CommerceHub: Uniquely Levered to E-Commerce Growth

Artem Fokin Portfolio Manager, Caro-Kann Capital

CommerceHub(CHUBA and CHUBK) By Artem Fokin, Caro-Kann Capital LLC June 2017 / Manual of Ideas

Disclaimer This presentation does not constitute an offer to sell or a solicitation or an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. Any such offer or solicitation may only be made by means of formal offering documents that will be provided only to qualified offerees. This document should be read in conjunction with, and is qualified in its entirety by, information appearing in such formal offering documents, which should be carefully reviewed prior to investing. Past performance is not necessarily indicative or a guarantee of future results. An investment in any fund is speculative and entails substantial risks. Investors must be prepared for the risk of loss. This communication is provided for information purposes only. In addition, because this communication is preliminary and a summary only, it does not contain all material terms, including important conflicts disclosures and risk factors associated with an investment in a fund. This communication in and of itself should not form the basis for any investment decision. Nothing in this presentation constitutes or should be construed to constitute investment advice. We and/or our affiliates are long CHUBA and/or CHUBK and have no obligation to update this presentation if our views change. We can buy and/or sell CHUBA or CHUBK at any time without further notification. Certain information contained in this document constitutes "forward-looking statements," which can be identified by the use of forward- looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend“, "continue" or "believe" or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the funds may differ materially from those reflected or contemplated in such forward-looking statements and no undue reliance should be placed on these forward-looking statements, nor should the inclusion of these statements be regarded as Caro-Kann Capital’s representation that the funds will achieve any strategy, objectives or other plans. This communication and the material contained herein are confidential and may not be distributed in whole or in part to anyone other than the intended recipients. By accepting receipt of this communication the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any purchase or sale of any financial instruments discussed herein. Caro-Kann Capital LLC 2

About Caro-Kann Capital LLC • General Partner of Caro-Kann Capital Fund LP, a private investment partnership. • Launched in March 2015. • Focus on small and mid-cap companies undergoing extraordinary corporate events and / or experiencing rapid changes in their shareholder bases and compounders. Caro-Kann Capital LLC 3

Caro-KannDefense Caro-KannDefense • Chess defense against the king’s pawn opening. • The opening is named after the English player Horato Caro and the Austrian player Marcus Kann who analyzed it in 1886.* • Caro-Kann Defense is more solid and robust than many alternatives and, thus, Black enjoys a significantly smaller chance of losing. • However, due to a strong position and pawn structure, Caro-Kann Defense results in a strong likelihood of Black winning later. * Wikipedia. The graphic display (http://en.wikipedia.org/wiki/Caro%E2%80%93Kann_Defence) Caro-Kann Capital LLC 4

CommerceHub: Introduction Caro-Kann Capital LLC 5

Capital Structure at a Glance CHUB: Capital Structure, ths $ Actual S/O 43,148 Dilutive impact from SARs and options (both exercisable and not exercisabe) 1,943 F/S S/O (including options outstanding but not exerciseable) 45,091 Share price, $ $17.00 Market Cap 766,541 Debt 10,000 DE 0 Debt + DE 10,000 Cash 4,044 EV $772,497 Caro-Kann Capital LLC 6

CHUB: What We Like (1) What We Like Importance Comments Growth runway is likely to be 5 – 10 years if 1 Long Growth Runway not longer driven by secular e-commerce growth, increasing penetration of dropshipping, and new customer sign ups. 2 Strong Moat Strong moat based on powerful network effect (~50 suppliers and ~10,000 suppliers). 3 SaaS Company at Non-SaaS CHUB trades at 10x – 15x discount (not a Valuation typo!) to SaaS companies with similar growth profiles. Excellent Product with CommerceHubprovides retailers and 4 Compelling Customer suppliers with mission critical software at a Value Proposition / reasonable price that allows seamless Product integration and interactions that enable dropship. Caro-Kann Capital LLC 7

