Internet

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Market analysis

The Internet subsector had positive results in the third quarter, with most of the top companies reporting double-digit revenue growth. The growth reflects an increase in internet advertising as well as price increases for associated online offerings.1

US online advertising revenues rose 22% in 2011, 15% in 2012 and 17% in 2013, and it is estimated to grow at 13% for 2014. US accounts for more than a third of this market. Companies are committing a larger portion of their advertising budgets to the Internet as people are spending more time online. Moreover, Internet marketing offers notable targeting and data-focused return-on-investment capabilities. Additionally, more interactive mobile advertising is driving traffic and usage.2

E-commerce also remained positive in Q3’14. While rising shipping costs (reflecting higher fuel prices and free shipping offers), the collection of state taxes from online retailers and increased marketing expenses pose some concerns, e-commerce still has huge growth prospects as consumers increasingly enjoy the convenience and value that online retail provides. US e-commerce sales are projected to increase from US$262bn in 2013 to US$370bn in 2017, a CAGR of 9%.2

Yahoo’s revenue was US$1,148mn in Q3’14, a 1% increase year over year. Income from operations was US$42mn, a 55% decrease from last quarter. Net earnings for Q3’14 were US$6.8bn (which included a gain from sale of Alibaba Group Holding Limited shares of US$6.3bn, net of tax), compared to US$297mn in Q3’13. Net earnings per diluted share were US$6.70 in Q3’14 (which included the gain from sale of Alibaba Group shares of US$6.27 per diluted share), compared to US$0.28 in Q3’13. Net earnings per diluted share were US$0.52 for Q3’14, compared to US$0.34 in Q3’13.

Netflix acquired over 3 million members, ending Q3 with 53.1 million global members and US$1.2bn in revenue. However, Netflix continues to rapidly spend cash on product content and expansion.3

LinkedIn’s Q3’14 revenues grew 45% year over year to US$568mn, beating the market’s expectation of US$558mn. EPS of US$0.52 were also significantly ahead of the US$0.48 per share estimated earnings for the quarter. Revenues from Talent Solutions grew 45% in the third quarter to US$345mn driven by increased job listings. Advertising revenues grew 40% to US$109mn and premium subscriptions grew 43% to US$114mn in revenues. LinkedIn's efforts in international expansion are also delivering results. The US accounted for 60% of their revenues at US$343mn, growing 40% year over year. Revenues from EMEA markets grew 55% to US$139.7mn and Asia Pacific grew 60% over the year to US$48.9mn driven by strong adoption in China. Revenues from other Americas grew 35% over the year.

  1. Factiva, October 2014
  2. Forrester , October 2014
  3. Netflix Earnings call, October 2014

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