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The State of the Internet, Part 3
The World's Information is Getting
Organized + Monetized
web 2.0 -11/8/06
mary.meeker@ms.com / david.joseph@ms.com
Morgan Stanley does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
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For analyst certification and other important disclosures, refer to the Disclosure Section
2
〓 $ 2B = market value -pre-2000 IPO
〓 $178B = market value -Nasdaq peak - 3/10/00
〓 $ 32B = market value -Nasdaq trough - 10/9/02
〓 $259B = market value -11/7/06
Google + Yahoo! + eBay + Yahoo! Japan + Amazon.com
Source: FactSet and Morgan Stanley Research.
Market Value of Top 5 Global Internet Market Leaders =
46% Higher than 3/00 Market Peak Thanks to Google
3
It's Tough to Succeed
〓 In public markets, ~2% of technology companies have
created ~100% of net wealth
〓 On average, 2 technology ‘ten-baggers' (stocks that
rise 1,000%) go public each year
Source: Morgan Stanley Technology IPO Yearbook.
4
Internet Highlights…
〓Users / Usage— Yahoo! has base of 418MM+ unique monthly
visitors (+19% Y/Y with 24% Y/Y page view growth, CQ3)
〓Customer Acquisition— Google (500K - 1MM advertisers /
vendors, and rising); 30%+ clicks (and rising) on sponsored links -
effective targeting should continue to improve + drive rising monetization
〓Commerce / Payments — PayPal (123MM accounts, +41% Y/Y,
CQ3) + Shopping.com has 40MM+ products in 325+ categories
5
…Internet Highlights…
〓Advertising— 8% of total US advertising online in 2006E growing to
estimated 13%+ within 5 years - Google + Yahoo! = key drivers +
beneficiaries
〓Significant targeting / conversion improvements(related
to technology improvements + data leverage) — could bolster annual
global revenue per unique user of $9 for Google (+42% Y/Y) and $10 for
Yahoo! (+29% Y/Y) 2-3x in next 5 years
〓Personalization— Recommendation engines improve monetization
- examples include Amazon.com + Yahoo! Music
6
…Internet Highlights…
〓Communications / Telephony— Skype (136MM registered
users, +20% Q/Q, CQ3 — may be fastest growing product in history).
Based on CQ1 data, Skype traffic = ~7% of global international long
distance minutes. Global mobile data services revenue (ex. messaging)
has $10 ARPU (and rising). If Skype were a carrier, global registered
user level would rank it #3 behind China Mobile (274MM subscribers)
and Vodafone (187MM). IM (instant messaging) + SMS / MMS showing
strong growth
〓Video— ~60% of Internet traffic may be P2P file sharing of
unmonetized video — ramp in tagging (for search) + partnerships +
monetization - note recent moves by likes of ABC / CBS / FOX / NBA /
Sony / Warner / Universal / Google / Yahoo!. Challenges (especially
related to copyright and infrastructure stress) are significant, but over
time, consumer demand should rule and content creators should benefit
7
…Internet Highlights
〓Local— Google ‘Long Tail' + eBay Classifieds (19MM+ unique
visitors, +140% Y/Y, CQ2) - traction emerging
〓Community / Social Media— Likes of Wikipedia, MySpace,
YouTube, Yahoo! Flickr + Yahoo! Answers have experienced
extraordinary growth. CyWorld (Korea) + TenCent (China) monetizing.
57MM blogs - doubling every 7 months, per Technorati. 1B camera-
enabled mobiles within 1 year - ‘citizen journalism' in infancy
〓Mobile — While 17% of global Internet users (32% in N. America)
have residential broadband, 8% of global mobile phone subscribers use
3G. American Idol - 63MM votes (via mobiles + Internet) in final 4-hour
round, China's Super Girl - 12MM votes (primarily mobiles) in final 3-
hour round. Mobile data services (bolstered by 2.5G & ex. messaging)
revenue ~$20B, comparable to online advertising revenue — illustrates
potential monetization opportunity for broadband Internet!
8
Source: comScore Media Metrix Global Data.