CHUB: What We Like (2) What We Like Importance Comments ~80% gross margin and ~40%+ EBITDA 5 Excellent Margins (after SBC) margin in core dropshipping business. nd CHUB is developing the 2 business (Brands 6 Upside Optionality Initiative) which is currently small (~$10M in revenue) and losing money. But it has tremendous potential. Founder Frank Poore returned to the company 7 CEO-Founder Is at the Helm & few years before the spinoff. Shortly before Incentives Are Aligned the spinoff CEO received an option grant which would make them a 5% shareholder (less under the Treasury method). Ultra Low Customer 10% of revenue is spent on Sales & 8 Acquisition Costs Marketing vs. 30%+ typical for SaaS companies. Caro-Kann Capital LLC 8

Why Does This Opportunity Exist? Mispricing Factor Importance Comments CHUB was spun off from Liberty 1 Recent Spin-Off Ventures, one of Dr. Malone’s entities in July 2016. Arcane accounting rules overstated Complicated Accounting “true” level of stock-based 2 for Stock-Based compensation prior to the spin off. Compensation Historical “economic” SBC is “overstated” by ~$25M - $30M. Second Start-Up Business A new business (Brands Initiative) is 3 Masks How Strong the masking true revenue growth rate and Core Business Is margin profile of CHUB’s core dropshipping business. Multiple factors contribute to CHUB’s mispricing Caro-Kann Capital LLC 9

CommerceHub: Brief History Caro-Kann Capital LLC 10

CommerceHubHistory Date Event description 1997 Frank Poore and Richard Jones found CommerceHub 1999 – CHUB lands QVC as a customer; business Frank Poore 2000 model established (Source: CommerceHub website) 2010 Liberty acquires CommerceHub Richard Jones (Source: CommerceHub website) Caro-Kann Capital LLC 11

CommerceHubCustomer Value Proposition: Dropshipping SaaS Caro-Kann Capital LLC 12

What Does CHUB Do? • CHUB provides SaaS dropshipping to retailers and their suppliers for a fee when a consumer buys goods online. • This bring up a question: what is dropshipping? • Dropshipping is only relevant when we are talking about e-commerce. Caro-Kann Capital LLC 13

Traditional E-Commerce Fulfillment Model: Flow of Goods Supplier Retailer’s Customer Warehouse Caro-Kann Capital LLC 14

Dropshipping Fulfillment Model: Flow of Goods Supplier Retailer Customer Caro-Kann Capital LLC 15

Why Is Dropshipping Important? Dropshipping benefits everybody in the ecosystem! Dropshipping creates a bit more of a level playing field in the world where e- commerce’s importance is growing. 1. Retailers benefit from wider assortment of SKUs without carrying inventory • Thanks to dropshipping retailers can dramatically expand their SKU assortment from ~100K in a store to millions on a website – virtual inventory • Virtual inventory does not have to be stored in a warehouse => no storage costs and no working capital tied up in inventory. • No CapExspent on bigger warehouses. 2. Customers benefit from wider selection. 3. Customers benefit from getting their orders faster. 4. Retailers and consumers benefit from less shipping costs. 5. Supplier benefits because it becomes easier to get “shelf space”. Caro-Kann Capital LLC 16

CommerceHubCustomer Value Proposition Element Importance Comments Solving a complex CHUB SaaS solutions enable retailers 1 supply chain and to interact seamlessly with suppliers integration challenge while ensuring great end customer experience. This is a non-trivial task. - Retailers always drop some suppliers 2 Continuous Onboarding of and sign new ones. Suppliers - Onboarding suppliers takes lots of time from retailers and costs money. - CHUB takes care of that. Caro-Kann Capital LLC 17

