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March 19, 2008 Americas: Technology: InternetGoldman Sachs Global Investment Research 1
 
March 19, 2008
Americas: Technology: Internet
10% Average cut to Internet price targets given market conditions
Industry context
We are trimming our Internet group PEG from 1.5X to 1.3X given theconflux of the S&P dropping to a 1.2X PEG versus 1.3X-1.5X historicallyand less investor confidence in 2009E EPS, which we use to derive ourtarget prices. We are using a 1.3X PEG versus the market at 1.2X as wecontinue to believe that Internet stocks should trade at a premium to theS&P given their strong earnings to cash flow conversion. For thosecompanies that we value primarily based on a DCF (Baidu, EarthLink, FTD,Orbitz, and RealNetworks), we are not changing our price targets at thistime. Additionally, our price targets for 1-800-FLOWERS and Priceline areunchanged given our conviction in higher long-term growth rates than thevaluations currently imply. We are adjusting our price targets to a 6-monthtime frame from 12-month given the uncertainty of current marketconditions.
Source of opportunity
Our ratings and earnings estimates are unchanged with our favorite stocksremaining eBay, Google, GSI Commerce, Priceline and VistaPrint (all ratedBuy). Our least favorite stocks remain CNET Networks and FTD (both ratedSell).
Catalyst
The next major catalyst for our covered stocks is 1Q2008 earnings, whichwill provide investors incremental data points on the ability of seculartrends to offset cyclical consumer weakness, though even if results aregood, macro concerns may persist.
Risks
The primary risks to our new price targets include: 1) a more challengingconsumer environment that results in lower top-line growth estimates; 2)greater customer acquisition costs or investment spend to drive revenue;and 3) investor unwillingness to pay above-market multiples, even forabove-market growth.
Jennifer Watson, CFA
(212) 357-7937 | jennifer.watson@gs.com Goldman, Sachs & Co.
Megan Barker
(212) 902-1879 | megan.barker@gs.com Goldman, Sachs & Co.
The Goldman Sachs Group, Inc. does and seeks to do business withcompanies covered in its research reports. As a result, investors shouldbe aware that the firm may have a conflict of interest that could affectthe objectivity of this report. Investors should consider this report asonly a single factor in making their investment decision. Customers inthe US can receive independent, third-party research on companiescovered in this report, at no cost to them, where such research isavailable. Customers can access this independent research atwww.independentresearch.gs.com or call 1-866-727-7000. For Reg ACcertification, see the text preceding the disclosures. For other importantdisclosures go to www.gs.com/research/hedge.html. Analystsemployed by non-US affiliates are not required to take the NASD/NYSEanalyst exam.
The Goldman Sachs Group, Inc. Global Investment Research
 
March 19, 2008 Americas: Technology: InternetGoldman Sachs Global Investment Research 2
Internet price target comparison
Exhibit 1:
 
Price target comparison
New PTOld PTVariancePrice as of 3/19/08Upside/downside MethodologyKey risksBuy
eBay$33.00$38.00-13.2%$27.4720.1%P/E to normalized growth1) Conversion rates; 2) mix/margins; 3) GMV growth due to fee testingGoogle$600.00$700.00-14.3%$432.0038.9%P/E to normalized growth1) Margins; 2) paid click growth; 3) acquisition integration; 4) capex levelsGSI Commerce$17.00$19.00-10.5%$12.8132.7%P/E to normalized growth1) Partner & integration costs; 2) competition; 3) geographic expansionPriceline.com$140.00$140.000.0%$114.9421.8%P/E to normalized growth1) Slower consumer; 2) competition; 3) net revenue/commission pressureVistaPrint$42.00$48.00-12.5%$33.9623.7%P/E to normalized growth1) Lower investment returns; 2) tax structure change; 3) competition
Neutral
Amazon$72.00$83.00-13.3%$70.172.6%P/E to normalized growth1) Slowing consumer spending; 2) margins; 3) digital transitionBaidu$280.00$280.000.0%$220.2127.2%DCF, P/E to normalized growth1) Customer additions; 2) competition from Google and/or AlibabaEarthLink $9.25$9.250.0%$7.6520.9%DCF, SOP1) Increased churn of high-profit subs; 2) acquisition of new subsExpedia$26.00$29.00-10.3%$20.6426.0%P/E to normalized growth1) Margins; 2) net rates due to competition; 3) consumer spending1-800-FLOWERS.COM$8.50$8.500.0%$8.322.2%P/E to normalized growth1) Slowing economy/consumer spending; 2) BloomNet adoption rates; 3) marketing costsInterActiveCorp$23.00$26.00-11.5%$20.3113.2%P/E to normalized growth; SOP1) Legal issues with Liberty; 2) macro issues at LendingTree; 3) consumer spendingOrbitz$6.00$6.000.0%$5.1616.3%DCF 1) Slowing consumer spending; 2) competitive pressure; 3) booking feesRealNetworks$6.50$6.500.0%$5.6016.1%DCF, P/E to normalized growth1) Acquisitions; 2) integration of new partnerships; 3) new ASP product launchesWebMD$32.00$37.00-13.5%$26.6520.1%P/E to normalized growth1) Slower economic environment; 2) competition; 3) international growth
Sell
CNET Networks$6.30$7.30-13.7%$6.91-8.8%P/E to normalized growth1) CPM changes; 2) new product launches; 3) a potential takeout and/or restructuringFTD$11.30$11.300.0%$13.11-13.8%DCF 1) Competition; 2) leverage; 3) slower consumer spending
Source: Goldman Sachs Research.
 
