PROGRESS REPORT for INTERNET and SOCIAL MEDIAWEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA Workday’s expanding gross margin is directly attributable to the mix shift towards

Making diffuse information about the

Internet and Social Media crystal clear

IN THIS ISSUE:

Workday

Cloudera

Warby Parker

Kabam

September 17, 2012

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PROGRESS REPORT for INTERNET and SOCIAL MEDIA

PRISM

Michael Pachter

(213) 688-4474

[email protected]

Yoni Yadgaran

(212) 938-9924

[email protected]

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

About Wedbush Securities Private Shares Group The Private Shares Group of Wedbush Securities is a leader in providing research and trading to the rapidly growing industry of privately traded securities, with an emphasis on companies in the social media space. We assist companies in raising growth capital through traditional private placements and provide liquidity options for existing and former employees through tailored selling programs. We also work with venture capital, private equity and hedge fund investors to help them adjust their holdings in some of the most dynamic companies. We endeavor to understand the underlying industries of the private companies we trade, in order to help our clients make informed decisions about their investments. We provide discreet customized solutions for our institutional and accredited private clients through a team of professionals located in New York, Los Angeles and San Francisco.

About Michael Pachter

Michael Pachter is the Managing Director of Equity Research, providing coverage across the Digital Media sector, as well as the Head of Research for the Private Shares Group. He has been recognized as StarMine’s “Top Earnings Estimator” year after year and “Best on the Street” by the Wall Street Journal. Michael brings over 20 years of experience as a financial professional to the Private Shares Group, along with extensive knowledge across the social media sector in both public and private companies.

Mr. Pachter holds an M.B.A. from the Anderson School at the University of California at Los Angeles, a juris doctor from Pepperdine University, an LL.M. in Taxation from the University of Florida, and a bachelor’s in Political Science from California State University, Northridge.

About Yoni Yadgaran

Yoni Yadgaran joined Wedbush from Bank of America Merrill Lynch. Originally covering Internet & E-commerce within Equity Research, he later moved on to help pioneer the Private Shares Group’s Research efforts. Yoni is a CFA level 3 candidate and received a B.B.A in Finance from Baruch College. Contact Wedbush Securities Private Shares Group: Michael Pachter Managing Director, Equity Research Head of Research, Private Shares Group (213) 688-4474 | [email protected] Twitter: @michaelpachter Yoni Yadgaran Research Associate, Private Shares Group (212) 938-9924 | [email protected] Jim Edwards Senior Research Associate, Private Shares Group (213) 688-4303 | [email protected]

About Wedbush Securities Founded in 1955, Wedbush Securities is a leading investment firm that provides brokerage, clearing, investment banking, equity research, public finance, fixed income sales and trading, and asset management to individual, institutional and issuing clients. Wedbush currently ranks as a top liquidity provider for the NASDAQ, and was ranked as the #1 stock picker for 2010, 2011, and again for the 1

st half of 2012 by Barron’s. Headquartered in Los Angeles, with over 100 offices

nationwide, Wedbush focuses on relentless service, client financial safety, continuity, and advanced technology. (www.wedbush.com)

Kevin Cohen Director of Trading, Private Shares Group (213) 688-8089 | [email protected]

Olivia Jamgotchian Sales & Trading Associate, Private Shares Group (213) 688-6625 | [email protected] Cyrus P. Pirasteh Managing Director, Head of Private Shares Group (213) 688-6661 | [email protected]

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Workday Last month, Workday, a subscription software as a service (SaaS) company that operates within the human capital management space, filed an S-1 disclosing the company’s plan to go public in an offering that will be led by Morgan Stanley and Goldman Sachs. Due to a dual-class structure utilized by the company, Workday’s founders will maintain voting control of the company following the offering. The initial estimate for the amount to be raised in the offering was $400 million, although the offering price and float remain subject to adjustments. For a comprehensive profile of Workday’s business, please refer back to the Private Shares Group’s initial PRISM piece on Workday, which we published in July (available here: http://goo.gl/bcp1x). The company disclosed that it has grown to over 325 customers and 1,450 employees, and plans to expand by growing its customer base as businesses across various industries approach the upgrade cycle of their legacy enterprise resource management (ERM) applications. IDC estimates quoted by Workday project the global SaaS market to grow from $23 billion in 2011 to over $67 billion in 2016, while the ERM software application market was estimated to have reached $39 billion in 2011. In 2011, the company generated $134 million in revenue, about double the $68 million generated in 2010. In 2H:12 alone, the company generated $120 million, up 118% y-o-y, with revenue having grown by 10% sequentially in Q2:12. Subscription services have been a growing driver of revenue for Workday, accounting for 54%, 66%, and 67% of revenue, in 2010, 2011, and Q2:12, respectively, while professional services revenue fell from 46% to 34% and 33% over the same respective periods. The shift in revenue mix reflects the differences in growth rates for Workday’s two verticals, as subscriptions service revenue grew 142% y-o-y in 2011, while professional service revenue grew only 46%.