Go to Market and Customer Acquisition Strategy 1. CHUB operates two-sided platform business. Two sides are retailers and suppliers. 2. CHUB acquires only retailers and has acquired ~50 to date. 3. Retailers bring their suppliers (~10,000) to the platform. If a supplier wants to do business with a retailer and participate in a dropshipping program, such supplier will join CHUB’s platform. 4. This results in extraordinarily low customer acquisition costs (CAC) (~10% of revenue). It is way cheaper to acquire ~50 customers than ~10,000! Caro-Kann Capital LLC 18

Notable Retail Clients Caro-Kann Capital LLC 19

CommerceHub: Business Model Caro-Kann Capital LLC 20

Revenue Model: 3 Revenue Streams Mispricing Factor Comments - 25% -27% of annual revenue. 1 Base Subscription Fee - Paid by both retailers and suppliers. - The exact amount depends on the number of connected trading partners. - ~68% of annual revenue. - Paid by both retailers and suppliers. 2 Usage Fees - Usage fees are charged per transaction and end up ~50 basis points of GMV. Subscription fees + usage fees end up ~75 basis points of GMV => very affordable. 3 Set-Up and - 5% - 7% of annual revenue. Implementation Fees - One-time in nature. Multiple factors contribute to CHUB’s mispricing Caro-Kann Capital LLC 21

Recurring Revenue Model with a Twist • CHUB has a recurring revenue model similar to many other SaaS companies. • However, there is a wonderful twist: CHUB usage revenue will be increasing with every new e-commerce transaction that involves dropshipping. • Thus, unlike many other SaaS companies, CHUB does not have to sign any new customers in order to keep growing (though we expect that CHUB will keep signing more and more customers). CHUB Is Uniquely Levered to E-Commerce Growth Caro-Kann Capital LLC 22

CommerceHub: Growth Outlook Caro-Kann Capital LLC 23

CommerceHubFaces Massive Tailwinds 1. Total e-commerce growth. 2. Increasing wallet share (i.e., increasing penetration of virtual inventory and dropshipping among existing customers). 3. Signing up additional retailers and suppliers. 4. International expansion. Caro-Kann Capital LLC 24

Growth Driver #1: E-Commerce Growth • E-commerce ex-Amazon has been growing in the low teens: o 2012 – 11.8% o 2013 – 10.8% o 2014 – 12.8% o 2015 – 13.8% • We expect this long-term trend to be secular and to continue for many years. Caro-Kann Capital LLC 25

Growth Driver #2: Increasing Dropshipping Penetration among Existing Customers (aka Wallet Share) • Many retailers have virtual inventory and dropship penetration of less than 10%. • Long-term retail customers have a wallet share between 30% and 50%. • Closing this gap is CommerceHub’s opportunity. Caro-Kann Capital LLC 26

Growth Driver #3: Signing Up Additional Retailers and Suppliers • CommerceHubcurrently serves ~50 retailers • Plan is to focus on top 500 retailers in the U.S. as they represent ~90% of e- commerce • We believe that current 50 retailers are among the largest players in the industry • Thus, as CHUB signs up more retail customers, revenue per retailer is likely to decline holding penetration level constant Caro-Kann Capital LLC 27

Customer Count CHUB Customer Count 2014 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 2016 1Q 2017 Customers 8,599 9,559 9,619 9,726 9,930 10,094 10,094 10,801 Growth, % 11.2% 8.1% 5.8% 6.6% 5.6% 5.6% 12.3% • 2015 vs. 2014 comparisons are affected by the acquisition of Mercent in January 2015. More on this later. • The decelerating growth in 2016 was mostly caused churning ex-Mercent customers as opposed to issues within the core dropship offering. More on this later. Caro-Kann Capital LLC 28

Growth Driver #4: International Expansion • International expansion can present significant growth opportunities for CommerceHuband dramatically expand total addressable market. • We are not including any potential growth from international expansion into our analysis. Caro-Kann Capital LLC 29