User-Generated Content (UGC) - Wikipedia + MySpace +
YouTube Have Moved to Top of Internet User Pack
--66 Viacom15
2,66281 YouTube14
(10)84 CNET13
(3)91 Lycos12
3895 Apple11
595 Adobe10
(0)113 Ask9
303118 Fox8
9134 Amazon7
110 155 Wikipedia6
20218 Time Warner5
4237 eBay4
11467 Google3
8 481 Yahoo!2
5%505 Microsoft1
Y/Y Growth9/06PropertyRank
Total Global Unique Visitors (MM)
9
# of Users ? ROW Continues to Rise in Relevance
N. America @ 36% of Users in 2000E; 20% in 2007E
0%
20%
40%
60%
80%
100%
2000E 2001E 2002E 2003E 2004E 2005E 2006E 2007E
North AmericaEuropeAsia/PacificRest of WorldLatin America
Geographic Distribution of Internet Users (MM)
379 482 610 761 9011,0391,191 1,343
Note: ROW denotes rest of the world.
Source: Morgan Stanley Research.
10
Rank Country
Relative
Weighting
2004
Rank Country
Relative
Weighting
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
USA
China
Japan
Germany
United Kingdom
India
France
Italy
South Korea
Canada
9.0
8.2
6.5
5.7
5.5
5.3
5.2
5.2
5.1
5.1
China
USA
India
Japan
Germany
United Kingdom
Russia
France
Brazil
South Korea
8.7
7.7
7.0
5.9
5.3
5.2
5.2
5.1
5.1
5.0
2010E
From our database on market sizing of global TMT (Technology, Media & Telecommunications) products and services. We measure market sizes and growth
rates for core TMT metrics: nominal GDP per capita (current USD); telephone lines; cable subscribers; installed PCs; mobile phones in use; Internet users and
credit/debit cards in use. For each economy, we calculate past / present / potential global market weightings across seven TMT metrics - we call this our
relative weighting and we use it to measure / rank a country's propensity for TMT products and services. We do this for the 50 most important economies based
on purchasing power/economic strength, as measured in terms of population size, land mass and GDP per capita. We standardized each country's position in
the global market in each category and adjusted the values to reflect a positive scale. The relative ratings and ranks were determined by calculating an average
of z-scores across categories. For example, in the United States, standardized and adjusted values of 6.4 in GDP per capita, 8.4 in telephone lines, 11.3 in
installed PCs, 7.6 in mobile subscribers, 8.9 in cable subscribers, 10.7 in Internet users, and 9.6 in credit/debit cards produces a relative weighting of 9.0.
2010E relative weightings derived by assuming 2003-2004 growth CAGR for each category to 2010, and ensuring category penetrations were not exceeded.
China / India / Russia =
Will Likely Continue to Make Impressive TMT Gains
Source: Morgan Stanley Research.
Red indicates countries moving out of the top 10 TMT countries; green indicates countries moving into the top 10. GDP figures from IMF, shown in constant USD
11
Broadband (?Always On?) ?
In Adoption Sweet Spot (25-50% Penetration)
Source: Morgan Stanley Research.
0
10
20
30
40
50
60
70
80
2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E 2011E
US Residential Broadband Household
0%
10%
20%
30%
40%
50%
60%
US Residential Broadband Households% of Total US Households
Broadband Ramp in
25-30% Penetration
Sweet Spot?
12
Mobile ?
Entering Adoption Sweet Spot ? Key to Differentiate 2.5 vs. 3G
Note: 2.5G can be compared to ?narrowband' Internet access, while 3G can be compared to ?broadband / lite' Internet access.
Source: Morgan Stanley Telecom Research Scott Coleman, John Marchetti.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2005E 2006E 2007E 2008E 2009E
Subscribers (M
0%
10%
20%
30%
40%
50%
60%
70%
80%
% of Total Wireless Subscr
2.5G Subscribers3G Subscribers2.5G / 3G % Penetration
Global 2.5G / 3G Penetration
2.5G Ramp in 30-
35% Penetration
Sweet Spot?
13
Global Internet Thesis
10-15%user growth
20-30%usage growth
30%+monetization growth
14
Online Text / Music / Video -
Paths to Monetization
For-Pay (Apple, ______ - )P2P (Napster, BitTorrent)
MUSIC / VIDEO
Search (Overture, Google - )Directory
Directory (Yahoo! - )Newsgroup (UseNet)
TEXT
15
Source: Internet Advertising Bureau and Morgan Stanley Research estimates.
U.S. Internet Advertising - Search Has Been Growth Engine
(Largely Related to Text) - Video Next?
