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July 9, 2009

Brian Bolan(312) 345-1534

[email protected]

Important disclosures appear on the inside cover and back of this publication.

Bolans Bytes

Mid-Atlantic Institutional Research

Investment Summary: ComScore will be publishing search engine market share data in mid-July

and we took a look at what has been published already and where we believe the numbers will end

up. The implications of Bing.com gaining share are addressed as well as a discussion on the

potential spin off of AOL from Time Warner and a combination of Yahoo! and the new AOL. We

also address the key reason, listings growth, that we believe will drive an eBay outperformance

over the next 12 months. Finally we touch on Blue Nile and Amazon.com

Key Points

Bing appears to be taking share from Yahoo! We take a look at the numbers thatComScore has published recently and look forward to the release in mid July. The marketshare release is highly anticipated due to the release of Bing.com and the subsequent marketshare gains that were posted in the first two weeks of the month.

Yahoo! still depends on search, but is probably eyeing AOL. Carol Bartz has madenumerous statements about the future of Yahoo!, but we believe that she could be setting upthe company for the return of the portal. The internet has been very cyclical so while thismodel has been around for sometime, the traffic from a combined Yahoo! / AOL would be adominate force.

eBay listings continue to move higher. We noted that listings were moving higher in our

5/14/09 note to clients, and speculated at that time that the growth would continue. Thecompany has seen listings move to record highs in the last several months and the lack of aninsertion fee for five items will likely boost that trend going forward.

Amazon.com and Blue Nile avoid the tax man. There has been a lot written about theAmazon affiliate program and its subsequent cancellation in several states. We note that BlueNile and other internet companies have been facing the same issues. We believe that if therecession continues through the fourth quarter of 2009 that state governments will pass lawsforcing internet companies to collect taxes from online sales.

A quick look at the Internet and news moving the market

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STURDIVANT & CO., INC.

Mr. Bolan does not own shares of Yahoo!, Google, eBay, Amazon.com, Blue Nile.

Disclosures

Rating System DefinitionsSturdivant & Co.s stock ratings system reflects the investment decisions our clients face every day, and is meant to assist clients in making these decisions by recommending aspecific action to take with each stock we cover. All of the ratings correspond to a specific investment action that we recommend taking on the date the research is published. Thus,Outperform (equivalent to Buy) ratings are reserved only for stocks that we would be actively buying at the time the research is published. Marketperform (equivalent toHold) ratings are reserved for stocks that we believe are in line with the markets anticipated performance and we recommend holding. Underperform (equivalent to Sell)ratings are assigned to stocks where the analyst anticipates stock price declines relative to the market. Please note also that the price expectations that determine the rating are inabsolute dollar terms, not in terms of relative performance to a sector or an index. Therefore, analysts will not use the Outperform rating for stocks that are expected to performwell relative to their sector but only for stocks that are expected to appreciate in actual dollar returns.Research Analyst Compensation

Analyst compensation is based on: (1) the analysts productivity, including the quality of the analysts research and the analysts contribution to the growth and development of ouroverall research effort; (2) ratings and direct feedback from our investing clients, our sales force and from independent rating services. Sturdivant & Co.s Compliance andResearch Departments are responsible for establishing these compensation guidelines and for reviewing and approving senior analyst compensation. Analyst contribution to our

investment banking business is not a factor in determining analyst compensation and compensation is not, directly or indirectly, related to the specific recommendations or viewsexpressed in the report.Research Analyst Certification

The senior research analyst(s) certifies that the views expressed in this research report and/or financial model accurately reflect such senior analyst's personal views about thesubject securities or issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in theresearch report. Mr. Bolan does not own shares of Yahoo!, Google, eBay, Aamazon.com or Blue Nile.. This is not a complete analysis of every material fact regarding anycompany, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources weconsider to be reliable, but we cannot guarantee the accuracy. The Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are examples of unmanaged common stockindices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. A complete listing of all companies covered bySturdivant & Co., Inc. and applicable research disclosures can be obtained from the Company. Price Target Risks

Investment risks associated with the achievement of the price target include, but are not limited to, the companys failure to achieve our earnings and revenue estimates, unforeseenmacroeconomic and/or industry events that adversely impact demand for the companys products or services, product obsolescence, changes in investor sentiment regarding thespecific company or industry, intense and rapidly changing competitive pressures, the continuing development of industry standards, the companys ability to compete for talent,and adverse market conditions. For a complete discussion of the risk factors that could affect the market price of the companys shares, refer to the most recent form 10-Q or 10-Kthat the company has filed with the SEC.