CommerceHub: Growth Outlook: Putting It All Together • We think that CHUB can grow its dropshipping revenue by 13% to 18% per annum for many years. We are not modelling CHUB’s international expansion. CommerceHub Projected Growth Drivers, % 40.0% 35.0% 30.0% 25.0% 20.0% 18.0% 2.0% 15.0% 13.0% 2.0% 1.0% 10.0% 1.0% 14.0% 5.0% 11.0% 0.0% Min Max E-commerce growth, % Increasing wallet share of dropshipping, % New clients Caro-Kann Capital LLC 30

CommerceHub: Expanding Moat Caro-Kann Capital LLC 31

Sources of Moat CHUB has two sources of moat: switching costs and network effect Switching costs • Similar to many other SaaS players whose offerings have become imbedded into business and operating processes of their clients. • However, there is always a risk that someone else will come up with a better mouse trap. Network effect • A stronger moat. • More difficult to disrupt. Caro-Kann Capital LLC 32

Moat: Network Effect Network Effect Importance Comments 1 Big Network ~50 retailers and ~10,000 suppliers. 2 Attraction is increasing Every joining retailer and/or supplier makes the network even stronger. • If 10 retailers want to onboard a new supplier, they would do 10 times collectively. 3 Economies of scale of • If all of them are CommerceHub’s customers, onboarding onboarding will happen only once => massive collective savings and CHUB would retain some of them. • Network effect makes CAC incredibly low. Incredibly low customer • CHUB Dropshipping business is 4 acquisition costs (CAC) growing 17% - 18% with S&M at ~10% of revenue while most peers are spending ~30% to achieve the same level of revenue growth. Caro-Kann Capital LLC 33

CommerceHub: Customers and Churn Caro-Kann Capital LLC 34

Retailer Churn: Minimal We were able to identify very few retail customers who left CommerceHub Over the years CHUB lost very few customers: Circuit City • Well, Circuit City had a good reason … it went bankrupt. Target • Target decided to go with an in-house solution several years ago. Smaller Retailers • CHUB lost some smaller retailers who did not ramp up their dropshipping business. Exact number and names are unknown. Caro-Kann Capital LLC 35

Supplier Churn Supplier churn is significant but it is what benefits CommerceHub • Suppliers do not leave CommerceHub on their own will. • However, if a retailer terminates a supplier (e.g., SKUs do not generate enough sales), such supplier would stop being CHUB’s customer. ➢ Higher churn than among retailers. • However, such “supplier turnover” allows CommerceHub to deliver its unique value proposition: to remove onboarding burden and hassle from retailer’ shoulders. ➢ Supplier churn benefits CommerceHub! Caro-Kann Capital LLC 36

CommerceHub: Competition Caro-Kann Capital LLC 37

CommerceHubDropshipping Offering: Competition Competition Comments 1 Traditional legacy on- Point to point architecture => difficult and expensive premise solutions to maintain and update 2 In-house solutions No benefits of scale => expensive => only largest retailers can build solid in-house solutions 3 Other SaaS players No SaaS players have dropshipping solutions that can meet requirements of large retailers. Caro-Kann Capital LLC 38

Legacy Software Solutions Multitude of Point-to-Point Connections Supplier 1 Supplier 2 Supplier 3 Retailer 1 Retailer 2 Retailer 3 Caro-Kann Capital LLC 39

DropshippingCompetition: Traditional Legacy On-Premise Solutions Legacy on-premise solutions have multiple disadvantages. • Tend to focus on fulfillment automation within a single facility and among a small network of trading partners • Require time and technical expertise to configure, deploy and maintain • Adding new trading partners is time-consuming and requires technical expertise • Architecture: multitude of point-to-point connections between retailers and suppliers instead of a network of connections that CommerceHub has built • Any updates pushed by a retailer must be installed by every single supplier • Reasons above can make on-premise legacy solutions prohibitively expensive for small suppliers. Caro-Kann Capital LLC 40

CommerceHubDropshippingSaaS Offering: Infrastructure This is a true network! Supplier 1 Supplier 2 Supplier 3 Retailer 1 Retailer 2 Retailer 3 Caro-Kann Capital LLC 41