March 19, 2008 Americas: Technology: InternetGoldman Sachs Global Investment Research 3
Reg AC
I, Jennifer Watson, CFA, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject companyor companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specificrecommendations or views expressed in this report.
Investment profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group andmarket. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on compositesof several methodologies to determine the stocks percentile ranking within the region's coverage universe.The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth
is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue.
Return
is a year one prospective aggregateof various return on capital measures, e.g. CROCI, ROACE, and ROE.
Multiple
is a composite of one-year forward valuation ratios, e.g. P/E, dividendyield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book.
Volatility
is measured as trailing twelve-month volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used forin-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Jennifer Watson, CFA: America-Internet.America-Internet: Amazon.com Inc., Baidu.com, Inc., CNET Networks Inc., EarthLink, Inc., eBay Inc., Expedia Inc., FTD Group, Inc., Google Inc., GSICommerce, Inc., IAC/InterActiveCorp, 1-800-FLOWERS.COM, Inc., Orbitz Worldwide, Inc., Priceline.com Incorporated, RealNetworks, Inc., VistaprintLimited, WebMD Health Corp., Yahoo! Inc..
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companiescovered by the Global Investment Research Division of Goldman Sachs and referred to in this research.Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to beaggregated under US securities law) as of the month end preceding this report: EarthLink, Inc. ($7.65) and Priceline.com Incorporated ($114.94)Goldman Sachs has received compensation for investment banking services in the past 12 months: Amazon.com Inc. ($70.17), EarthLink, Inc. ($7.65),eBay Inc. ($27.47), FTD Group, Inc. ($13.11), GSI Commerce, Inc. ($12.81), IAC/InterActiveCorp ($20.31), Orbitz Worldwide, Inc. ($5.16) andRealNetworks, Inc. ($5.60)Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Amazon.com Inc. ($70.17),Baidu.com, Inc. ($220.21), CNET Networks Inc. ($6.91), EarthLink, Inc. ($7.65), eBay Inc. ($27.47), Expedia Inc. ($20.64), FTD Group, Inc. ($13.11),Google Inc. ($432.00), GSI Commerce, Inc. ($12.81), IAC/InterActiveCorp ($20.31), Orbitz Worldwide, Inc. ($5.16), Priceline.com Incorporated ($114.94),RealNetworks, Inc. ($5.60), Vistaprint Limited ($33.96) and WebMD Health Corp. ($26.65)Goldman Sachs has received compensation for non-investment banking services during the past 12 months: Amazon.com Inc. ($70.17), eBay Inc.($27.47), Google Inc. ($432.00), IAC/InterActiveCorp ($20.31), 1-800-FLOWERS.COM, Inc. ($8.32), Orbitz Worldwide, Inc. ($5.16) and RealNetworks, Inc.($5.60)Goldman Sachs had an investment banking services client relationship during the past 12 months with: Amazon.com Inc. ($70.17), CNET NetworksInc. ($6.91), EarthLink, Inc. ($7.65), eBay Inc. ($27.47), FTD Group, Inc. ($13.11), GSI Commerce, Inc. ($12.81), IAC/InterActiveCorp ($20.31), OrbitzWorldwide, Inc. ($5.16), Priceline.com Incorporated ($114.94) and RealNetworks, Inc. ($5.60)Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Amazon.com Inc.($70.17), eBay Inc. ($27.47), Expedia Inc. ($20.64), Google Inc. ($432.00), IAC/InterActiveCorp ($20.31), 1-800-FLOWERS.COM, Inc. ($8.32),Priceline.com Incorporated ($114.94) and RealNetworks, Inc. ($5.60)Goldman Sachs had a non-securities services client relationship during the past 12 months with: Amazon.com Inc. ($70.17), eBay Inc. ($27.47),Google Inc. ($432.00), IAC/InterActiveCorp ($20.31), Orbitz Worldwide, Inc. ($5.16) and RealNetworks, Inc. ($5.60)
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