EQUITY RESEARCH

August 03, 2007

Internet
Market Commentary/Strategy
InternetInside:What If WSJ.com Were Free

North America Internet & Media Internet
Douglas Anmuth 1.212.526.0879 danmuth@lehman.com LBI, New York

Sector View:
New: 2-Neutral Old: 2-Neutral

Investment Conclusion
! With News Corp's acquisition of Dow Jones now official and the deal expected to close in the fourth quarter, we consider the impact a

free, ad-supported WSJ.com could potentially have on competing financial news properties and on a lucrative segment of display advertising. We believe this scenario warrants consideration from investors as the emergence of WSJ.com as a free website for users, backed by a highly motivated ad sales force with access to wider global distribution, would likely create increased competition for users and online advertising ad dollars.

Summary
! We estimate that the finance verticals of the major portals could represent 10%-15% of each company's overall display advertising

revenue and given high CPMs, represent a high value area of premium inventory.
! An avg. page view on WSJ.com currently commands almost 4x the advertising revenue of a page view on NYTimes.com, by our

estimation, likely a key factor as News Corp evaluates whether to pursue a fully ad-supported model.
! A free WSJ.com, with global distribution through News Corp would likely see an increase in visitors and ad revenue, potentially siphoning

ad dollars from incumbent leading financial sites, Yahoo! Finance, MSN Money, and AOL Money & Finance.
! Large cap Internet stocks currently trade at an average 2008E EV/EBITDA multiple of 15x, P/E of 29x, and have a FCF yield of 3.8%. ! Large cap Internet stocks declined by an average of 1% for the week ended August 3: eBay (+3%), Google (-1%), Yahoo! (-2%), and

Amazon (-7%). Other notable performance includes a 5% gain in Expedia and a 17% gain in Overstock.com. These compare to a flat S&P 500 and Nasdaq over the same period.

WHAT A FREE WSJ.COM COULD MEAN? With News Corp’s acquisition of Dow Jones now official and the deal expected to close in the fourth quarter, in this week’s Anmuth’s Internet Inside weekly we consider some of the potential changes which could occur at WSJ.com under new ownership, and the impact such changes could have on the broader Internet space. In particular, News Corp has publicly discussed the possibility of moving WSJ.com to a free, fully ad-supported model, and although the company has not suggested a move to free is imminent, we believe the option will at least be seriously considered. Financial news is one of the key categories of premium content online which continues to command among the highest CPMs for display advertising. According to the Internet Advertising Bureau (IAB), Financial nd Services was the 2 largest online advertising category in 2006, representing 16% of total U.S online advertising. While The Wall Street Journal is one of the premier brands in global financial news, its reach is nonetheless limited by the fact that WSJ.com remains a paid subscription website with limited free content. While in the near-term a shift from paid subscription to free would significantly shrink overall revenue at WSJ.com, as we believe almost 50% of the site’s revenue is derived from subscriptions, we believe the incremental advertising revenue derived from a larger user base could ultimately make up for lost subscription revenue over time. The shift, however, could potentially have a more meaningful impact on current financial news incumbents, including Yahoo! Finance, MSN Money, AOL Money & Finance, and CNNMoney. A free WSJ.com, likely with access to a larger, re-energized ad sales force, would likely see an increase in visitors and subsequently ad revenue, potentially siphoning ad dollars from the incumbent premium financial sites. Beyond any explicit marketing of WSJ.com, we believe the site’s audience growth would result from an increase in organic cross-linking from other sites around the Internet Lehman Brothers 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 objectivity of this report. Customers of Lehman Brothers in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-2LEHMAN to request a copy of this research. Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 8 AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 9
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EQUITY RESEARCH