Source: Wedbush Securities, Company Data

The company’s gross margins have increased from 41% in 2010, to 51% in 2011, and reached 55% by Q2:12.

Source: Wedbush Securities, Company Data

Workday: Revenue ($Millions)

$0$6

$25

$68

$134

$-

$20

$40

$60

$80

$100

$120

$140

$160

2007 2008 2009 2010 2011

0%

50%

100%

150%

200%

250%

300%

350%Y-o-Y Growth

Workday: Revenue ($Millions)

$12

$15

$18

$20

$28

$25

$-

$5

$10

$15

$20

$25

$30

Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12

60%

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

% Subscription Services

Workday:Gross Profit($Millions)

$(4) $(5)

$5

$28

$69

$(10)

$-

$10

$20

$30

$40

$50

$60

$70

$80

2007 2008 2009 2010 2011

0%

10%

20%

30%

40%

50%

60%

Gross Margin

Workday:Gross Profit($Millions)

$12

$15

$19

$23

$34

$32

$-

$5

$10

$15

$20

$25

$30

$35

$40

Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12

46%

48%

50%

52%

54%

56%

58%Gross Margin

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Workday’s expanding gross margin is directly attributable to the mix shift towards subscription services, which expanded from 37% in 2010, to 49% in 2011 and 53% in Q2:12, while professional services gross margin fell from 4% in 2010, to 2% in 2011 and Q2:12.

Source: Wedbush Securities, Company Data

The company disclosed that it will continue to generate an operating loss, having generated operating losses of $56 million, $78 million, and $26 million, in 2010, 2011, and Q2:12, respectively. Operating expenses as a percentage of sales continue to decrease, as sales and marketing expenses have fallen from 54% of sales in 2010, to 52% and 47% in 2011 and Q2:12, respectively. Research and development spending also declined from 58% in 2010, to 46% and 38% in 2011 and Q2:12, respectively. General and administrative expenses have remained at 11-12% of sales over the last two years.

Source: Wedbush Securities, Company Data

According to Workday’s S-1, the company will be utilizing a dual-class share structure, which will enable the company’s founders to retain voting control by offering Class A shares that have 1/10th of the voting power that Class B shares will have after the IPO. Note that David Duffield, the company’s founder and Co-CEO, owns 53% of shares outstanding, and Chairman and Co-CEO Aneel Bhusri owns another 19% of shares. Other large holders of Workday’s stock include Greylock Partners and NEA, which hold 11% and 10% of outstanding shares, respectively.

Source: Wedbush Securities, Company Data

Workday: Gross Margin By Vertical

0%

10%

20%

30%

40%

50%

60%

Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12

Subscription Professional

Workday: Expenses As A % Of Sales

20%

70%

120%

170%

220%

270%

320%

370%

420%

470%

2008 2009 2010 2011

Research & Development Sales & Marketing

Workday: Expenses As A % Of Sales

20%

25%

30%

35%

40%

45%

50%

55%

60%

Q1:11 Q2:11 Q3:11 Q4:11 Q1:12 Q2:12

Research & Development Sales & Marketing

Position Shares Owned %

David A. Duffield Co-CEO 73.5 53%

Aneel Bhusri Chairman, CO-CEO 27.4 19%

Scott D. Sandell Director 13.9 10%

Michael A. Stankey President, COO 3.5 3%

James P. Shaughnessy General Counsel 0.3 -

A. George ("Skip") Battle Director 0.7 -

Christa Davies Director 0.2 -

Michael M. McNamara Director 0.2 -

George J. Still, Jr. Director 0.5 -

Executive Officers & Directors 121.0 83%

Greylock Partners VC 15.2 11%

New Enterprise Associates VC 13.9 10%

Shares Owned Prior To Offering (Millions)