Source: BigCharts

FIRST TRUST DOW JONES INTERNET INDEX

7/08/09

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Table of Contents

The much awaited ComScore release 4

The Future of Yahoo! 4

eBay and Listings 5

Blue Nile 5

Taxes 5

Institutional Contacts 6

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The much awaited ComScore release

In a research note published on June 10, 2009, we stated that despite the fact the Bing.com was only a week old, itlooked as though it would continue to gain share from larger rivals Yahoo! and Google. The early returns fromComScore showed an increase of 200 basis points in search share to 11.1% up from 9.1%. This increase wasbuoyed by 1.) early release and subsequent media coverage, 2.) the increased traffic driven by curiosity 3.) the

massive advertising campaign that included a TV ad campaign. We believe that Microsoft will be able to retainits search share as our research has shown the search interface to be greatly enhanced from the its predecessor LiveSearch.

We believed that there was further upside to the 11.1% reported after merely one week in early June. Ouroptimism was well founded as ComScore released another increase for Bing.com in the following week.ComScore numbers are widely received on Wall Street and although other third parties like Compete, Hitwise andStatCounter produce much the same data trends, they dont have the same cache of the monthly ComScore release.We anticipate the release on July 20, slightly later than normal mid-July date as the market has been anticipatingthe report since the release of Bing.com.

We took a look at the core numbers that ComScore has been publishing of late. We should note that the 8% shareMicrosoft had in May of 2009 did not included Bing.com and likely did not include all Microsoft searches. Ourestimates indicate that there was growth in the search market, but only one search engine will see any of thebenefit. We should also note that ComScore stated that Microsoft had 12.1% search share as of 6/12/09. Webelieve that this was the end of the early growth and the challenge will now be to maintain and grow that share. Amonth-over-month decrease for other search providers would not be a surprise as seasonality issues will likelyaffect queries but will be offset by an increase in Michael Jackson related searches.

The Future of Yahoo!

A Microsoft increase in search share could signal the beginning of the end for Yahoo! as it will likely focus onhow best to partner with a AOL spin off. AOL is expected to be spun out of Time Warner in the coming months.LogMeIns recent IPO demonstrated that there is demand for new technology entrants, but with market conditionsstill weak, Time Warner may continue to delay the spin off. We view the spin off of AOL not as the final step forcompany, but rather the first step into the arms of a newer entity that focuses on delivering traffic to content.

Portals were all the rage several years ago, and being a cyclical market, we believe it is time for the model to see acomeback.

A combination of Yahoo! and AOL could revitalize the need for portals as web continues to draw new contentplayers who will likely exchange eyeballs for ad placements on a leading portal. Many bloggers haveexperimented with new ways to increase traffic, but a proven method of giving some content to a major portal for alimited time allows readers to return to the original site if the content is engaging. The traffic base of Yahoo! andAOL would make a merged company a dominate player in the space.

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SearchEstimatesforJune2009

May09 PROJECTED M/M Y/Y

Total Core Search 14,327 14,705 2.6% 27%

Google Sites 9,307 9,205 1.1% 30%

Yahoo! Sites 2,877 2,775 3.5% 15%

Microsoft Sites** 1,149 1,800 56.7% 70%

Ask Network 555 5255.4% 5%

AOL LLC 438 4008.7% 15%

Google Sites 65.0% 62.6% 2.4%

Yahoo! Sites 20.1% 18.9% 1.2%

Microsoft Sites** 8.0% 12.2% 4.2%Ask Network 3.9% 3.6% 0.3%

AOL LLC 3.1% 2.7% 0.3%

Source:ComScore,Sturdivant&CoResearch

Growth

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eBay and Listings

eBay has continued to see good growth in listings as the economy remains weak. We believe that while theconversion rates would be lower, the number of listings remains strong as consumers raise cash by listing itemsthat have a better chance of selling. We note that a recent count of listings shows the company to be at or near arecord level of approximately 32.5M items. The chart below denotes the growth in listings, which we believe will

continue thanks to lower insertion fees. In late June, a promotion that calls for no insertion fees for five items wentinto effect and we are still seeing growth from that initiative.