9$218 $140 U.S. Internet Spending per Internet Household
873 51 U.S. Internet Households (MM)
8205 141 U.S. Internet Users (MM)
18$15,998 $7,134 Total U.S. Internet Spending
9%13%% of Total
10$1,498 $927 E-mail and Other
16%16%% of Total
18$2,587 $1,141 Classifieds
7%5%% of Total
26$1,123 $357 Rich Media
26%62%% of Total
(1) $4,108 $4,423 Display and Sponsorship
42%4%% of Total
88%$6,681 $285 Search Advertising
'01E-06E2006E2001E
CAGR(US$ in MM, except where noted)
16
67% of Global Internet Users Use Search
Search = Top Customer Acquisition Tool for Online Retailers
Note: 8% of global Internet traffic was derived from search while 67% of global Internet users used search in 1H2006, per comScore.
Source: The State of Retailing Online 2006, Forrester Research.
% of New Online Customers for Online Retailers / Marketing Spend Mix (2005)
1%3%3%5%7%
10%
11%
29%
36%
0%
10%
20%
30%
40%
50%
Se
a
rch engine mark
e
ting
Organ
ic t
raffic
Catalogs
Aff
iliate programsCompar
iso
n
-shopping
engines
Emai
l to prospecting lists
Traditional portal deals
New
p
ortal d
e
als
Other
% Customers acquired from source
17
Morgan Stanley Research, PricewaterhouseCoopers, IAB, Jupiter Research, McCann-Erickson, RAB; Newspapers include Classifieds. Promotions ($106B)
include: incentives ($28B), promotional products ($23B), point-of-purchase ($18B), specialty printing ($8B), coupons ($7B), premiums ($7B), promotional
licensing ($6B), promotional fulfillment ($5B), product sampling ($2B), and in-store marketing ($2B). Households may use multiple advertising mediums.
Promotions
Newspapers
Classifieds
Direct Telephone
Direct Mail
Broadcast TV
Radio
Cable TV
Internet / Online
Yellow Pages
Outdoor
$106
49
17
97
57
45
20
19
13
16
6
99
50
55
99
99
99
60
70
60
99
99
$1,071
980
309
980
576
455
333
271
217
162
61
2005 Advertising
Spending ($B)Households (MM)
Ad Spending /
Household ($)Medium
Total
Average
$428
43
834
83
$5,106
511
Internet Ad Spend = Movin' on Up -
$217 Per Home vs. $980 for Newspapers?
18
$0.0$0.3
$1.7
$41.3
$48.7$49.4
$0
$10
$20
$30
$40
$50
1997 2000 2005
Revenue (US$B)
Over 9 Years, Ratio of eBay US Listings to Newspaper Classifieds
Moved from 1:35 to 9:1 ?
But Related Newspaper Revenue Still Outpaces eBay 25:1!?
Note: eBay (One Website) vs. All U.S. Newspapers (1,468 Dailies) Annual Classified Ads (MM).
U.S. Newspaper market size excludes online revenue. U.S. eBay revenue shown excludes classifieds revenue such as Craigslist.
Source: Newspaper Association of America, eBay, Morgan Stanley Research.
4
238
921
141146
111
0
200
400
600
800
1,000
1997 2000 2005
Listings (MM)
U.S. eBayU.S. Newspapers
19
Rapid P2P Growth (Mostly Video) is
Stressing Internet + Is Undermonetized
? Peer-to-Peer (P2P) traffic was 60% (and rising) of Internet traffic in
2004, with BitTorrent accounting for 30% of traffic, per CacheLogic
? ?P2P affects Quality of Service (QoS) for ALL subscribers?(1)
(1) Source: CacheLogic ?P2P in 2005,? (9/05).
Internet Protocol Trends (1)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Ema ilFTPOtherP2PWeb
20
(1) Source: CacheLogic ?P2P in 2005,? (9/05). Mix of file formats by volume of traffic generated over 4 main P2P networks: BitTorrent,
eDonkey, FastTrack, and Gnutella. Weighted by volume of traffic on each network.