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Cloudera Cloudera offers scalable and efficient data storage and analytics solutions to companies in the enterprise, Internet and government sectors. The company is based in Palo Alto and was launched in 2008 by three top engineers from Google, Yahoo, and Facebook (Christophe Bisciglia, Amr Awadallah, and Jeff Hammerbacher, respectively) who joined a former Oracle executive (Michael Olson) to address problems inherent in quickly analyzing volumes of data. Cloudera is currently led by Mr. Olson, a former VP at Oracle and CEO of SleepyCat Software, and another open-source database engine that was sold to Oracle in 2006. Since 2008 Cloudera has gained widespread adoption, bringing Hadoop and distributed storage to companies of all sizes. Analysts estimate that about 80% of the data in the world is unstructured, and according to Cloudera, until Hadoop, it was essentially unusable in any systematic way. With Hadoop, users can combine data from disparate systems: structured, unstructured, log files, pictures, audio files, communications records and email, and analyze information as though all of the data were on the same platform in the same format. Hadoop is an open source Java software framework that was born out of an open-source implementation of Google’s computing infrastructure that enables distributed parallel processing of huge amounts of data across inexpensive, commodity servers. Hadoop was developed by Doug Cutting (a Cloudera employee), who named it after his child's stuffed elephant. Unlike traditional IT environments, Hadoop supports distributed applications running on large clusters of commodity computers processing enormous amounts of data. This differs from traditional centralized processing systems because the bottleneck that previously existed when transferring massive amounts of data from storage to processing has been removed. As a result, Hadoop enables companies to leverage large volumes of preexisting data to better understand customers, markets, operations, products, relationships, and data through distributed parallel processing. According to Cloudera, today the quantity of data has grown tenfold over the last three years, and prior storage platforms weren’t flexible or scalable enough to efficiently analyze the massive volumes of data. As a result of the massive growth in the volume of data, distributed processing has grown increasingly important, placing increased emphasis on the monitoring of IT system performance. We believe that Cloudera’s ability to easily scale and integrate with virtually every data storage platform on almost any hardware is a central reason for its adoption by large enterprises.

Source: Company Data

With its ability to unlock value from previously unused data, Hadoop is rapidly being embraced by enterprises in virtually all sectors and industries. As indicated in the images below, Hadoop breaks incoming files into blocks, and stores each block in three distinct locations. When data processing is performed, the machine that can most efficiently perform the task will be given the process. If a machine fails or encounters performance issues, Hadoop continues to operate the cluster by shifting work to the remaining machines, automatically creating an additional copy of the data from one of the replicas it manages. As a result, clusters are self-healing for both storage and computation without requiring intervention by systems administrators.

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Source: Company Data

Cloudera has modified the free Hadoop software and developed a commercial version that it is sells to companies that have to deal with large amounts of data. Cloudera’s Enterprise platform is a software and support package that allows the combination of structured and unstructured data and allows people to utilize information that was previously unusable, across the entire IT environment. Additionally, the software allows users the ability to create 360 degree views of customer behavior at a fraction of what other storage and analytics companies charge. According to Mike Dunn (COO), “in the old data management world you had to know the question you wanted answered; so you formatted the question, loaded the data, turned the crank and got an answer . . . . With Hadoop, you don't ask a particular question. You let the data tell you what the question should be." Cloudera’s Enterprise platform includes CDH (Cloudera’s Distribution for Apache Hadoop), which is the industry’s most popular means of deploying Hadoop. Cloudera offers customers an annual subscription license (per node) to Cloudera Manager and technical support that allows a host of services to manage and analyze its data. While a version of the Cloudera Enterprise is free, the free version offers somewhat limited functionality and is limited to managing 50 nodes. Cloudera’s Desktop Management platform allows for copying and browsing the data files stored on a cluster, as well as creating, running and saving jobs for later reuse or customization. The Desktop Management platform also monitors the health of a Hadoop cluster, alerting operators in case of problems. Facebook software engineer Ashish Thusoo said that prior to Hadoop the social network used conventional RDBMS-based data warehousing technologies and switched to the open-source Hadoop because of its scalability, cost and flexibility, according to a report by TechCrunch. While Cloudera competes with more mainstream data storage and analytics providers, its main competitors in the Hadoop arena are Hortonworks, a company formed by Yahoo in 2011, and MapR, a San Jose, California-based startup. Since Cloudera was an innovator in the Hadoop space and maintains several of the platform’s early designers and programmers, it should prove difficult to for new entrants to upstage the incumbent, which has accumulated over 130 customers, including eBay, Groupon, Rackspace, ComScore, Trulia, Samsung, LinkedIn, Facebook, and Twitter. The interest in Hadoop and other big data platforms has spurred bigger tech companies such as Oracle, IBM, Hewlett Packard, EMC, and Dell to form partnerships with firms like Cloudera. On January 10th, Oracle and Cloudera announced a partnership to provide an Apache Hadoop distribution and tools for Oracle’s newly announced Big Data Appliance, and more recently on July 26, 2012, Cloudera and HP announced a partnership agreement. According to Crunchbase, via Cloudera, Hadoop is currently used by most of the large companies in the space, including Google, Yahoo, Facebook, Amazon, AOL, and Baidu. Cloudera has raised $76 million in four rounds of financing, the most recent Series D round ($40 million) closed last November. Notable investors include Accel Partners; Greylock Partners; Diane Greene, the co-founder of VMware; Marten Mickos, the former chief executive of MySQL; and Gideon Yu, the former chief financial officer at Facebook. Cloudera’s advisors include the founders of the Hadoop project, Doug Cutting and Mike Cafarella.

