Standard & Poor's Top 10 Internet Predictions for 2010

21 Dec 2009 18:28 Africa/Lagos

S&P Equity Research Issues Ten Internet Predictions for 2010

NEW YORK, Dec. 21 /PRNewswire/ -- As the decade that began with the announcement of the AOL/Time Warner merger ends with the Time Warner [TWX 29 ***] spin-off of AOL (AOL 23 NR), S&P Equity Research has issued a list of ten Internet predictions for 2010, addressing some of the largest and most important companies in the Internet segment as a new decade is about to begin.


"We expect considerable international deal making in 2010, challenges for search giants Google and Baidu, and IPO activity involving at least one major social networking company," said Scott Kessler, S&P Equity Analyst, Internet Software & Services and Internet Retail. "After covering the Internet segment for nearly a decade, I think it's fair to say that the online arena can change very quickly. Therefore, thinking about the upcoming year and offering predictions is worthwhile in helping to identify potential developments and prepare in advance."


Following are ten Internet predictions for 2010 from S&P Equity Research.


1. We foresee considerable international acquisition-activity in 2010. We think some larger U.S. Internet firms will allocate their substantial overseas cash and investments to acquire businesses abroad. We also think some U.S.-based Internet companies could be targets for international players looking to establish or bolster their positions, seizing upon the dollar's weakness to secure value. We also think eBay [EBAY 23 ****] and Yahoo [YHOO 16 *****] will make noteworthy overseas purchases.


2. We think at least one of eBay's global buys will center on continuing to build out its PayPal business, perhaps in the mobile area.


3. Despite notable efforts and those of its Chairman and CEO Eric Schmidt among others, Google [GOOG 596 ***] will continue to be targeted and somewhat restrained by domestic and international lawmakers and regulators, in our view.


4. We think Google will lose its search business with AOL to Microsoft [MSFT 30 ***] (the AOL/Google search contract is set to expire in December 2010). We believe Google's recent efforts to de-emphasize larger search deals, and political pressures, coupled with Microsoft's focus on gaining market, share will contribute to this change.


5. We expect Yahoo to further deconsolidate through the sale and/or shuttering of multiple businesses. We think divestiture activity could involve the Small Business Services unit, Zimbra, and the Personals business, among others.


6. Conversely, we think InfoSpace [INSP 8 ****], with what we consider a somewhat limited product/service portfolio and strong balance sheet, will look to do a relatively significant strategic deal, related to the search segment.


7. We see continuing considerable competition and pricing pressure in online music and games, and expect more challenges and consolidation in these areas. Our related call is a "sell" opinion on RealNetworks [RNWK 4 **].


8. We think at least one major social networking company will file to become a public entity in 2010. We think Facebook is most likely, given that in 2009, it announced it was looking for a new CFO with public company experience, and hired such a person, and created two classes of (private) stock to help existing shareholders retain control of the company. We note that a company with more than $10 million of assets and a class of equity securities with 500 or more shareholders as December 2009 has to file a registration statement with the SEC, roughly by the end of April 2010. We also expect LinkedIn to move closer to becoming a public company in 2010.


9. We don't expect Twitter to file to come public in 2010, but, despite indications that its growth trajectory has flattened somewhat of late, we expect the company to have a successful year, punctuated perhaps by monetization models and revenues. We foresee premium accounts and data and analytics offerings, for example.


10. We see considerable risk for Chinese Internet companies and equities, and believe regulatory concerns and actions will hamper performance for certain companies, including Baidu [BIDU 414 *].


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As of September 30, 2009, research analysts at Standard & Poor's Equity Research Services North America recommended 28.6% of issuers with buy recommendations, 57.6% with hold recommendations and 13.8% with sell recommendations.


In Europe


As of September 30, 2009, research analysts at Standard & Poor's Equity Research Services Europe recommended 33.8% of issuers with buy recommendations, 45.3% with hold recommendations and 20.9% with sell recommendations.


In Asia


As of September 30, 2009, research analysts at Standard & Poor's Equity Research Services Asia recommended 32.2% of issuers with buy recommendations, 52.5% with hold recommendations and 15.3% with sell recommendations.


Globally


As of September 30, 2009, research analysts at Standard & Poor's Equity Research Services globally recommended 29.7% of issuers with buy recommendations, 55.2% with hold recommendations and 15.1% with sell recommendations.


5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis.


4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis.


3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis.


2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price is not anticipated to show a gain.


1-STARS (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis.


This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from any securities or investments mentioned in this report may fall against the interests of the investor and the investor may get back less than the amount invested. Where an investment is described as being likely to yield income, please note that the amount of income that the investor will receive from such an investment may fluctuate. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you nor is it considered to be investment advice. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.


This material is based upon information that we consider to be reliable, but neither S&P nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. With respect to reports issued to clients in Japan and in the case of inconsistencies between the English and Japanese version of a report, the English version prevails. Neither S&P nor its affiliates guarantee the accuracy of the translation. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Neither S&P nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.


Source: Standard & Poor's

CONTACT: Marc Eiger, Communications, +1-212-438-1280,
marc_eiger@standardandpoors.com


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