as bloggers and other sites would increasingly link to WSJ.com articles (freed from subscription barriers), ultimately driving greater relevancy in algorithmic search rankings for the site’s articles. We estimate that the finance verticals of the major portals could represent 10%-15% of each company’s overall display advertising revenue, and while the personal finance focus of the portal’s sites will continue to provide some appeal, we believe the emergence of the Wall Street Journal brand in the world of free online financial content would significantly increase competition for both users and online advertising dollars. OVERVIEW OF WSJ.COM Launched in 1996, the Wall Street Journal online has become the largest subscription news site with nearly 1 million paid subscribers as of the end of 2Q. The total online division of Dow Jones, which includes MarketWatch and several other properties, will generate an estimated $115 million in advertising revenue in 2007, according to estimates from Lehman Brothers Publishing and Advertising Analyst Craig Huber. Of the $115 million in total online ad revenue, we estimate approximately $75 million (+13% Y/Y) is generated by WSJ.com. In addition, WSJ.com will generate roughly $65 million (+11%) in subscription revenue in 2007, putting advertising/subscription revenues at a 54% / 46% split, or $140 million in total. Based on Dow Jones’ internal numbers, WSJ Digital (includes MarketWatch, and other DJ sites) averaged 8.3 million monthly unique visitors and 106 million page views during 2Q07, globally. Using comScore tracking, in June 2007, WSJ Online specifically, had 1.5 million unique visitors domestically (2.6 million globally) and 9 million page views domestically (20 million globally). MarketWatch.com, acquired by Dow Jones in January 2005, is a free financial news site with shorter articles and a greater focus on immediate news and market color rather than in-depth articles. While we estimate that MarketWatch will generate roughly $40 million in advertising revenue in 2007, ultimately we believe WSJ.com will be the centerpiece of News Corp’s strategy towards creating a powerful online business news hub, given the Wall Street Journal’s reputation for high-quality journalism and the brand’s global appeal. Notably, NYTimes.com, which is an almost entirely free site, will generate an estimate $175 million in advertising revenue in 2007 (excluding About, Boston.com and other smaller sites) yet will do this while generating 8 to 10 times the average monthly page views of WSJ.com. Backing into advertising revenue per thousand page views, we estimate that an average page view on WSJ.com currently commands almost 4x the advertising revenue of a page view on NYTimes.com. We believe this factor highlights the value of the WSJ.com asset and will be a key consideration as News Corp evaluates whether to pursue a fully ad-supported model. We believe Dow Jones’ ability to build a paid subscriber base at WSJ.com of almost 1 million online users is a notable achievement particularly in an online environment where users are accustomed to accessing most information for free and speaks to the value which readers assign to the site’s content. Not only is it the leading paid subscription news site, it is one of the more expensive online subscription services aimed at consumers, although a recent promotion has made it significantly less expensive to new subscribers, with a 52-week online subscription priced at $79 or a combined print and online subscription going for $99 (non-promotional rates are $298 for annual combo-subscription or $249 for print alone). Figure 1 displays the concentration of online subscriptions by content category. _______________________________________________________________________________________________________________ Figure 1: Online Subscription Revenue by Content Category

Content Category Entertainment/Lifestyle Personals/Dating Business Content/Investment Research Personal Growth Games General News Community-Made Directories Sports Greeting Cards Credit Help Total

2005 $ in millions 574 503 320 152 117 108 79 65 51 46 28 2,045

2005 % of Total Subscrption Rev. 28% 25% 16% 7% 6% 5% 4% 3% 3% 2% 1% 100%

Source: Online Publishers Association (OPA) _____________________________________________________________________________________________________________________________