Dropshipping Competition: In-House Solutions • Expensive to develop • Only very few very large retailers have done it and can do it in the future. • The pain point of onboarding suppliers is not eliminated and must be done in-house. Caro-Kann Capital LLC 42

Dropshipping Competition: Other SaaS Providers • We are not aware of any SaaS player that can do what CommerceHub does for both retailers and suppliers at scale. Caro-Kann Capital LLC 43

Dropshipping: “Perceived” Competitors Caro-Kann Capital LLC 44

Dropshipping Competition: Other SaaS Providers – “Perceived” Competitors • There are “perceived” competitors that are not competing with CommerceHub: 1. SPS Commerce (ticker: SPSC) 2. Channel Advisor (ticker: ECOM) • Retailers do not use or use in a de minimis way SaaS provided by SPSC and ECOM. Only suppliers do. o Even if a supplier is using SPSC SaaS offering, a retailer will be using CHUB SaaS or its own in-house solution. If a retailer is using CommerceHub offering, a supplier will have to use both SPSC and CHUB SaaS offerings. • We believe that this usage point is not fully appreciated by market participants as a number of companies use the term “dropshipping” differently than CommerceHub does and therefore create an appearance of comparability. Caro-Kann Capital LLC 45

CommerceHub: Brands Initiative Caro-Kann Capital LLC 46

CommerceHubfor Brands (aka Brands Initiative) What Is Brands Initiative? • Effectively a startup within CommerceHub. • Brands Initiative enables consumer brands manage their direct sales through marketplaces and other Internet / social platforms more effectively. • Think of Brands Initiative SaaS offering as a master catalogue that a brand would update only once and it syncs with all direct channels that a brand is using for its direct sales (there are more functions but we highlight the most prominent). Caro-Kann Capital LLC 47

Brands Initiative: Brief History • January 2015 – CommerceHub acquired Mercent for ~$20M. • Mercent was providing a software solution for brands that would allow them to create one central product catalogue that would be linked to various websites, marketplaces, etc. • Mercent had revenue of ~$10M at the time of the acquisition. • Hence, CHUB acquired Mercent for ~2x revenue which is very low => well done! Caro-Kann Capital LLC 48

Mercent: Rationale for Acquisition CommerceHubacquired Mercentfor its technology and not its customer base • CommerceHubwanted to get Mercent’s technology • CommerceHubwas not interested in Mercent’s customers who are mostly smaller e- commerce players • Ex-Mercent customers fall into two groups: 1. Self-service customers 2. Managed services clients Caro-Kann Capital LLC 49

Mercent’s Two Groups of Customers One is attractive and one is not • Self-service customers ▪ Use SaaS offering & little human element ▪ Little handholding ▪ => Highly scalable & high gross margins => fundamentally attractive business • Managed services clients ▪ Still use SaaS offering but lots of service are provided by ex-Mercent / CommerceHubemployees ▪ Lots of handholding ▪ => Less scalability and lower gross margins => fundamentally less attractive business Caro-Kann Capital LLC 50

What CommerceHubIs Doing with Ex-MercentBusiness? • CommerceHubwants to focus on self-service clients. • CommerceHubwants to focus on bigger clients. • Thus, many legacy clients are not “desirable” customers and CommerceHub is intentionally churning them. • Brands Initiative has already got some impressive clients wins: Mattel and Adidas Caro-Kann Capital LLC 51

Brands Initiative Makes Consolidated Financials Look Weaker One needs to analyze dropshipping business separately from Brands Initiative • Revenue growth is lower. • Gross margin is lower. • EBITDA margin is lower and EBITDA is lower. Caro-Kann Capital LLC 52