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

According to a recent report published by open source analyst and researcher Wikibon, the big data hardware and software market is estimated to generate $5 billion in revenue, and the market size is projected to grow annually at 58% for the next five years to be worth $50 billion by 2017. Wikibon estimates that pure-play big data vendors account for $311 million in revenues (it defines pure-play vendors as those independent players who cater to the big data software and hardware requirements and earn more than half of their revenues from this segment). Cloudera, is among the top five pure-play big data vendors, and while it doesn’t disclose financials, Wikibon estimates that in

2011, Cloudera owned 6% of the pure-play market share with estimated revenues of $18 million. While we believe interest in big data companies continues to grow, Cloudera isn't pursuing an initial public offering yet and has not retained an IPO adviser, according to a report published by Reuters. Kirk Dunn (COO) indicated that over the next year the company is focused on building its business, acquiring customers, and almost doubling the number of employees to 500 from the current 275.

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Warby Parker Warby Parker is an e-commerce site that offers designer eyewear at a discount to traditional brick-and-mortar retailers.The company was founded in February 2010, is based in New York, and last week disclosed that it had raised $36.8 million in funding, in a Series B venture round led by General Catalyst. An additional $3.2 million worth of shares have yet to be sold as part of the round, according to an SEC filing, which, upon sale, would increase the size of the round to $40 million. The company had previously raised $1.5 million in seed funding, in a venture round led by SV Angel and Lerer Ventures, as well as $12 million, in a venture round in September, which included participation by Tiger Global, First Round Capital, Lerer Ventures, and Thrive Capital, according to a report published by TechCrunch. The company was founded with a $200,000 S.B.A.-backed loan from a regional bank in New Jersey after the founders were rejected by the first 15 banks they solicited for a loan, according to a report published by the New York Times. The loan allowed Warby Parker’s four co-founders to maintain over 90% of the equity in the company, as of August 2011, according to the same report. The company sells prescription glasses for $95 per pair, including shipping fees, and is attempting to disrupt the high margins maintained by brick-and-mortar eyewear boutiques, through its e-commerce approach.

Source: Company Data

The company operates 11 showrooms throughout the U.S., including three in California and two in New York. Showrooms provide glasses adjustments, inventory displays, and the option for customers to purchase non-prescription sunglasses on-site. In addition to visiting a showroom and the option to try on different pairs and keep the pair that fits best, customers can utilize the company’s Virtual Try-On facial recognition software, which allows a customer to upload a personal photo, at which point they can place pictures of different frames on the photo of their face, allowing them to determine which pair would look best. Prescription lenses ordered through the company require disclosure of a customer’s doctor information, which allows the company to verify that ordered glasses have in fact been prescribed. Glasses without a prescription typically arrive within five business days, while prescribed lenses are delivered within 10 days. Users can expedite shipping for a $30 fee, although standard shipping is included in the $95 price. Glasses sold by the company are manufactured using cellulose acetate, which is a synthetic fiber that is more flexible than plastic. Additionally, Warby Parker lenses include polarization, which many brands typically charge a premium for. Users can choose to upgrade their prescription lenses to make them ultra-thin for a $30 premium, which is significantly less than the average fee charged by competing boutiques. The company also provides lens replacements for $50, and sunglasses lens replacements for $100. The company designs its own frames, and sells both prescription eyewear and sunglasses. The company’s first collection of designer frames, includes 27 different styles, which sell at a discount to similar products offered by traditional eyewear boutiques ($95 vs. $300+). We estimate the company has added another nine styles to its regular prescription glasses offering, as there are currently 36 styles of glasses available on its site for each gender. In April 2012, the company began offering prescription sunglasses, initially offering 16 of its regular frame styles for $150, we now count 27 styles available on its site. Each style can be purchased in 2-4 different colors, and glasses can also be sorted by color, frame shape, and size.

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Source: Company Data For customers who want to physically try on glasses before purchasing them, the company offers an option were it will ship five pairs of glasses for a user to try on over a five-day period, at which point, the customer ships back the pairs they don’t want with a pre-paid shipping label the company includes. By the end of 2011, the company disclosed that 10% of its traffic came from mobile devices, and that Apple-based operating systems were used by the majority (almost 60%) of its visitors. Warby Parker, in partnership with VisionSpring, had distributed over 100,000 pairs of glasses to those in need by the end of 2011, and over 150,000 pairs to-date, as part of a charity program where the company donates a pair of glasses for every pair purchased.