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THE LIKELY IMPACT OF A FREE WSJ.COM With almost 50% of WSJ.com revenue from subscription fees, moving to a fully ad-supported model would have likely been a difficult decision at an independent Dow Jones, particularly when the print-based advertising revenue was faltering. Holding all else equal, in order to recoup $65 million in lost subscription revenue, we estimate WSJ.com would have to increase page views by 2x – 3x, which we view as unlikely in the near-term, even as a free site. However, we believe that moving forward the property must be viewed within the greater context of News Corp’s portfolio of assets both online and offline. Taking a more holistic view of WSJ.com, that $65 million in potentially lost subscription revenue appears far less significant in light of both the $5 billion acquisition price paid and News Corp’s projected 2007 revenue of $28.6 billion (estimate by Lehman Brothers Cable and Satellite Analyst Vijay Jayant). Furthermore, Lehman Brothers Publishing and Advertising Analyst Craig Huber projects that WSJ.com subscription revenue will grow only 11% in 2007, decelerating to single digit growth moving forward. While the subscription model likely helps WSJ command higher CPMs within its walls right now, as the company can point to a more engaged and demographically attractive reader, we believe that a free, fullyad supported model will prove to be more sustainable long term and the benefits of expanding reach and gaining share of overall online advertising dollars will outweigh the opportunity, and absolute dollars, associated with the paid subscription model. Other potential alternatives exist of course, such as making MarketWatch the more mainstream free website (it’s already free) and keeping WSJ.com as a paid, premium site (i.e., doing very little with the current models, but possibly doing more cross-branding/content sharing), or a making WSJ.com more free, but continuing to wall some premium content behind a subscription fee, similar to NYTimes’ TimeSelect program. While less dramatic, these alternatives appear less likely in our view given the global appeal and opportunity associated with the Wall Street Journal brand, future advertising potential based on current ad yield on WSJ.com, and a desire to grow the influence of the WSJ brand globally, making it a more valuable centerpiece of News Corp’s future, multi-media, business-news services. We believe a potentially free WSJ.com poses the greatest immediate threat to Yahoo! Finance, AOL Finance, and MSN Money, the leading financial news sites on the Web (we note that page views to Yahoo! Finance are were down 27% in 2Q07 – which seems like a steep decline even if we attribute some of the decrease to the impact of Ajax-based functionality on the site, which lessens page refreshes and thus, page views). If News Corp moves more aggressively toward building out WSJ.com’s national and political news coverage (which has been suggested), we believe the competitive threat would extend further to the general news sections of the portals, including MSNBC and CNN. The potential rise of WSJ.com as a more formidable financial news hub is consistent with the theme of verticalization of the web which we believe has been occurring online in recent years. We believe users are increasingly turning to distinctive, specialized brands for higher-quality vertical content, rather than relying on a one-stop-shop for less in-depth content across disparate categories like sports, finance, or technology. While we believe a free WSJ.com could more aggressively siphon ad dollars from the major finance portals, like Yahoo! Finance and MSN Money, we also expect that these portal-based finance sites will continue to attract an audience based on the broad appeal of their content. We believe the audience size of WSJ.com is not simply limited by its subscription fee but also by its more sophisticated content. Not unlike its print version (which only introduced color photography in the past few years) the WSJ.com is simply not for everyone (in its current form). Additionally, we believe the portal sites’ heavier concentration on personal finance, real estate, and functional stock/company look-up tools will help these sites maintain relevance and an audience. However, making WSJ.com free and providing it with greater distribution domestically and internationally, which WSJ.com could achieve via News Corp’s existing properties, including MySpace (potentially a stretch given the quite different content and user base), other Fox sites, as well as the company’s broadcasting, cable, and satellite operations (assuming WSJ could exit its CNBC content-sharing partnership prior to 2012), could significantly expand the site’s reach and popularity over time. THE FINANCIAL NEWS CATEGORY We believe the online financial news category is largely dominated by the big three portals, Yahoo!, MSN, and AOL, with Forbes and Dow Jones rounding out the top 5 in terms of unique visitors domestically (see Figure 2). Given the broader demographic reach of portals in general, the content across the big three tends to feature more personal finance articles (home buying, managing debt, retirement planning), in addition to general business news and financial market data. Financial content has evolved and expanded across these sites to meet the demand from financial services advertisers. According to data from the IAB, Financial services was the 2nd largest online advertising category in 2006, representing 16% of total U.S. online advertising (see Figure 4). Financial services is also one of the most penetrated online advertising categories, with 17% of the category’s total spending occurring online in 2006, behind only the Computer/Software category, based on data from Advertising Age. Given both a relatively high CPM and a large enough audience to attract meaningful total advertising dollars we believe the financial sector represents one of the highest value segments for the major portals. We estimate that the finance verticals of the major portals could represent 10%-15% of each company’s overall display advertising revenue. In reviewing the top sub-segments within Yahoo!, MSN, and AOL, the finance sites are among the highest page view-generating verticals on each portal (see Figure 3). Further adding to this already competitive category, IAC announced on March 9 that it would partner with Dow Jones to build a community-driven personal finance website, incorporating content from the Wall Street Journal and MarketWatch with content and tools from Lending Tree and Ask.com. This site is expected to launch in late 2007 or early 2008. Within Fox Interactive Media’s current portfolio of sites, there is a clear gap in terms of premium financial content which WSJ.com will likely fill. FIM’s portfolio is currently dominated by MySpace with only IGN and FoxNews.com generating page views near the magnitude of the finance verticals at the major portals. Based on our estimate that 10%-15% of the display advertising at the major portals is driven by the finance verticals, we estimate that at Yahoo!, Yahoo! Finance will drive $160 million - $250 million in 2007, or applying a 45% EBITDA margin, roughly $75 million - $115 million in annual EBITDA. Using similar assumptions, AOL Money & Finance will drive $98 million - $150 million in revenue and MSN Money will drive roughly $50 million - $70 million in revenue. Therefore, in aggregate we estimate the 3 major portals could drive roughly $350 - $450 million in 2007 advertising revenue – representing a key opportunity which a recharged WSJ.com could pursue.