?Video is P2P bandwidth hog
Video
62%Audio
11%
Other
27%
Video Dominates P2P
File Format Mix on 4 Major
P2P Networks (1)
21
1.10/05 - Disney / ABC and Apple to offer episodes of popular shows likeLost and Desperate Housewivesavailable
ad-free via iTunes for $1.99 apiece
2.10/05 - 1MM+ videos, priced at $1.99 each, downloaded from Apple's iTunes site in less than 20 days
3.11/05 - Comcast / CBS and DirectTV / NBC to offer on-demand TV shows for $0.99
4.11/05 - Cisco to acquire Scientific Atlanta for $7B to prepare for demands of online video; expecting network traffic
increases of 4-6x annually, instead of 2x gains seen in US and Europe, driven by video consumption requirements
5.11/05 - Time Warner to stream episodes for free (supported by 2-minute blocks of 15-30-second commercials) in
Jan 2006. Initial run limited to 30 series (Wonder Woman, Growing Pains, Kung Fu…) but TWX plans to expand to
100+ series and 300+ episodes per month
6.11/05 -NBC Nightly Newsto air its entire broadcast on the Internet --NBC Nightly News Netcast with Brian
Williamswill be available for free beginning at 10PM EST
7.12/05 - NBA to digitize 60+ years of footage and post on NBA.com, beginning in 2006, with a searchable database
that will include players involved and exact locations on court
8.12/05 - CBS will offer NCAA basketball March Madness games for free in 2006, on streaming ad-supported basis
9.12/05 - CBS offers free streaming video of 2 comedy programs Two and a Half Menand How I Met Your Motheron
Yahoo! during the week of 12/27
10.12/05 - AOL / Google to collaborate to showcase AOL's premium video service within Google Video
Online Video Momentum -
Building and Building…
22
11.1/06 - Google to offer for-pay video over Internet from likes of CBS and NBA
12.1/06 - DirectTV / FOX to offer on-demand TV shows for $0.99 and pre-air shows for $2.99
13.3/06 - Cingular to offer on-demand video service for 3G mobile phones for $20 a month
14.4/06 - Disney to offer many TV shows for free anytime on the web
15.5/06 - Italy to get mobile TV in time for World Cup. Service offered by Mediaset and Europa TV
16.6/06 - Yahoo Video hosts video uploads and allows users to search videos on other sites
17.7/06 - A&E's History Channel UK makes appearance on audio / video search engine Blinkx
18.7/06 - Amazon to open online movie store
19.7/06 - Warner Bros. Entertainment to sell studio shows on iTunes
20.8/06 - AOL opens video portal
21.8/06 - Google and Viacom sign video distribution deal
22.9/06 - Amazon launches Amazon Unbox, offering downloadable movies and TV shows
23.9/06 - Apple to offer downloadable movies from Miramax and Walt Disney via iTunes at prices of $9.99 - $14.99
24.10/06 - Microsoft to use Blinkx technology to power the video search on its MSN Internet sites and Live.com
25.10/06 - CBS and YouTube strike strategic content and advertising partnership
26.10/06 - Google to acquire YouTube for $1.65B in stock
27.10/06 - AOL and Brightcove launch distribution service for selling digital video downloads
…Online Video Momentum -
Building and Building
23
Online Video ?
It's Getting Tagged / Findable / Easy to Search!
24
-10%
-5%
0%
5%
10%
15%
20%
25%
O
ct
-05
N
ov-05
Dec
-05
J
an-06
Feb-
06
Mar-0
6
Apr
-06
May
-06
J
un-0
6
Jul-
06
Aug-06
Sep-
06
Y/Y Growth Page ViewsY/Y Growth Total Minutes
Minutes Growth Outstripping Page View Growth -
Video Usage?
Source: comScore Media Metrix Global Data.
-10%
-5%
0%
5%
10%
15%
20%
25%
O
ct
-05
N
ov-05
Dec
-05
J
an-06
Feb-
06
Mar-0
6
Apr
-06
May
-06
J
un-0
6
Jul-
06
Aug-06
Sep-
06
Y/Y Growth Page ViewsY/Y Growth Total Minutes
-5% Diff.
+10% Diff.
25
Power of the Door?
Sometimes you know what you are looking for and sometimes you don't -
editing / organizing can help...
THE 9is a daily
broadcast on
Yahoo! TV,
showcasing 9
daily selections
from millionsof
Web content files
THE 9features the
9 ?best, weirdest,
and funniest videos,
photos, and stories?
on the Web
Vlog host:
Maria Sansone
?The best Video Blog?
?One of the 50 coolest
websites of 2006??
