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Nothing But Net: 2010 Internet Investment Guide

Click here for the full Note and disclosures.

This morning we are publishing our 328 page 2010 Internet Industry outlook.  Here are some key industry themes:

* We expect Display advertising to recover:  After a very difficult year, domestic display ad should grow nearly 11% in F'10. We think with 17% of Display ad market share, Y! will be a key beneficiary of this development.

* Search revenue should accelerate due to cyclical CPC growth and International growth.  We are modeling the overall global search market to grow 17.8% in 2010.  Our Google 2010 net revenue and pro forma EPS estimates are $21B and $26.91, respectively.

* eCommerce is at an inflection point; we think Amazon will be the key winner.  We expect US eCommerce to grow ~12%, aided by 1) brick-and-mortar bankruptcies, 2) limited selection at offline retailers, 3) improved fulfillment capacity by online sites, and 4) growth in alternative payments.

* We still see significant international penetration growth opportunity for online travel.  We continue to like PCLN. 

* Social Networking is becoming a new platform and gateway: Facebook accounts for almost 5% of all time spent on the web. We see a significant monetization opportunity.

* M&A should pick up. Large cap internet and media companies along with Microsoft are expected to generate more than $46B in FCF in 2010.  We expect a healthy M&A environment as the economy stabilizes. 

Top Ideas:  
Amazon -- raising price target to $175 from $150; our best growth idea
Yahoo! -- new price target $21, up from $20, new 2010E EPS $0.44, up from $0.39
Priceline -- raising price target to $260, up from $216
NFLX -- raising pricing target to $63 from $57

Downgrade: We are downgrading MELI this AM on valuation.

We are also introducing 2011 estimates; please see the full report for our detailed estimates.  

Imran Khan
(1-212) 622-6693
Dick Wei
(852) 2800-8535
Vasily Karasyov
(1-212) 622-5401
Bridget Weishaar
(1-212) 622-5032