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_______________________________________________________________________________________________________________ Figure 2: Leading Financial News Websites, Domestic Unique Visitors (000)
Web Property MSN Money Y/Y Growth Yahoo! Finance Y/Y Growth AOL Money & Finance Y/Y Growth Forbes Property Y/Y Growth Dow Jones & Company Y/Y Growth MarketWatch Y/Y Growth Wall Street Journal Online Y/Y Growth CNN Money Y/Y Growth Reuters Group Y/Y Growth Bankrate.com Sites Y/Y Growth MANTA.COM Y/Y Growth Reed Business Information Y/Y Growth Jun-2006 11,885 9,946 11,026 7,511 6,096 2,789 2,096 4,741 3,392 3,369 805 2,284 Jun-2007 10,920 -8% 10,738 8% 10,674 -3% 6,452 -14% 5,226 -14% 2,197 -21% 1,905 -9% 4,766 1% 3,043 -10% 2,980 -12% 2,940 265% 2,430 6%

1 2 3 4 5

6 7 8 9 10

Source: comScore Networks _____________________________________________________________________________________________________________________________

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_______________________________________________________________________________________________________________ Figure 3: Yahoo!, MSN, AOL – Domestic Page Views by Channel (in millions), June 2007
Property Time Warner Network AOL Email AIM.COM/AIM App AOL Homepages MAPQUEST.COM* AOL Screenname AOL News AOL Search Network AOL Games AOL Music ROADRUNNER.COM AOL Money & Finance CARTOONNETWORK.COM Moviefone AOL People Connection Sports Illustrated Sites AOL Living AOL Television AOL Sports AOL Member Directory AOL Pictures AOL BlackVoices CNN Money Jun-2007 18,950 6,476 1,762 1,463 1,184 1,073 881 665 391 322 312 243 231 187 183 157 152 144 133 116 81 72 59 Property Microsoft Sites Windows Live Hotmail MSN Homepages LIVE.COM* MSN-Windows Live Search MSNBC FOX Sports on MSN MSN Movies Windows Live Spaces MSN-Windows Live Messenger PASSPORT.COM MSN Games My MSN Microsoft Office MSN Groups Microsoft Windowsupdate MICROSOFT.COM MSN Money MSN TV MSN News & Weather MSN Lifestyle MSN TV MSN News & Weather Jun-2007 20,418 8,384 3,106 1,559 1,383 583 506 250 244 231 213 203 160 156 150 145 140 130 109 107 106 109 107 Property Yahoo! Sites Yahoo! Mail Yahoo! Homepages Yahoo! Search Yahoo! Sports Yahoo! News My Yahoo! AT&T Yahoo! Yahoo! Games Yahoo! Local Network Yahoo! Music Yahoo! Personals Yahoo! Messenger Yahoo! Groups Yahoo! Finance Yahoo! Avatars Yahoo! Chat Yahoo! HotJobs Yahoo! 360° Yahoo! Answers Yahoo! Movies Yahoo! Geocities Yahoo! Autos Jun-2007 34,927 17,051 4,297 2,872 1,187 746 607 533 517 491 454 326 321 293 290 262 174 167 158 158 148 130 119