TIME Magazine(8/06)
Exclusive
sponsorship by
Pepsi
Selectively placed on Yahoo!'s front page / door
26
?Power of the Door
UGC + User Participation + Social Networking + Monetization
Watch
video clips
from previous
?THE 9?s
Interactive -
Online voting +
user participation
Utilizes Yahoo! 360 as
social networking tool
27
Video - Key Question
In 3 years, what % of content used on Web will be…
〓 Amateur
〓 Professional
〓 Semi-professional
〓Combinations (mashups) of above?
28
Monetizing Video ? Keywords + Adjacent Sponsorships ?
Do Users Really Want 30 Second Pre-Rolls?
Branding + Interactivity ? Think About ?Enter Sweepstakes? ?
Free Month of Puppy Chow?18 Holes with Tiger?
Tagsdogpetstigernike
29
Compelling Audio Search Technology Exists
Source: Nexidia.
Aquarium
30
Source: Apple Computer and Morgan Stanley Research estimates.
Monetizing Audio -
Apple iPods + iTunes = $16B, up from $141MM 3 Years Ago
Cumulative iPod Units Sold
Cumulative iPod Revenue
Cumulative iTunes Songs / Videos Revenue
Cumulative iTunes Songs / Videos Downloaded
68MM 972K
$14B $136MM
$1.8B $5MM
1.7B 6MM
CQ3:06ECQ2:03E
31
* Denotes net revenue estimates.
Source: comScore Media Metrix (9/06) and Morgan Stanley Research estimates.
Using Google as Benchmark for U.S. Internet Sites,
Inventory Monetization Should Still Have Significant Upside
--------Y/Y Growth
<$1.00* 1,0471,32620,759YouTube
---7%1%13%Y/Y Growth
$0.336,48010,97278,991eBay
--634%263%158%Y/Y Growth
$1.3211,50334,98855,849MySpace
---6%-43%1%Y/Y Growth
$1.6236,10618,000120,276Time Warner
--0%-14%4%Y/Y Growth
$3.2522,12518,721119,376Microsoft
--25%-9%5%Y/Y Growth
$8.65*42,71539,878129,724Yahoo!
--80%62%23%Y/Y Growth
$12.28*5,23210,264107,365Google
--15%2%2%Y/Y Growth
$31.44310,466462,186173,428Total Internet
CQ2E Annualized
US Ad Rev. per UserTotal Minutes (MM)
Total Pages
Viewed (MM)
Unique Users
(000s)
32
Only 13% of Top 15 Online Retailers are
Internet Pure-Plays - What About Media?
* Denotes ‘Internet Retailer' estimate.
Source: Internet Retailer Report (2006).
7901 *Apple Computer15
161,017 QVC14
61,039 J.C. Penney13
0.31,050 *Wal-Mart12
41,267 *Best Buy11
1001,300 Newegg.com10
21,625 *SonyStyle.com9
281,769 CDW8
42,160 *Sears Holdings7
282,567 OfficeMax6
32,829 *HP Home & Home Office5
73,779 *Dell4
243,800 Staples3
27 3,800 Office Depot2
100%$8,490 Amazon.com1
as % of Total SalesSales (US$MM)CompanyRank
2005 Online Global Sales2005 Online Global
33
(1) Source: Ad revenue totals from IAB/PriceWaterhouseCoopers Interactive Advertising reports.
(2) Calculated as reported revenue multiplied by the reported percentage of US Ad Revenue.
(3) Calculated as the difference between total IAB US revenue and the sum of Google, Yahoo! gross revenue.
(4) Assuming that TAC of Google and Yahoo! was included in others total, this segment would have been up 20% Y/Y.
Google + Yahoo! =
~58% of US Online Ad Revenue
0
200
400
600
800
1,000
1,200
1,400
CQ3:05 CQ3:06
US Ad Revenue ($MM)
Google, US Gross Ad Revenue (2)
Yahoo!, US Gross Ad Revenue (2)
Others (3)
25% 24%
31%
27%
US Online Ad Revenue Mix (1)
42%
51%
34
Google + Yahoo! Share Significant (~30%) Portion
of Revenue with Partners + Affiliates - Trend Will Continue
〓 Google generated $2.7B in gross revenue in
CQ3; it PAID OUT$825MM to thousands of
partners like AOL, Ask Jeeves, Blogger,
EarthLink, and HowStuffWorks
〓 Yahoo! generated $1.6B in gross revenue in
CQ3; it PAID OUTan estimated $459MM to
thousands of partners like CNN, ESPN and The
Wall Street Journal
35
Watch Where Global Younger Generation Goes
Social NetworkingRingtone Downloads,
Connecting Mobiles to Net
Video
Web OS ProgramsIn-Game Advertising
36
Community / UGC / Personalization are Key?
