively marketed its suite of Promoted products (Tweets, trends, and accounts). Note that as of February 2009, Twitter was forecasting 1 bill ion users, over 5,200 employees (as opposed to about 1,000 employees currently), revenues of $1.54 billion, and net earnings of $1.1 bil lion by 2013, according to an internal file that was published by TechCrunch.

According to the Twitter blog, Twitter began allowing brands to target mobile Twitter users in March 2012. 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.

In order for Twitter to accelerate revenue growth, we believe it must convince marketers that its inventory of textual ads is as effective as traditional display advertising. The catalyst for this is the shift in the way advertisers are starting to view mobile advertising, which levels the playing field for Twitter, due in part to current perceptions of the ineffectiveness of display ads on smaller screens. While traditional Internet services may be detrimentally impacted by mobile browsing substitution, Twitter's Promoted ad products, and to an extent Facebook's Sponsored Story products, will likely benefit from smaller mobile screens, which direct a user's focus on a single concentrated stream that can be filled by smaller textual advertising. Unlike Facebook, social endorsements of a brand through the "liking" of a brand's page by a targeted consumer's connection is not feasible on Twitter, but instead relies upon re-Tweeting by users for the social enhancement of Promoted Tweets.

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We believe the company will inevitably release hyper-local ad targeting, which will likely leverage the 60% of Twitter users that log in using mobile devices, and will encourage brands to leverage the endorsements of experts within a brand's industry that maintain a presence on Twitter. This would substitute the endorsement of a user's immediate social network (as seen on Facebook), and make Twitter one of the few Internet companies that has strong promise for capturing a significant share of mobile ad spending.

Twitter #music

On April 18, the company launched its Twitter #music application in the United States, Australia, Canada, Ireland, New Zealand, and the United Kingdom. It is currently available in the Apple App Store and online (music.twitter.com), with an Android launch expected in the future. At present, songs come from three music services: iTunes, Rdio, and Spotify, with iTunes the default player when previewing tracks, although Twitter may add other music services going forward. By logging into their accounts, Rdio and Spotify users are able to listen to tracks already available in their existing catalogs.

On the home page of the Twitter #music website, a drop down menu provides the user with the option to view content that is Popular (new music trending), Emerging (based on Tweets), Suggested (articles the user may like), #NowPlaying (Tweets from other users that are followed), and Me (artists that the user follows). If the user selects the "Play Full Tracks" drop down menu, she is prompted to sign-in to Rdio or Spotify.

Twitter #music provides users with greater access to the artists and songs that are popular with their peers and the larger Twitter community. In its press release, Twitter declares that it will "detect and surface" popular songs and emerging artists through engagement and Tweets, with users given the ability to Tweet a song directly from the app. By accessing an artist's Twitter profile, the user can see which other bands that particular artist is following, and then listen to those bands' songs. In a given music chart, the user can either tap the artist's avatar to follow the artist or see the top song, or tap the Twitter username to access the artist's profile. The user can open the music player by tapping the Play button on a given song, and from the music player, she can Tweet about what she is listening to. In addition, if a user selects the iTunes button in the music player, she is redirected to the iTunes store where she can buy the song or other content.

We believe Twitter will monetize its music application initially through iTunes and promoted content. Twitter will likely receive a cut of any iTunes sales generated through re-directed traffic, with the respective artist and Apple paying a small portion of their traditional 30/70 split to Twitter itself. We have been impressed with the Twitter #music concept and user interface thus far, and believe that if it proves popular with the wider Twitter audience, it could present a meaningful revenue opportunity among iTunes users. Longer-term, user migration away from iTunes to Rdio and Spotify, among other services, could negatively impact growth, although that will not be an issue for the foreseeable future. We also believe that promoted content on Twitter #music (although we have not come across any so far in our limited experience with the app) has the potential to drive significant revenue growth, much in the same way that Promoted Accounts, Trends, and Tweets have done thus far. We believe many artists would pay handsomely to be inserted into the Popular or Suggested charts, among others, that populate the user's screen. In our view, music sales are driven in large part by word-of-mouth, with the world's de facto word-of-mouth service on a plethora of topics becoming Twitter, as opposed to other online sites or the traditional print media. The buzz about music on Twitter that has existed for years will likely be intensified by the new app, and more importantly, it can now be monetized through iTunes and likely promoted content as well.

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About the Wedbush Private Company Strategies Group The Private Company Strategies 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 three years ago from Bank of America Merrill Lynch. Originally covering Internet & E-commerce within Equity Research, he later moved on to help pioneer the Private Company Strategies 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 Company Strategies Group:

Michael Pachter Managing Director, Equity Research (213) 688-4474 | Michael.pachter@wedbush.com Yoni Yadgaran Research Associate, Private Company Strategies Group (212) 938-9924 | yoni.yadgaran@wedbush.com

About Wedbush Securities

Founded in 1955, Wedbush Securities is a leading investment firm that provides brokerage, clearing, investment banking, equity research, public finance, fixed income sales and trading, and asset management to individual, institutional and issuing clients. Wedbush currently ranks as a top liquidity provider for the 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 Company Strategies Group (213) 688-8089 | kevin.cohen@wedbush.com Olivia Jamgotchian Sales & Trading Associate, Private Company Strategies Group (213) 688-6625 | olivia.jamgotchian@wedbush.com

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Covered Public Companies Mentioned in this Report (priced at market close 4/18/13):

COMPANY TICKER RATING PRICE PRICE

TARGET

Facebook FB OUTPERFORM $25.69 $35

Google GOOG NEUTRAL $765.91 $770

Zynga ZNGA OUTPERFORM $3.18 $4.00

Oracle ORCL NEUTRAL $32.12 $36

Intel INTC NEUTRAL $22.24 $23

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, Yoni Yadgaran, Nick McKay, 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/DisclosureQ113.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 March 31, 2013)

Investment Banking Relationships (as of March 31, 2013)

Outperform:51% Neutral: 44% Underperform: 5%

Outperform:18% Neutral: 2% 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. 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. Wedbush Equity Research Disclosures as of April 19, 2013

Company Disclosure

Facebook 1 Google 1 Zynga 1 Oracle 1

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Intel 1

20

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. 12. The analyst maintains Contingent Value Rights that enables him/her to receive payments of cash upon the company’s meeting

certain clinical and regulatory milestones.

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.

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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. 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