Source: Company Data

In 2011, Facebook was the largest referral of traffic among social networks (60% of referrals) to Warby Parker, followed by Twitter and Pinterest, which accounted for 18% and 11% of social referrals, respectively. About 60% of Warby Parker’s Facebook fans are female, according to the company, while the company’s 52 employees at the end of 2011 (up from 20 a year before) were evenly split between male and female.

Source: Wedbush Securities, Company Data

Warby Parker: 2011 Facebook Fans (000)

7

14

39

51

44

$-

$10

$20

$30

$40

$50

$60

January May September November December

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Warby Parker estimates that over 1 billion people globally don’t have access to prescription eyewear. As a result of its lower-cost offerings, the company is well positioned to engage the large global market. The company currently serves the U.S. and Canada, although its site indicates that it will be expanding internationally in the near future. Assuming the company sold a pair of glasses for every pair it gave away, we estimate the company generated about $10 million in revenue between 2010 and 2011 (over 100,000 pairs at $95 each). According to a report published by the New York Times, the company had sold about 20,000 pairs in 2010, which leads us to estimate that the company sold about 80,000 pairs in 2011, quadrupling revenue from about $2 million to $8 million. VisionSpring, Warby Parker’s partnering charity, accepts donations of $10 for every two pairs donated, on its site, which leads us to believe that the company donated about $500,000 over the course of its first two years. The designer eyewear market is heavily concentrated with only a handful of companies accounting for the majority of sales. Luxottica, a luxury manufacturer and retailer of designer eyewear, is easily the largest player in the space. For context, the company operates 10 manufacturing plants globally; six in Italy, two in China, and one each in the U.S. and Brazil. Luxottica generated €6.2 billion in sales globally in 2011 through its 2,700 retail locations. In Q2:12, the company generated €1.9 billion in sales for the trailing twelve months, up 15% y-o-y, with 58% of its sales having been generated by Luxottica’s retail vertical, with the balance from wholesale channels. The company brands its products under labels that it owns, which include Ray-Ban, Oakley, Vogue, Persol, Oliver Peoples, Arnette and REVO. The company also licenses branding rights from Bulgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada, Tiffany and Versace, and utilizes its network of retail locations that include LensCrafters, Pearle Vision and ILORI, and Sunglass Hut. Safilo, a smaller competitor in the designer eyewear market, generated €1.1 billion in sales in 2011, up only 2% y-o-y. Warby Parker also faces competition from lower-end e-commerce companies that are focused on eyewear, which include 39DollarGlasses.com, which offers glasses for $39-69 per pair, and EyeBuyDirect.com, which prices its glasses between $7-55 per pair.

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Kabam Kabam, a hardcore game developer that has published numerous titles including Kingdoms of Camelot and Dragons of Atlantis, disclosed last week that it had moved into Twitter’s former headquarters in San Francisco, and that it was on track to generate over $150 million in revenue in 2012, up about 50% from around $100 million the company generated in 2011. According to a report published by the New York Times, Kabam was operating at a profit as of last month. The company also disclosed that less than 30% of its revenue now comes from Facebook, which is drastically lower than the 100% of revenue generated on Facebook in 2011. Kabam’s revenue diversification stems from an initiative in February, through which Kabam partnered with Kongregate as the first of its expansion distribution partners. The initiative was motivated by Facebook’s introduction of a 30% tax on Facebook Credits, and increasingly expensive player acquisition costs on Facebook. The company now utilizes gaming distribution channels on iOS, Android, Google+, Download.com, Amazon, Steam, Mobage, and Kabam’s own website. Kabam facilitates multi-platform distribution of its titles by using an internal technology framework that it began using earlier this year, called Pyramid. The company has grown to over 550 employees, and the company has opened a number of new offices globally, including a new office in China and Luxembourg. The company’s relatively complex games position Kabam well to take advantage of the rapid increase in mobile computing capabilities. For our initial report on Kabam, please refer back to the piece we published in February (available here: http://goo.gl/a6vNb). The revenue shift away from Facebook is reflected by the decline of monthly active users (MAUs) among Kabam’s Facebook titles, which in aggregate fell from 13 million MAUs at its peak in July 2011, to less than 1.4 million MAUs in July.

Source: Wedbush Securities, Appdata

Source: Wedbush Securities, Appdata

MAU DAU DAU/MAU

Dragons of Atlantis 560 110 20%

Kingdoms of Camelot 330 120 36%

Edgeworld 300 50 17%

Global Warfare 70 10 14%

Glory of Rome 60 20 33%

The Godfather: Five Families 50 6 12%

Total 1,370 316 23%

Kabam: Usage Active Usage on Facebook (000)

Kabam: Active Usage on Facebook

(Millions)

0

2

4

6

8

10

12

14

Jul.