Blue Nile

The temptation to expand into other channels may become a concern for Blue Nile in the near future. At a recentinvestor conference, management stated a toll free number has been delivering a revenue run rate of $600 per call.

We see this as too tempting of a channel for Blue Nile. While the toll free number is not a stressed channel, webelieve that the company will continue to attempt draw more sales via alternative channels. This could changeinvestors views on the company as less of a pure e-commerce play, which could potentially lower its multiplesrelative to its brick and mortar piers.

Taxes

Amazon.com has cancelled affiliate programs in at least four states including North Carolina, Rhode Island,Hawaii as well as a seeing a return of a 2007 tax issue with Amazon Japan. The company will likely continue tolimit any tax liability. Blue Nile has followed in lock step with Amazon.com as governments that face significantdeficits continue to search for new sources of revenue. We believe that if the recession continues through thefourth quarter that state governments will pass laws that will require online retailers to collect a sales tax. This

would not effect the margin structure of the companies, but would certainly affect shopping habits of consumers.

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Source: Medved.net

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Beth Ann Loewy, [email protected]

856-751-1331 ext. 114Food

Consumer Staples

Retail

Fundamental Research

Institutional Trading

Debra L. [email protected]

800-486-1515 or856-751-1331 ext. 110

Harvey R. de [email protected]

800-486-1515 or856-751-1331 ext. 112

Albert A. [email protected]

856-751-1331 ext. 108

James [email protected]

800-486-1515 or856-751-1331 ext. 115

Institutional Sales

Carl R. Gibbs, [email protected]

856-751-1331 ext. 107

Terry [email protected]

856-751-1331 ext. 101

Richard A. [email protected]

856-751-1331 ext. 109Industrials

Chairman

Brian [email protected]

312-345-1534Technology

Sturdivant & Co.s

Businessmans Approach to Value Philosophy

Sturdivant & Co. uses the businessmans approach to evaluating stocks. This philosophy is predicated on looking at acompany as a prudent man would were he to consider making a reasoned investment in a business. We focus on a

companys strategy, the competitive position a company has versus its peers, quality of management, risk factors, itsprospect for growth, as well as critical catalysts and milestones as evidence of progress. Finally, of course, we look at acompanys valuation to determine where we feel the stock is priced attractively.


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Member: FINRA and SIPC

This material is for your private information and we are not soliciting anyaction based upon it. This report should not be construed as, or the solicitationof an offer to buy any security in any jurisdiction where such an offer orsolicitation would be illegal. The material is based upon information that weconsider reliable, but we do not represent that it is accurate or complete, and itshould not be relied upon as such. Opinions expressed are our current opinions

as of the date appearing on this material only. While we endeavor to update ona reasonable basis the information discussed in this material, there may beregulatory, compliance or other reasons that prevent us from doing so. We andour affiliates, officers, directors, partners and employees, including personsinvolved in the preparation or issuance of this material, from time to time, havelong or short positions in, and buy or sell, the securities, or derivatives(including options) thereof, of companies mentioned herein. Sturdivant & Co.has not received compensation from this company in the past 12 months andthis company is not an investment banking client.

Total Internet Group

Outperform Marketperform Underperform

40% 60% 00%

Outperform Marketperform Underperform

0% 0% 0%

Investment Banking Relationship


US-Technology Group

Investment Rating Company Ticker Symbol Initial Coverage Date Research Analyst

Market Outperform

Google GOOG 10/7/2008 BrianBolan

eBay EBAY 1/22/2009 BrianBolan

Market Perform

Yahoo YHOO 12/10/2008 BrianBolan

BlueNile NILE 3/25/2009 BrianBolan

Amazon.comInc. AMZN 11/17/2008 Brian

Bolan

Market Underperform

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