Source: comScore Networks _____________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________ Figure 4: Online Advertising Spending by Category

Ad Category Retail Financial Services Automotive Computing Telecom Leisure Media Entertainment Packaged Goods Other Total

$ (millions) 4,136.0 2,700.0 1,936.0 1,700.0 1,400.0 1,144.0 998.0 704.0 704.0 1,457.0 16,879.0

% of Total 25% 16% 11% 10% 8% 7% 6% 4% 4% 9% 100%

Source: Internet Advertising Bureau, 2006 _____________________________________________________________________________________________________________________________

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Figure 5: Large-Cap Internet Coverage Comps
(US$, millions except per share) Company Symbol LB Rating Price as of Shares Outstanding 2006 Shares Outstanding 2007 Shares Outstanding 2008 8/3/2007 Yahoo! YHOO 1-Overweight $23.22 1,419 1,414 1,426 $32,953 (2,787) (2,885) (5,019) 5,953 Google GOOG 1-Overweight $509.25 313 316 321 $159,629 (11,244) (14,516) (19,391) 1,000 eBay EBAY 2-Equal weight $33.61 1,403 1,377 1,391 $47,146 (3,483) (4,321) (6,516) 60 Amazon.com AMZN 2-Equal weight $78.60 422 425 426 $33,169 (772) (1,300) (2,505) $272,897 Large Cap Average InterActiveCorp IACI 2-Equal weight $28.12 315 303 299 $8,867 (1,138) (894) (1,139) 983 Expedia EXPE 2-Equal weight $27.93 358 317 300 $10,009 (364) 522 (63) 288 24,213 23,814 21,771 147,385 145,366 143,037 43,604 41,884 40,175 32,397 32,085 30,974 6,746 6,651 6,297 9,933 9,668 8,612

Market Capitalization Net Debt 2006 Net Debt 2007 Net Debt 2008 Less: Non-Consolidated Assets & Investments Plus: Minority Interest Total Enterprise Value 2006 Total Enterprise Value 2007 Total Enterprise Value 2008

EARNINGS PER SHARE (EPS) 1,2,3,4,5,6,7
EPS 2006 EPS 2007 EPS 2008 2006-2009 EPS CAGR P/E 2006 P/E 2007 P/E 2008 P/E-to-Growth $0.73 $0.70 $0.80 8% 31.7x 33.0x 29.0x 3.7x $10.60 $15.74 $20.32 33% 48.0x 32.4x 25.1x 0.8x $1.05 $1.39 $1.64 23% 32.1x 24.1x 20.5x 0.9x $0.73 $1.29 $1.85 49% 107.6x 61.1x 42.5x 0.9x $1.61 $1.59 $1.78 5% 17.4x 17.7x 15.8x 3.2x $1.09 $1.21 $1.39 15% 25.6x 23.2x 20.0x 1.4x

28% 54.9x 37.7x 29.3x 1.0x

FREE CASH FLOW (FCF)
FCF 2006 FCF 2007 FCF 2008 2006-2009 FCF CAGR FCF/Share 2006 FCF/Share 2007 FCF/Share 2008 Price/FCF 2006 Price/FCF 2007 Price/FCF 2008 P/FCF-to-Growth FCF Yield 2006 FCF Yield 2007 FCF Yield 2008 1,267 1,180 1,385 5% $0.89 $0.83 $0.97 26.0x 27.8x 23.9x 4.5x 3.8% 3.6% 4.2% 1,678 3,078 4,484 53% $5.42 $9.74 $13.97 94.0x 52.3x 36.5x 0.7x 1.1% 1.9% 2.7% 1,732 1,992 2,300 15% $1.23 $1.45 $1.65 27.2x 23.2x 20.3x 1.4x 3.7% 4.3% 4.9% 485 801 1,116 40% $1.15 $1.89 $2.62 68.4x 41.7x 30.0x 0.7x 1.5% 2.4% 3.3% 53.9x 36.3x 27.7x 1.0x 2.5% 3.1% 3.8% 550 518 585 4% $1.74 $1.71 $1.95 16.1x 16.5x 14.4x NA 6.2% 6.1% 6.9% 525 541 607 8% $1.46 $1.71 $2.02 19.1x 16.4x 13.8x 1.8x 5.2% 6.1% 7.2%

