Capitalizing On The Secular Increase of Time Spent Online - Herman Leung - Susquehanna Financial Group LLLP
October 19, 2011 - The Wall Street Transcript has just published Internet Services Report offering a timely review of the Internet sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Herman Leung is an Analyst with Susquehanna Financial Group LLLP. Previously, he was the Vice President, Internet Research, for Deutsche Bank Securities Inc. Before that, he was an Associate at RBC Capital Markets. He's also held positions with Nextag, Inc., TeleSoft Partners and Thomas Weisel Partners Group. Mr. Leung has a B.S. in finance from the California Polytechnic State University, San Luis Obispo.
TWST: What are some of the most important emerging trends in the Internet space that investors can expect to come to fruition in 2012?
Mr. Leung: I think one of the more important themes out there is just the most basic one, which is the secular growth of time spent on the Internet, whether it's on more time being spent away from traditional media platforms, or more time being spent shopping on e-commerce platforms versus going out to shop in malls, or more time booking online transactions versus going through the traditional travel agent route.
The Internet enables a more efficient consumer that is short on time. But I would say going forward, clearly the growth of social-based companies will have a major impact, whether it's the Facebook or Twitters of the world. That's definitely gaining share on the display side, potentially displacing some of the older portal-based business and taking share from e-mail. You also have social-based e-commerce, where flash sales are driving a lot more e-commerce transactions and gaining a lot more targeted membership and transactions.
It's basically the sample sale business going online, and there is major share impact from new companies like Gilt Groupe, Rue La La, which is focused on the flash sales segment and could be very interesting over time.
TWST: Amazon right now is dealing with an unresolved domestic tax issue. What's your view on that issue? How concerned are you about it?
Mr. Leung: I think taxes are going to be a part of life, but I think for Amazon you have to think about the key value proposition for consumers. For Amazon it is not limited to just a tax break. Over time, as I'm sure Amazon Prime users have been able to discover that, and all Amazon shoppers, is that it's not limited to just the benefit of a tax percentage, whether it's 8% or 10% that consumers save. It's not just limited to a tax potential.
And I'd say a couple of drivers are driving the Amazon value proposition, which include the high amount of selection of product that Amazon provides, as well as the trust factor that consumers are familiar with, whether they're comfortable with receiving product at any given time and enjoy the free shipping dynamics of not having to go to the store or to pick up the product. And oftentimes, even if you have to pay taxes, the products that Amazon is selling, as you compare it to other sites - whether it's Wal-Mart (WMT), Sears (SHLD) or even an eBay seller - oftentimes Amazon wins on pricing.So my point here is it's not limited to just tax savings. There is a trust factor.
There is a selection factor, and there is a convenience factor that's all associated with the whole Amazon value proposition. Now, if they have to pay taxes, what Amazon will do is potentially speed up the velocity of unit volume for its users. Now they're focused on building the business model without having to pay taxes. But should they need to pay taxes, the velocities will be better. Their marketing strategies will be better because they could re-add all their affiliate programs as well as potentially get the product to consumers even faster.
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