'09

Sep

. '09

Nov. '

09Ja

n. '1

0M

ar. '10

May

. '10

Jul.

'10

Sep

. '10

Nov. '

10Ja

n. '1

1M

ar. '11

May

. '11

Jul.

'11

Sep

. '11

Nov. '

11Ja

n. '1

2M

ar. '12

May

. '12

Jul.

'12

MAU DAU WAU

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

The company noted that the Kingdoms of Camelot franchise had generated over $100 million in cumulative revenue for Kabam, making it Kabam’s primary revenue driver, and one of only 10 gaming franchises to ever reach that size. Kabam launched Kingdoms of Camelot: Battle for the North as its first iOS app in March, which quickly reached 1 million downloads by April. At the time, the franchise had grown to over 20 million registered users globally, according to the report. As of August, Kingdoms of Camelot was among the top three highest grossing apps on iOS devices for every day over the previous four months in the U.S., and the top grossing app in 26 countries, according to VentureBeat. The company recently launched its latest free-to-play city-building title, Arcane Empires, for both iOS and Android devices. The app has been downloaded over 600,000 times on Android devices and was the top featured app on the Android store despite having launched less than a month ago. The title was developed by Kabam’s Chinese studio, according to a report published by VentureBeat.

Source: Wedbush Securities, Appdata

Kingdoms of Camelot: Active Usage on Facebook

(Millions)

0

1

2

3

4

5

6

7

Nov. '

09Ja

n. '1

0M

ar. '10

May

. '10

Jul.

'10

Sep

. '10

Nov. '

10Ja

n. '1

1M

ar. '11

May

. '11

Jul.

'11

Sep

. '11

Nov. '

11Ja

n. '1

2M

ar. '12

May

. '12

Jul.

'12

Sep

. '12

MAU DAU WAU

Dragons of Atlantis: Active Usage on Facebook

(Millions)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Oct

. '10

Nov.

'10

Dec

. '10

Jan. '

11Feb

. '11

Mar

. '11

Apr.

'11

May

. '11

Jun. '

11Ju

l. '1

1Aug.

'11

Sep. '

11O

ct. '

11Nov.

'11

Dec

. '11

Jan. '

12Feb

. '12

Mar

. '12

Apr.

'12

May

. '12

Jun. '

12Ju

l. '1

2Aug.

'12

Sep. '

12

MAU DAU WAU

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Key News Items

Airbnb May Be Raising A Huge New Round - http://read.bi/NZYPOv

AirBnb: An Investor In Airbnb And Dropbox Says Those Companies Are Now Worth $7.5 Billion - http://read.bi/QwWniQ

Airtime Launches Topic Chatrooms; Debate Who Should Win Disrupt Battlefield - http://tcrn.ch/Pjs2il

Box: Salesforce CEO Marc Benioff drops bomb on Box and Okta http://goo.gl/1neYK

CloudFlare’s Exploding Growth: Half A Trillion Pageviews All-Time, 70B Monthlies, 600M Uniques - http://tcrn.ch/QM6ujK

comScore Media Metrix Ranks Top 50 U.S. Web Properties for August 2012 - http://bit.ly/RMgZOw

comScore Releases August 2012 U.S. Search Engine Rankings - http://bit.ly/U9c3VO

ComScore Tweaks Ranking Methods, But Top US Web Properties Mostly Unchanged - http://bit.ly/QN5T1j

Evernote folds Skitch sharing features into Evernote - http://bit.ly/UHpfUc

Evernote folds Skitch sharing features into Evernote http://goo.gl/cdfX4

Fab Axes Sign-Up Requirement For Its Design Shop, Admits User Experience Sucked (But Did Help It Get 7M Users) -

http://tcrn.ch/Okaim6

AFacebook ends Reach Generator program in favor of Promoted Posts product - http://bit.ly/R151k7

Facebook Faces Another Patent Suit - http://bit.ly/Pmz0mJ

Facebook is getting 'a billion search queries a day' http://goo.gl/WXuYY

Facebook Is Making The Wrong Ads Easier To Buy - http://read.bi/QYq2Mi

Facebook overtakes Japanese social network Mixi in Japan - http://bit.ly/NqHzQQ

Facebook: ‘Top Games On Facebook’ Box Appears Atop Users’ News Feeds - http://bit.ly/Q2uRFn

Facebook: Chinese Social Network Copies Facebook’s Timeline - http://bit.ly/U3BU4o

Facebook: Important Study: Facebook Quadruples The Power Of Campaign Messages - http://tcrn.ch/TT7IZK