Brands Initiative’s Impact on Revenue Growth • Brands Initiative generates ~$9.5M to $10M of revenue which is similar to what Mercent was generating at the time of the acquisition. • Dropshipping business is growing 17% - 18% y-o-y. • But consolidated revenue is growing “only” 11% because of Brands Initiative impact. • Observers are likely not understanding Brands Initiative’s impact on financials and may be extrapolating lower consolidated revenue growth rates on dropshipping business growth rate. Caro-Kann Capital LLC 53

Brands Initiative’s Impact on Gross Margin • Core dropshipping business had a gross margin ~80% in 2014. • Brands Initiative / ex-Mercent business had 30% - 50% gross margins in 2015 (our best estimate) due to managed services clients. • We do not see any fundamental changes in the dropshipping business now vs. 2014 when dropshipping business had ~80% gross margin. Caro-Kann Capital LLC 54

Brands Initiative’s Impact on EBITDA margin and EBITDA • This is more difficult to estimate due to very limited disclosures. But we will do our best. • Brands Initiative is losing money but the exact amount is not disclosed. • Other than public company costs and standalone company infrastructure we do not see why core dropshipping business should be operating with lower EBITDA margin now than in 2014 (i.e., the last year before CHUB acquired Mercent). • In 2014 CHUB had EBITDA margin ex-SBC of 59.9%. Caro-Kann Capital LLC 55

Brands Initiative: Strategic and Financial Importance • CommerceHubhas a potential to build its second sizable business. • Brands Initiative mitigates the risk of retailers and thus CommerceHub being disintermediated by brands going to consumer directly. Caro-Kann Capital LLC 56

CommerceHub: Management, Alignment, and Executive Copmensation Caro-Kann Capital LLC 57

Executive Compensation Executive Compensation Strikes Us As Quite Reasonable; See Discussion of 2016 Option Grant on the Next Slide Francis Poore 2014 2015 2016 Richard Jones 2014 2015 2016 President and Chief Executive Officer Chief Technology Officer Salary 354,775 369,048 385,457 Salary 279,857 Bonus Bonus Stock Awards Stock Awards Option Awards 12,177,842 Option Awards 3,549,353 Non-Equity Incentive Plan Compensation 197,340 165,973 150,000 Non-Equity Incentive Plan Compensation 90,300 All Other Compensation 12,723 15,951 66,923 All Other Compensation 15,948 Total 564,838 550,972 12,780,222 Total 0 0 3,935,458 Mark Greenquist 2014 2015 2016 Eric Best 2014 2015 2016 Chief Financial Officer and Treasurer Chief Strategy Officer Salary 175,000 Salary 224,170 Bonus Bonus Stock Awards Stock Awards Option Awards 1,653,999 Option Awards 587,520 Non-Equity Incentive Plan Compensation 85,723 Non-Equity Incentive Plan Compensation 68,738 All Other Compensation 48 All Other Compensation 12,075 Total 0 0 1,914,770 Total 0 892,503 0 Bob Marro 2014 2015 2016 Chief Financial Officer and Treasurer Salary 218,938 248,968 Bonus Stock Awards Option Awards 1,224,000 Non-Equity Incentive Plan Compensation 92,997 99,499 All Other Compensation 12,723 15,951 Total 324,658 1,588,418 0 Caro-Kann Capital LLC 58

2016 CEO Options Grant • Shortly before the spinoff CEO Frank Poore received a massive stock options grant. • Details: o ~2.3M options o Strike = $16.34 o This option grant can make CEO ~5% owner (less if one uses the Treasury method) • We view it as a solid tool to align CEO incentives with shareholders’ interests. Caro-Kann Capital LLC 59

