SPEAKER: Ivor Ries, Wilson HTM Investment Group

LOCATION: Melbourne

DATE: August 2012

ASX INVESTMENT TALKS

Investing in internet stocks

DISCLAIMER: The views, opinions or recommendations of the presenters are solely their own and

do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691

and its related bodies corporate (“ASX”). Information and material presented at the seminar is for

educational purposes only and does not constitute financial product advice. Investors should obtain

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© Copyright 2012 ASX Operations Pty Limited ABN 42 004 523 782. All rights reserved 2012.

Investing in Internet Stocks Ivor Ries

Senior Research Analyst

Wilson HTM Investment Group Ltd

Growth in online advertising

Growth in online shopping

Growth in online services

Sector growth continuing at 3-4 times GDP

Exposure to offshore markets

Low capex needs – high dividend growth

Volatility – can be traded for profit

Why invest in online stocks

Rapid levels of technology change

Companies must continually innovate to survive

Trends difficult to predict

High multiples

Risks in online stocks

Online stocks – relative performance

0.0

0.5

1.0

1.5

2.0

2.5

Aug

-06

No

v-0

6

Feb-0

7

Ma

y-0

7

Aug

-07

No

v-0

7

Feb-0

8

Ma

y-0

8

Aug

-08

No

v-0

8

Feb-0

9

Ma

y-0

9

Aug

-09

No

v-0

9

Feb-1

0

May-1

0

Aug

-10

No

v-1

0

Feb-1

1

Ma

y-1

1

Aug

-11

No

v-1

1

Feb-1

2

Ma

y-1

2

Aug

-12

August 2006 = 1, Index composed of SEK, REA, CRZ, WEB, MCU (to Aug10)

Internet Sector Performance

Internet

All Ords

Media

Dow Jones Internet Index (DJINET)

Trend 1: Advertising

0

5000

10000

15000

20000

25000

30000

35000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Print Vs Online Ads USA

Online

Print

Trend 1: Advertising Australia

0

500

1000

1500

2000

2500

3000

3500

4000

4500

199819992000200120022003200420052006200720082009201020112012

Print Vs Online Australia ($m)

Print

Online

Trend 2: Online Shopping

0

20

40

60

80

100

120

140

160

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Non-Food Retail Trend ($b)

NF Retail

NF+ Online

Online OS

Trend 2: Online Shopping

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Frost & Sullivan Forecasts ($b)

The other stuff…

0% 10% 20% 30% 40% 50% 60% 70% 80%

Purchase Groceries

Gambline

Trade Shares

Sell Goods & Services

Online Auctions

Government Services

Property Search

Purchase Travel/Hotels

Purchase Goods & Services

Pay Bills

Banking

E-commerce activities in the past six months

Banking

Pay Bills

Purchase Goods & Services

Purchase Travel/Hotels

Property Search

Government Services

Online Auctions

Sell Goods & Services

Trade Shares

Gambling

Purchase Groceries

No longer small caps

0

500

1000

1500

2000

2500

3000

SEEK REA Group Carsales.com Wotif Webjet

Market Capitalisation ($m)

Big Three Strategy

Big Three Category Killers

SEEK Employment ads, education

Carsales Automobiles & liesure goods

REA Real estate

High level of new product innovation

Willing to sacrifice short-term earnings

Do not chase margin above all other factors

Dominate a sector

Focus on tight group of activities

Common features

Big Three Strategy

Big Three Online Vs Australia Inc Profits

0

500

1000

1500

2000

2500

3000

3500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Online Big3

Australia Inc

Big 3 Strategy

Big Three Online Vs Australia Inc Profits

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016

Online Big3

Australia Inc

Companies that lose their way

Webjet Vs Wotif

0

0.5

1

1.5

2

2.5

3

3.5

4

Aug-0

6

Feb-0

7

Aug-0

7

Feb-0

8

Aug-0

8

Feb-0

9

Aug-0

9

Feb-1

0

Aug-1

0

Feb-1

1

Aug-1

1

Feb-1

2

Aug-1

2

WEB

WTF

Slowing revenue momentum

Profit growth delivered by cost reductions, rather than investment in reinvigorating growth

Changes in competitive landscape

Management slow to change

Common danger signs

Companies that have yet to produce significant cash flows, or have high cash burn rates

Companies with “new paradigm” technologies

Explosive capital growth upon success, but less than one-in-20 chance of becoming viable.

Only for professionals or people who like to lose money

Early stage investment

Investing Abroad

PowerShares NASDAQ Internet Portfolio

Pick well-established companies that have continuing revenue momentum

Companies that re-invest heavily at the expense of earnings

Spread your bets

Overseas – ETF is best

Conclusions

• Take a short online course

• Subscribe to the Investor Update e-newsletter

• Play the ASX Sharemarket Game

• Watch another ASX Investment talks presentation

KEEP LEARNING

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