Facebook: INFOGRAPHIC: Facebook Dominates Referral Traffic To Retail Sites; Pinterest Users Spend More -

http://bit.ly/RD2HFh

Facebook: Introducing Facebook Exchange - http://bit.ly/QQRmBT

Facebook: Mark Zuckerberg: “A Facebook Phone Just Doesn’t Make Any Sense” - http://tcrn.ch/OExhtF

Facebook: Mark Zuckerberg: Facebook is getting 'a billion search queries a day' - http://vrge.co/P9nHzO

Facebook: Mark Zuckerberg: Our Biggest Mistake Was Was Betting Too Much On HTML5 http://goo.gl/GhWOA

Facebook: Report: Facebook Search Engine Would Immediately Capture 25 Percent Of Market - http://bit.ly/Q8G5rU

Facebook: Report: Only 30 Of Top 500 Online Retailers Offer Login With Facebook - http://bit.ly/Pju7OV

Facebook: Zuckerberg On Instagram (Now 100M Users Strong): “No Agenda” Except Supporting App’s Growth

http://goo.gl/gsSBH

FACEBOOK'S SPONSORED RESULTS ARE TAKING OFF (ACCORDING TO SOCIAL AD STARTUP OPTIMAL) -

http://bit.ly/UFpMpL

Facebook's Woes Dim Interest In Indian E-Commerce Firms - http://on.wsj.com/RED6X9

FLIPBOARD SET TO LAUNCH IPHONE 5 VERSION - http://bit.ly/RUYmMG

Google: Marc Benioff Just Announced A Big Customer Win: Google - http://read.bi/QFcrPr

Huddle: Prepping For IPO, Huddle Tools Its Cloud Collaboration Platform For U.S. Intel Honchos Dept Of Homeland Security And

NGA - http://tcrn.ch/TSPMOX

Hulu: THE HULU OF RUSSIA, IVI.RU, RAISES $40M TO FIGHT OFF THE THREAT OF HULU, NETFLIX, AND YOUTUBE -

http://bit.ly/P8vcqZ

Instagram: Instagram now has over 100 million users - http://bit.ly/QLWwcG

Lazada: It’s Official: J.P. Morgan Invests in Lazada - http://bit.ly/SI6wKN

Lyft: Look Out, Lyft: Uber CEO Travis Kalanick Says It Will Do Ride Sharing, Too - http://tcrn.ch/Sd7cl8

Nimble storage pulls in $40M as it readies for global expansion and an IPO - http://bit.ly/QBiyPn

Opera Mini Usage Trends Show Smartphone Growth Around Asia [Map] - http://bit.ly/OmLGJt

Path: Dave Morin Says China Is Path's Second Biggest Country - http://tcrn.ch/Qfspvq

Pinterest: WOMEN PREFER PINTEREST, YOUNG ADULTS CHOOSE INSTAGRAM [STUDY] - http://bit.ly/NsReGL

Quirky's Founder Calls The $68 Million He Just Raised A 'Scarlet Letter' - http://read.bi/QwSSXz

Quora Adds Trending Topics (And No, They’re Not All Tech-Related) http://goo.gl/87nzj

SOCIAL FINANCE LANDS $77M FROM BASELINE, RENREN TO HELP SOLVE THE STUDENT DEBT CRISIS -

http://bit.ly/PcfU4L

Spotify Is Reportedly Working On A Browser-Based Product - http://read.bi/RzE0UF

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Turntable's Seth Goldstein Raises $1 Million For A New Music Startup, DJZ - http://read.bi/OpFS7K

Twitter Faces Fines, Contempt of Court in Occupy Wall Street Case http://goo.gl/3NGNq

Twitter gives Occupy protester's tweets to U.S. judge - http://reut.rs/PyuUvq

Twitter: EVAN WILLIAMS ABOUT TWITTER’S APIS: “WE DIDN’T HAVE THAT ALL FIGURED OUT” - http://bit.ly/OJxEDn

Twitter: Why Twitter's Signup Process Is A Huge Drag On Its Ad Business - http://read.bi/QX29om

UBER OFFERS RIDES IN VINTAGE CARS AHEAD OF ‘BOARDWALK EMPIRE’ PREMIERE - http://bit.ly/NsRs0A

Uber: Car service Uber to foes: If you don’t evolve, I’m going to kick your ass - http://bit.ly/OHc9D3

Uber: ON-DEMAND CAR SERVICE UBER LAUNCHES IN DALLAS AND STRIKES A PARTNERSHIP DEAL WITH VIRGIN

AMERICA - http://bit.ly/R0XXcT

Uber: Travis Kalanick: Uber Raised $37M In Its Latest Round, Not $32M - http://tcrn.ch/RMfXSz