Yahoo! Movie Reviews
eBay Feedback Ratings
Social Networking / TaggingTencent Instant
Messaging (PC / Mobile)
Blogs
Amazon
Recommendation Engine
37
?Community / UGC / Personalization are Key
Multimedia Content Sharing
Personalized
Internet Browsers &
Search Engines
Knowledge Sharing
38
Disclosure Section
The information and opinions in this report were prepared by Morgan Stanley & Co. Incorporated and its affiliates (collectively, "Morgan Stanley").
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not
received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Brian Fitzgerald, Mary Meeker,
Brian Pitz.
Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
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This research has been published in accordance with our conflict management policy, which is available at
www.morganstanley.com/institutional/research/conflictpolicies.
Important US Regulatory Disclosures on Subject Companies The following analyst, strategist, or research associate (or a household member) owns securities in a
company that he or she covers or recommends in this report: Mary Meeker - Intuit (common stock), Amazon.com (common stock), Yahoo! (common stock), Microsoft
(common stock), eBay (common stock). Morgan Stanley policy prohibits research analysts, strategists and research associates from investing in securities in their sub
industry as defined by the Global Industry Classification Standard ("GICS," which was developed by and is the exclusive property of MSCI and S&P). Analysts may
nevertheless own such securities to the extent acquired under a prior policy or in a merger, fund distribution or other involuntary acquisition.
As of September 29, 2006, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered in this report
(including where guarantor of the securities): NEXIDIA INC.
As of February 28, 2006, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in this report:
Amazon.com, CNET, eBay, Google, Yahoo!.
As of March 31, 2006, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered in this report
(including where guarantor of the securities): Yahoo!.
Within the last 12 months, Morgan Stanley managed or co-managed a public offering of securities of Google, GSI COMMERCE.
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from eBay, Google, GSI COMMERCE, Intuit, Microsoft,
priceline.com.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Amazon.com, CNET, drugstore.com,
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an agreement to provide services or has a client relationship with the following companies covered in this report: CNET, eBay, Intuit, Microsoft, priceline.com.
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various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.
Disclaimer - www.morganstanley.com/techresearch
39
An employee or director of Morgan Stanley & Co. Incorporated and/or Morgan Stanley DW Inc. is a director of Microsoft, Yahoo!.
Morgan Stanley & Co. Incorporated makes a market in the securities of Amazon.com, CNET, drugstore.com, eBay, Google, GSI COMMERCE, Intuit, Microsoft, priceline.com, Yahoo!.
Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
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Global Stock Ratings Distribution
(as of March 31, 2006)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight and
Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, and Underweight are not the equivalent of buy, hold, and sell but
represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation;
we correspond Equal-weight and Underweight to hold and sell recommendations, respectively.
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing
holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-
18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the
next 12-18 months.
Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next
12-18 months.
More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or
in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are
automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner.
Coverage Universe Investment Banking Clients (IBC)
Stock Rating Category Count% of TotalCount
% of Total
IBC
% of Rating
Category
Overweight/Buy 744 36% 276 40% 37%
Equal-weight/Hold 937 45% 323 47% 34%
Underweight/Sell 400 19% 95 14% 24%
Total 2,081 694
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Unless otherwise specified, the time frame for price targets included in this report is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark,
as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as
indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as
indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI
country index.
Stock price charts and rating histories for companies discussed in this report are available at www.morganstanley.com/companycharts or from your local investment representative.
You may also request this information by writing to Morgan Stanley at 1585 Broadway, (Attention: Equity Research Management), New York, NY, 10036 USA.
Other Important Disclosures
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this summary and the risks related to achieving these targets, please refer
to the latest relevant published research on these stocks. Research is available through your sales representative or on Client Link at www.morganstanley.com and other
electronic systems.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who
receive it. The securities discussed in this report may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments
and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's
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This report is not an offer to buy or sell or the solicitation of an offer to buy or sell any security or to participate in any particular trading strategy. The "Important US Regulatory
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For all other companies mentioned in this report, Morgan Stanley may have an investment of less than 1% in securities or derivatives of securities of companies mentioned in this
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Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including
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