S&P Equity Research Issues Internet Predictions for 2011

Dec 29, 2010, 14:46 ET from Standard & Poor's

NEW YORK, Dec. 29, 2010 /PRNewswire/ -- S&P Equity Research sees big developments for the Internet segment in 2011, including continuing challenges for Google, changes at Yahoo, a cloud offering from Apple, and excitement from China.  

"The coming year should also be another year of solid growth, with double-digit gains for U.S. Internet advertising and retail spending," observed Scott Kessler, Information Technology analyst at S&P Equity Research.

Following are Mr. Kessler's predictions for the Internet industry for 2011.

1. We project that U.S. online advertising revenues and online retail spending will each rise 10% next year.

2. We think Yahoo (YHOO 17 ****) will engage in at least one significant transaction intended to generate/unlock shareholder value. Possibilities include sale of the stake in Alibaba Group, reduction of its interest in Yahoo Japan, and a material acquisition (perhaps focused on international, social media and/or mobile).

3. We expect Baidu (BIDU 99 ****) to make progress toward international expansion beyond China. Further offerings in Japan and/or other Asian countries seem likely, in our opinion. We also anticipate that the company will remain dominant in China and that it will continue to benefit from Google's (GOOG 599 ***) problems in the country.

4. We would not be surprised if Google experienced further issues in China, perhaps related to the registration and operation of Google Maps.

5. We think Google's continuing string of regulatory and legal woes will include a significant penalty or loss in 2011, potentially related to the Department of Justice blocking its proposed acquisition of ITA Software, Oracle's (ORCL 32 ****) claims involving Android, and/or continuing state and sovereign inquiries related to the company's Street View feature of Google Maps. The revised Google Book Settlement, which was filed over a year ago, might not even be approved by the court (even though it was agreed to over a year ago).

6. One of Google's major global initiatives next year will be related to local advertising, in our opinion. We think a major alliance and/or acquisition is a strong possibility.

7. Getting back to books, we think Amazon.com (AMZN 181 ***) will continue to be among the biggest beneficiaries of consumers making more purchases online, and we project its sixth straight year of revenue growth greater than 25%.

8. We foresee growing competition between Amazon and Netflix (NFLX 184 **), but nonetheless forecast that the DVD-shipping and streaming-video company will increase subscribers to 27 million by the end of next year, from our forecast of 20 million as of the end of 2010 (the most recently released subscriber count was 17 million, as of the end of the third quarter).

9. We believe, after much anticipation, that Apple (AAPL 325 *****) will bring iTunes to "the cloud," allowing customers to access their music and video files using the Internet, and wireless sync iTunes with compatible devices.

10. We think the number of PayPal accounts (90.5 million as of the end of the third quarter) will exceed the number of active eBay (Marketplaces unit) users (93.2 million) next year (EBAY 28 ***). eBay could move to better monetize its payments business, perhaps via an IPO of PayPal.

11. Expedia's (EXPE 25 ****) TripAdvisor is another marquee property wholly-owned by a public traded Internet company that we think would make sense as a potential IPO candidate. However, our prediction related to Expedia is that it continues to invest in and make progress in China.

12. Given Expedia's growing assets in China and that market's strong growth trajectory, we expect priceline.com (PCLN 405 ***) to look to M&A activity focused on and in the country.

13. We also expect notable M&A actions in the Internet segment. Not only will Google remain active, but we foresee international companies looking for franchise brands and businesses, perhaps of publicly traded companies.

14. Despite the IPO market warming up somewhat in the second half of 2010, we think major social media companies like Facebook, Twitter, and LinkedIn are in no rush to become publicly traded entities. They have ample capital and flexibility for more financing, in our view, and we don't expect any of them to file S-1s in 2011.

About Standard & Poor's Equity Research Services

As the world's largest producer of independent equity research, Standard & Poor's licenses its research to global institutions for their investors and advisors.  Standard & Poor's team of experienced U.S., European and Asian equity analysts use a fundamental, bottom-up approach to assess a global universe of multi-asset class securities across industries worldwide.  Follow Standard & Poor's equity analysts' U.S. market commentary each day at http://www.equityresearch.standardandpoors.com/.

The equity research reports and recommendations provided by Standard & Poor's Equity Research Services are performed separately from any other analytic activity of Standard & Poor's. Standard & Poor's Equity Research Services has no access to non-public information received by other units of Standard & Poor's.  Standard & Poor's does not trade for its own account.  The analytical and ethical conduct of Standard & Poor's equity analysts is governed by the firm's Research Objectivity Policy, a copy of which may also be found at www.standardandpoors.com or by clicking here.

About Standard & Poor's

Standard & Poor's Financial Services, LLC, a subsidiary of The McGraw-Hill Companies (NYSE: MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data.  With offices in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions.  For more information, visit www.standardandpoors.com.

All information provided by Standard & Poor's is impersonal and not tailored to the needs of any person, entity or group of persons.  Past performance is no indication of future results. Standard & Poor's and its affiliates provide a wide range of services to, or relating to, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries, and accordingly may receive fees or other economic benefits from those organizations, including organizations whose securities or services they may recommend, rate, include in model portfolios, evaluate or otherwise address.

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. With respect to reports issued to clients in German and in the case of inconsistencies between the English and German 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