Vevo’s mobile traffic up 463% since July of last year http://goo.gl/ZRL2h

Warby Parker: Warby Parker proves you can 'disrupt' glasses with $37M in funding - http://bit.ly/RDpISU

Yelp Makes Asia Debut with Singapore Launch - http://bit.ly/Nruua1

Zendesk: ENTERPRISE IS SO HOT RIGHT NOW: ZENDESK RAISES $60M FOR CUSTOMER SERVICE (VIDEO) -

http://bit.ly/Q2RKZ3

Zynga brings two mobile titles over from Japan to North America - http://bit.ly/PmgCdI

ZYNGA CONFIRMS SNAGGING MAYTAL OLSHA, COO OF NEW MARKETS (JUST AS WE SAID) - http://bit.ly/PBWXu3

Zynga Marketing Chief Jeff Karp Is the Latest to Exit http://goo.gl/zjIAw

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Covered Companies Mentioned in this Report (priced at market close September 14, 2012)

COMPANY TICKER RATING PRICE PRICE TARGET

APPLE AAPL OUTPERFORM $691.28 $800.00

FACEBOOK GOOGLE

FB GOOG

OUTPERFORM NEUTRAL

$22.00 $709.68

$35.00 $640.00

EBAY EBAY OUTPERFORM $49.97 $57.00

IMPORTANT DISCLOSURES

The information contained herein is intended for accredited investors as defined in Rule 501 of Regulation

D under the Securities Act of 1933 or institutional investors.

WEDBUSH SECURITIES Wedbush does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities. ANALYST CERTIFICATION I, Michael Pachter, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not, directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report. Disclosure information regarding historical ratings and price targets is available at http://www.wedbush.com/ResearchDisclosure/DisclosureQ212.pdf INVESTMENT RATING SYSTEM Outperform: Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).*

Rating Distribution (as of June 30, 2012)

Investment Banking Relationships (as of June 30, 2012)

Outperform:58% Neutral: 36% Underperform: 6%

Outperform:14% Neutral: 0% Underperform: 0%

The Distribution of Ratings is required by FINRA rules; however, WS’ stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS’ stock ratings are on a relative basis. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities.

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Capital Markets Disclosures as of September 17, 2012

Company Disclosure

APPLE 1 FACEBOOK GOOGLE

2 1

EBAY 1

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WEDBUSH | PROGRESS REPORT for INTERNET and SOCIAL MEDIA

Research Disclosure Legend

1. WS makes a market in the securities of the subject company. 2. WS managed a public offering of securities within the last 12 months. 3. WS co-managed a public offering of securities within the last 12 months. 4. WS has received compensation for investment banking services within the last 12 months. 5. WS provided investment banking services within the last 12 months. 6. WS is acting as financial advisor. 7. WS expects to receive compensation for investment banking services within the next 3 months. 8. WS provided non-investment banking securities-related services within the past 12 months. 9. WS has received compensation for products and services other than investment banking services within the past

12 months. 10. The research analyst, a member of the research analyst’s household, any associate of the research analyst, or any

individual directly involved in the preparation of this report has a long position in the common stocks. 11. WS or one of its affiliates beneficially own 1% or more of the common equity securities.

Private securities may involve a high degree of risk and are intended for sophisticated investors who are capable of understanding and assuming the risks involved.

Private securities may have a high level of volatility. High volatility investments may experience sudden and large drop in their value causing losses that may equal your original investment.

Private securities are illiquid and may be difficult to sell or to realize gains from such investments. Similarly, it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed.

Investors should obtain advice from their own financial advisor and only make investment decisions on the basis of the investor’s own objectives, experience, risk tolerance, and resources.

The information herein is based on sources that we consider reliable, but its accuracy is not guaranteed. The information contained herein is not a representation by this corporation, nor is any recommendation made herein based on any privileged information.

This information is not intended to be or should it be relied upon as a complete record or analysis; neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein.

This firm, Wedbush Securities, its affiliates, officers, employees, members of their families, or any one or more of them, and its discretionary and advisory accounts, may have a position in any security discussed herein or in related securities and may make, from time to time, purchases or sales thereof in the open market or otherwise.

The information and expressions of opinion contained herein are subject to change without further notice.

The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm.

Any reference to past performance is not a guarantee of future results.

Supporting documentation will be furnished upon request for any claims, comparisons, recommendation, statistics or other technical data. Additional information with respect to the information contained herein may be obtained upon request.

Applicable disclosure information is also available upon request by contacting the Business Conduct Department at (213) 688-8090. You may also submit a written request to the following: Business Conduct Department, 1000 Wilshire Blvd., Los Angeles, CA 90017.

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