28%

EBITDA
EBITDA 2006 EBITDA 2007 EBITDA 2008 2006-2009 EBITDA CAGR EV/EBITDA 2006 EV/EBITDA 2007 EV/EBITDA 2008 EV/EBITDA-to-Growth 1,906 1,848 2,162 9% 12.7x 12.9x 10.1x 1.2x 4,621 7,059 9,596 38% 31.9x 20.6x 14.9x 0.4x 2,290 2,832 3,338 19% 19.0x 14.8x 12.0x 0.6x 706 1,066 1,395 34% 45.9x 30.1x 22.2x 0.6x 956 863 938 0% 7.1x 7.7x 6.7x 26.1x 648 710 790 11% 15.3x 13.6x 10.9x 1.0x

25% 27.4x 19.6x 14.8x 0.6x

REVENUE
Revenue 2006 Revenue 2007 Revenue 2008 2006-2009 Revenue CAGR Market Cap/Revenue 2006 Market Cap/Revenue 2007 Market Cap/Revenue 2008 4,560 5,020 5,593 10% 7.2x 6.5x 5.9x 7,296 11,531 16,133 42% 21.9x 14.0x 10.1x 5,970 7,453 8,889 20% 7.9x 6.2x 5.3x 10,711 14,248 18,015 27% 3.1x 2.3x 1.9x 5,919 6,321 6,725 5% 1.5x 1.3x 1.3x 2,238 2,584 2,852 12% 4.5x 3.4x 2.9x

25% 10.0x 7.3x 5.8x

Notes: 1) EPS for YHOO, GOOG, IACI, EXPE, EBAY, AMZN, NFLX, TTGT are all pro forma 2) P/E and P/FCF for Yahoo! does not adjust for Yahoo! Japan

Source: Company reports, Lehman Brothers estimates

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Figure 6: Small-Cap Internet Coverage Comps
(US$, millions except per share) Company Symbol LB Rating Price as of Shares Outstanding 2006 Shares Outstanding 2007 Shares Outstanding 2008 8/3/2007 Netflix NFLX 2-Equal weight $17.06 71 66 67 $1,206 (400) (356) (418) Overstock.com OSTK 2-Equal weight $20.84 21 24 24 $441 (52) (27) (22) Blue Nile NILE 2-Equal weight $82.14 17 17 17 $1,370 (98) (100) (136) TechTarget TTGT 2-Equal weight $12.64 36 44 44 $454 (23) (93) (111) Greenfield Online SRVY 2-Equal weight $16.10 26 27 27 $423 (37) (65) (90) Harris Interactive HPOL 1-Overweight $4.40 61 59 59 $266 (48) (41) (60) Alloy ALOY 2-Equal weight $8.96 14 14 14 $128 (17) (44) (44)

Market Capitalization Net Debt 2006 Net Debt 2007 Net Debt 2008 Less: Non-Consolidated Assets & Investments Plus: Minority Interest Total Enterprise Value 2006 Total Enterprise Value 2007 Total Enterprise Value 2008

805 777 719

389 468 480

1,271 1,271 1,226

432 457 450

386 365 341

218 217 197

111 85 85

EARNINGS PER SHARE (EPS) 1,2,3,4,5,6,7
EPS 2006 EPS 2007 EPS 2008 2006-2009 EPS CAGR P/E 2006 P/E 2007 P/E 2008 P/E-to-Growth $0.82 $0.71 $0.75 -1% 20.7x 24.0x 22.8x -31.1x ($5.01) ($1.63) ($0.61) NA NA NA NA NA $0.76 $0.90 $1.07 20% 108.6x 90.9x 76.6x 3.8x $0.23 $0.30 $0.45 34% 53.9x 42.2x 28.4x 0.8x $0.33 $0.50 $0.58 28% 49.2x 31.9x 27.8x 1.0x $0.17 $0.13 $0.19 8% 25.5x 33.4x 23.3x 2.8x NA NA NA NA NA NA NA NA

