The Internet industry is showing clear signs of increased consumption through devices like smartphones and tablets in both developed and emerging economies. This has also led to shift of ad spend from offline to online media. Revenues of Internet companies will be significantly impacted by how well they are able to offer innovative interactive platforms for advertisers.
Desktop-based US retail e-commerce sales grew nearly 16% YoY to US$49.8bn in Q2'13, marking the fifteenth consecutive quarter of positive YoY growth and the eleventh consecutive quarter of double-digit growth. The second quarter saw healthy acceleration in online spending. Increased spending growth for the quarter not only reflects the long-term share shift towards digital commerce, but also near-term sustained improvement in consumer sentiment. This strength is particularly significant since the second quarter tends to be seasonally light for e-commerce, and, as such, represents a positive indicator for the second half of the year. The top-performing online product categories were: Apparel & Accessories, Digital Content & Subscriptions, Sport & Fitness, Consumer Packaged Goods and Home & Garden. Each category grew at least 19% YoY. E-commerce accounted for 9.6% of consumers’ discretionary spending, the highest second quarter share on record.1
Multimedia Home Gateway shipments are set to climb to 9.6 million units in 2015 and 2016, up from just 90,000 in 2011. Demand for gateway devices is being driven by pay TV operators’ desire to offer the same level of service to IP-connected devices as they currently provide to TVs via set-top boxes. Content will increasingly be delivered around the home from a gateway device via WiFi, and WiFi penetration in multimedia home gateways is expected to grow to 73% of units shipped by 2016, up from 18% in 2012.2
Of the Internet companies we track in this analysis, Netflix reported the sharpest growth in net income with a sequential rise of 996% QoQ, led by higher revenues. The revenues for Q2'13 increased by US$180.2mn as compared to Q2'12 and by US$45.4mn as compared to Q1'13 due to growth in streaming members, both internationally and domestically.
Amazon.com is planning to roll-out an online grocery business, targeting one of the largest retail sectors yet to be upended by e-commerce. Though sales grew 22% in the second quarter, Amazon reported a loss due to increased cost of leasing and technology development.
LinkedIn completed its acquisition of Alphonso Labs, Inc. ("Pulse"), a San Francisco, California-based privately held leading mobile news reader and content distribution platform. LinkedIn's purchase price of US$47.6mn for all the outstanding shares of capital stock of Pulse consisted of US$6.7mn in cash and 225,882 shares of LinkedIn Class A common stock.
Google completed the acquisition of Waze Limited (Waze), a provider of a mobile map application which provides turn-by-turn navigation and real-time traffic updates powered by incidents and route information submitted by a community of users, for a total cash consideration of US$966mn. The acquisition is expected to enhance customers’ user experience by offering real time traffic information to users' daily navigation needs. Of the total purchase price, US$847mn was attributed to goodwill and US$188mn was attributed to intangible assets. This was offset by US$69mn of other net liabilities assumed. The goodwill of US$847mn is primarily attributable to the synergies expected to arise after the acquisition.
Yelp’s net revenue increased by US$22.4mn, or 69%, in the three months ended June 30, 2013, YoY. Local advertising revenue increased US$19.5mn, or 77%, due to increase in the number of customers purchasing local advertising plans. The company expanded its sales force in 2013 to reach more local businesses. Brand advertising revenue increased US$1.3mn, or 24% due to an increase in the average spend per advertiser resulting from more advertising impressions per advertiser. In addition, other services revenue increased by US$1.5mn, or 87%, due to the sale of Yelp Deals.
Revenue for Internet companies in the analysis were relatively flat, with the exception of LinkedIn and Yelp which grew by 12% and 19% QoQ.
R&D expenses for Internet companies continued the upward trend with R&D expense for Amazon and LinkedIn leading the group at 14.7% and 18.5% QoQ respectively.
Net income for Internet companies in the analysis showed a negative trend this quarter. Lower revenues coupled with higher operating expenses led to a decline in profits.