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Market analysis

The Internet players in our study reported strong numbers in Q4 2016 with revenue growth of 20.2% year over year and 22.9% quarter over quarter. Net income increased sharply year over year by 739%, but it declined sequentially by 15.5%. The year-over-year growth was due to eBay’s significant increase in net income of US$5.9 billion, driven by a US$4.6 billion income tax benefit related to a legal structure realignment and eBay’s sale of its equity holdings of MercadoLibre, Inc, for a US$0.8 billion gain.

Asia now makes up over half of the entire global smartphone user base. As a result, a ‘mobile first’ approach is a must when entering into an Asian market. The fourth quarter 2016 marked the first time mobile web traffic exceeded that of desktop. As a result, mobile advertising is starting to mature. With over US$20 billion in spending in the US alone, mobile internet advertising now accounts for a 3rd of all internet ad spend. Facebook and Google are solidifying their positions in the online ad space. In terms of total online advertising, Facebook achieved 59% year-over-year growth in 2016, with ad revenues of US$8 billion. Google still dominates the market with almost US$30 billion revenues from pay-per-click (PPC) ads, as much as all other platforms combined. As these platforms grow larger and more powerful, they'll be able to exert more and more control over ad markets. Facebook has already announced a plan to allow businesses to leverage their user data to deliver targeted ads on other sites, which would be purchased via Facebook.1

Online video consumption has also jumped significantly. Almost 5 billion videos are viewed on YouTube daily. Facebook's daily video views have shot through the roof, reaching 8 billion per day at the end of 2016 from around 1 billion in 2015. However, note that Facebook counts a view after three seconds where as YouTube counts a view after 30 seconds. Snapchat has grown tenfold over the course of 2016 to an astonishing 10 billion daily video views. But Snapchat counts a view as soon as the video is rendered on the screen.1  

Messaging app usage for photo and video sharing such as WhatsApp and Snapchat is growing rapidly. People are choosing to communicate with a group of friends via messaging apps rather than social networks. This has led to a massive increase in messaging app users, with WhatsApp reaching 1 billion users and Facebook Messenger and WeChat following the same growth trajectory. These messaging apps now have more users than established social networks like LinkedIn, Twitter and Instagram.  

Ecommerce continues to be a high growth sector. American online spending reached a massive US$340 billion in 2016, up considerably from 2015 at US$304 billion. Ecommerce now makes up over 10% of total retail sales in the US leaving it with plenty of room to grow.1  The E-commerce sector has even more growth potential with the use of the Internet of Things (IoT) technologies. The IoT has already been adopted by retail stores. For instance, retailers are using beacons, devices that automatically send notifications and discounts directly to shoppers' smartphones based on where the shopper is located in the store. Analysts expect the beacon installed base to escalate from 96,000 in 2015 to 3.5 million in 2018. Also, digital signs push ads and price changes to stores in real-time, which creates target sales for consumers. It is expected that the global market value for digital signage will grow to US$23.7 billion by 2020 from US$15.8 billion in 2015. Smart mirrors let customers virtually try on clothes. Smart shelves automatically monitor inventory in stores and notify the manager when an item is running low.

Company highlights include Amazon net sales increasing 22% to US$43.7 billion in the fourth quarter of 2016, compared to US$35.7 billion in Q4 2015. In Q4 2016 operating income increased 13% year over year to US$1.3 billion. Net income was US$749 million in Q4 2016 compared to net income of US$482 million in Q4 2015. This was due to Amazon’s success in generating add-on service sales. Amazon Web Services (AWS) has expanded with Amazon GO and its new Prime video offerings. AWS also is on track to launch an apparel site.

eBay Inc delivered a sharp rise in net income from continuing operations to US$5.9 billion, driven by a non-cash US$4.6 billion income tax benefit related to a legal structure realignment. Its gross merchandise volume (GMV) increased by 5% to US$22.3 billion in Q4 2016. Revenue for Q4 2016 was US$2.4 billion, up 6% year over year. During the fourth quarter, eBay also repurchased US$1.0 billion of its common stock. StubHub had a record quarter with GMV of US$1.2 billion, up 5%, and revenue of US$279 million, up 20%, mostly from its baseball and theater genres. eBay’s marketplace delivered record results of over US$10 billion of volume for the first time ever.