FREE CASH FLOW (FCF)
FCF 2006 FCF 2007 FCF 2008 2006-2009 FCF CAGR FCF/Share 2006 FCF/Share 2007 FCF/Share 2008 Price/FCF 2006 Price/FCF 2007 Price/FCF 2008 P/FCF-to-Growth FCF Yield 2006 FCF Yield 2007 FCF Yield 2008 63 12 22 -23% $0.89 $0.18 $0.33 19.3x 92.5x 51.8x -2.2x 5.2% 1.1% 1.9% (50) (34) (7) NA NA NA NA NA NA NA NA NA NA NA 39 41 56 19% $2.32 $2.43 $3.40 35.5x 33.8x 24.1x 1.3x 2.8% 3.0% 4.1% 11 12 18 30% $0.31 $0.27 $0.41 41.0x 46.6x 31.0x 1.0x 2.4% 2.1% 3.2% 18 22 26 20% $0.69 $0.82 $0.96 23.2x 19.7x 16.8x NA 4.3% 5.1% 6.0% 23 19 20 -4% $0.38 $0.32 $0.33 11.5x 13.9x 13.2x -3.5x 8.7% 7.2% 7.6% NA NA NA NA NA NA NA NA NA NA NA NA NA NA

EBITDA
EBITDA 2006 EBITDA 2007 EBITDA 2008 2006-2009 EBITDA CAGR EV/EBITDA 2006 EV/EBITDA 2007 EV/EBITDA 2008 EV/EBITDA-to-Growth 93 87 89 1% 8.7x 9.0x 8.1x 7.2x (61) (5) 7 NA NA NA 73.3x NA 23 27 30 16% 55.6x 47.3x 40.3x 2.6x 20 24 32 25% 21.5x 19.1x 14.1x 0.6x 28 35 40 19% 13.8x 10.5x 8.5x 0.5x 22 19 24 6% 10.0x 11.3x 8.2x 1.3x 19 18 NA NA 5.9x 4.6x NA NA

REVENUE
Revenue 2006 Revenue 2007 Revenue 2008 2006-2009 Revenue CAGR Market Cap/Revenue 2006 Market Cap/Revenue 2007 Market Cap/Revenue 2008 997 1,171 1,165 6% 1.2x 1.0x 1.0x 788 755 780 1% 0.6x 0.7x 0.6x 252 304 357 18% 5.4x 4.5x 3.8x 79 92 110 18% 5.7x 6.0x 5.1x 100 125 146 18% 4.2x 3.4x 2.9x 217 213 219 1% 1.2x 1.2x 1.2x 196 216 NA NA 0.7x 0.6x NA

Notes: 3) EPS for NFLX is fully-taxed 4) EPS for OSTK, NILE are GAAP 5) EPS for HPOL is operational, fully-taxed, and based on calendar year 6) EPS for SRVY is GAAP, fully-taxed, and excludes one-time benefits 7) No EPS projections for ALOY until company provides more historical financial data

Source: Company reports, Lehman Brothers estimates

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Figure 7: Internet Coverage Stock Performance
Annual Stock Return Company Yahoo! Google eBay Amazon.com Large Cap Average InterActiveCorp Expedia Netflix Blue Nile Overstock.com Harris Interactive Greenfield Online Alloy Tech Target Total Universe Average NASDAQ S&P 500 2,563.97 1,464.96 --Price as of Market 8/3/2007 Cap ($ mil.) $23.12 $32,811 $508.97 $159,541 $33.58 $47,104 $78.39 $33,081 Weekly Return -2% -1% 3% -7% -1% -7% 5% -0.3% 8% 17% -7% 0.2% -8% 1% 0.3% 0.1% 0.4% QTD Return -15% -3% 4% 15% 0% -19% -5% -12% 35% 14% -18% 1% -10% -2% -1% -2% -3% YTD Return -9% 11% 12% 99% 28% -24% 33% -34% 122% 32% -13% 13% -22% -16% 15% 6% 3% 2006 -35% 11% -30% -16% -18% 31% -12% -4% -8% -44% 17% 144% -0.4% N/A 4% 10% 14% 2005 4% 115% -26% 6% 25% -49% -0.2% 119% 46% -59% -45% -73% -12% N/A 2% 1% 3% 2004 67% 92% 80% -16% 44% -19% N/A -55% -3% 247% -5% 18% 55% N/A 44% 9% 9% 2003 175% N/A 91% 179% 148% 48% N/A 396% N/A 53% 181% N/A -52% N/A 134% 50% 26% 2002 -8% N/A 1% 75% 23% -16% N/A -29% N/A -1% 2% N/A -49% N/A -3% -32% -23% 2001 -41% N/A 103% -30% 10% 81% N/A N/A N/A N/A -21% N/A 180% N/A 45% -21% -13% 2000 -86% N/A -47% -80% -71% -30% N/A N/A N/A N/A -72% N/A -51% N/A -61% -39% -10%

