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Market analysis

The Internet sector ended 2014 on a strong note, with the majority of the large companies experiencing double-digit revenue growth. A major driver was the growing usage of mobile data, which is expected to increase by 59% in 2015. What is causing this increase in mobile data? Newer and faster networks, increased users of these networks and more affordable 3G and 4G. However, the key driver is mobile apps, particularly mobile video apps which generate 50% of all mobile data.1

Mergers and acquisitions in the Internet of Things (IoT) space will continue in 2015 as large established vendors are focused on strengthening their core capabilities. The growing number of interconnected devices will raise questions about privacy and data ownership. Also, machine data will be intermixed with social network data, which will further elevate privacy concerns.2 How efficiently and quickly the data is transferred, encrypted and stored will be crucial for success.

The Internet usage pattern is dynamic in nature as users are increasingly accessing entertainment content online rather than paying for it. Users are watching streamed entertainment instead of downloading. The majority (70%) of 16-to-24-year-olds are now watching online forms of TV, compared to just a third of 55- to 64-year-olds. PCs/laptops remain the most important entertainment device, but mobiles are rapidly gaining ground. Last month, 75% of users accessed the mobile web, 4 in 10 visited YouTube on mobiles and one-third streamed music.3

In October 2014 Google sold their Motorola Mobile business which resulted in a gain of US$740mn for Q4’14, net of tax. As a result of the sale, net income increased to US$4.8bn in Q4’14, an increase of 70% compared to US$3.4bn in Q4’13. The US$9 billion loss incurred from the Motorola writeoff was recognized in Q3’14 thereby providing a boost to Q4’14 net income which increased 41%. They reported consolidated revenues of US$18.1bn in Q4’14, an increase of 15% from US$15.7bn in Q4’13. Google has started losing share of ad revenues to Facebook and other popular social media sites which is expected to impact its earnings in the coming quarters.4

Yelp’s earnings reflect that the company is still in a major growth mode. They reported net revenues of US$109.9mn in Q4’14, reflecting 56% growth sequentially. Net income in Q4’14 was US$32.7mn, compared to a net loss of US$2.1mn in Q4’13. Net income for Q4’14 included an income tax benefit of US$26.2mn, or US$0.34 per share, due to the release of a deferred tax asset valuation allowance. Yelp is struggling to expand much beyond the 130 million MUUs (monthly unique users) that it first reached during Q1’14. Yelp’s Q4’14 MUUs were only 135 million, a slight 13% increase compared to Q4’13 and compared to the prior quarter it was a drop of 4 million MUUs.

LinkedIn reported US$643.0mn in revenue in Q4’14, an increase of 44% compared to US$447mn in Q4’13. Net income attributable to common stockholders was US$3mn in Q4’14, compared to net income of US$4mn in Q4’13, a 21% decrease. This is attributable to a 50% increase in COGS. Revenues from the Talent Solutions product grew by 41% to US$369mn driven by the growth in scale and relevance of job listings through the acquisition of Bright. Marketing Solutions products totalled US$153mn, an increase of 56% compared to Q4’13. Revenues for Premium Subscriptions increased by 38% to US$121mn. The growth of Talent Solutions, Marketing Solutions and Sales Navigator product revenues speaks to the fact that LinkedIn provides access to a unique audience—global business professionals.

  1. Gartner, Feb 2015
  2. PRnewswire , Feb 2015
  3. Globalwebindex, Feb, 2015
  4. Seeking alpha, Dec 2014

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