$28.11 $27.88 $17.05 $81.75 $20.81 $4.40 $16.12 $8.96 $12.64

$8,864 $9,991 $1,205 $1,363 $440 $266 $424 $128 $454

Source: FactSet

Analyst Certification: I, Douglas Anmuth, hereby certify (1) that the views expressed in this research Industry Note accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Industry Note and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Industry Note. Other Team Members: Fenske, CFA, Brian (LBI, New York) Josey, Ronald (LBI, New York) Sinisi, Vincent (LBI, New York) 1.212.526.7827 1.212.526.4008 1.212.526.9265 bfenske@lehman.com rjosey@lehman.com vsinisi@lehman.com

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EQUITY RESEARCH

FOR CURRENT IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS RESEARCH REPORT, PLEASE SEND A WRITTEN REQUEST TO: LEHMAN BROTHERS CONTROL ROOM 745 SEVENTH AVENUE, 19TH FLOOR, NEW YORK, NY 10019 OR REFER TO THE FIRM'S DISCLOSURE WEBSITE AT www.lehman.com/disclosures Important Disclosures Continued: The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities Company Name Alloy, Inc Amazon.com, Inc Blue Nile eBay, Inc Expedia, Inc. Google Inc. Greenfield Online Harris Interactive IAC/InterActiveCorp Netflix Inc. Overstock.com TechTarget Inc. Yahoo! Inc Ticker ALOY AMZN NILE EBAY EXPE GOOG SRVY HPOL IACI NFLX OSTK TTGT YHOO Price (31-Jul-2007) US$ 9.40 US$ 78.54 US$ 75.61 US$ 32.40 US$ 26.61 US$ 510.00 US$ 16.24 US$ 4.48 US$ 28.74 US$ 17.23 US$ 18.67 US$ 13.48 US$ 23.25 Stock / Sector Rating 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 1-Overweight / 2-Neutral 2-Equal weight / 2-Neutral 1-Overweight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 2-Equal weight / 2-Neutral 1-Overweight / 2-Neutral

Guide to Lehman Brothers Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the “sector coverage universe”). Below is the list of companies that constitute the sector coverage universe: Alloy, Inc (ALOY) Blue Nile (NILE) Expedia, Inc. (EXPE) Greenfield Online (SRVY) IAC/InterActiveCorp (IACI) Overstock.com (OSTK) Yahoo! Inc (YHOO) Amazon.com, Inc (AMZN) eBay, Inc (EBAY) Google Inc. (GOOG) Harris Interactive (HPOL) Netflix Inc. (NFLX) TechTarget Inc. (TTGT)

In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12- month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Lehman Brothers is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals/valuations are improving. 2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals/valuations are deteriorating.
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EQUITY RESEARCH

Distribution of Ratings: Lehman Brothers Equity Research has 2057 companies under coverage. 41% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as Buy rating, 30% of companies with this rating are investment banking clients of the Firm. 43% have been assigned a 2-Equal weight rating which, for purposes of mandatory regulatory disclosures, is classified as Hold rating, 39% of companies with this rating are investment banking clients of the Firm. 12% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as Sell rating, 26% of companies with this rating are investment banking clients of the Firm.
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