CommerceHub: Valuation Caro-Kann Capital LLC 60

CHUB: Relative Valuation Relative Valuation at a Glance: SaaS Comments Retail Vertical 1 CHUB metrics include both core Dropshipping Business and Brands Relative Valuation: SaaS Retail Vertical Initiative business. Players 2 CHUB trades at a higher EV/Revenue multiple, which is well deserved give its 50.0x 41.4x higher EBITDAmargin. 40.0x 37.4x 30.0x 28.1x 22.5x CHUBtrades a 10x – 20x turn discount on 20.0x 17.5x 3 EV/EBITDA. We adjusted CHUB 10.0x 6.6x 4.1x 2.0x EBITDAforcapitalized software expenses. 0.0x -10.0x EV / 2017E REVENUE EV / 2017E ADJ EBITDA EV / (2017E EBITDA 4 CHUB trades at a massive 15x+ turn -20.0x MINUS SBC) discount on EV/(EBITDA minus SBC). -30.0x -31.1x -40.0x 5 CHUB is growing its revenue at a rate CHUB SPSC ECOM comparablele to SPSCand ECOM. Source: Interviews with catalogue sellers Caro-Kann Capital LLC 61

CommerceHub: Valuation A Few Methodology Notes • Few sellside analysts who cover the stock lump Dropshipping Business and Brands Initiative together. o We DISAGREE. • SOTP valuation is the best approach: o Dropshipping Business should be valued separately. o Brands Initiative should be valued separately. • We treat stock-based compensation as a true expense. • We treat capitalized software as a true expense. Caro-Kann Capital LLC 62

Dropshippig Business: Let’s Reconstruct Dropshipping Financials CHUB: Dropshipping Model Only, ths USD 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Dropshipping Revenue 30,000 37,761 50,761 65,761 77,092 90,969 106,434 123,463 141,982 161,860 y-o-y growth, % 25.9% 34.4% 29.6% 17.2% 18.0% 17.0% 16.0% 15.0% 14.0% Dropshipping gross margin, % 80.1% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Dropshipping gross profit, % 52,664 61,674 72,775 85,147 98,770 113,586 129,488 y-o-y growth, % 17.1% 18.0% 17.0% 16.0% 15.0% 14.0% Difference btw revenue growth and EBITDA growth, % 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% Dropshipping EBITDA before SBC and Capitalized Software and Public Co 15,000 21,000 30,000 39,368 46,742 55,857 66,190 77,773 90,606 104,650 y-o-y growth, % 40.0% 42.9% 31.2% 18.73% 19.50% 18.50% 17.50% 16.50% 15.50% margin, % 50.0% 55.6% 59.1% 59.9% 60.6% 61.4% 62.2% 63.0% 63.8% 64.7% Public company costs (5,000) (7,000) (7,250) (7,500) (7,750) DS EBITDA minus Public Co Costs 50,857 59,190 70,523 83,106 96,900 Capitalized Software (2,986) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) DS EBITDA minus Public Company Costs minus Capitalized Software 36,382 43,742 47,857 56,190 67,523 80,106 93,900 y-o-y growth, % 20.2% 9.4% 17.4% 20.2% 18.6% 17.2% margin, % 55.3% 56.7% 52.6% 52.8% 54.7% 56.4% 58.0% Stock-based compensation (SBC) (10,643) (12,346) (14,198) (16,186) SBC as % of revenue, % 10.0% 10.0% 10.0% 10.0% DS EBITDA minus Public Co Costs minus Capialized Software minus SBC 45,547 55,177 65,908 77,714 y-o-y growth, % 21.1% 19.4% 17.9% margin, % 42.8% 44.7% 46.4% 48.0% Caro-Kann Capital LLC 63

Dropshipping Financials: Important Notes • This is an art, not science, mixed with intelligent guesswork. • Disclosure is very limited and we have to do this guesswork. • None of these numbers may ever show up in CHUB’s financials due to the way CHUB is reporting. • We have stated our assumptions (in blue, highlighted in yellow) clearly. We welcome you to use own assumptions. • In 3Q 2016 CHUB changed its accounting policies related to capitalization of software development. We intentionally did not incorporate the impact of such changes so that we have comparability to prior periods. Caro-Kann Capital LLC 64

Dropshipping Financials: Note on Incremental Margins • Our EBITDA margin forecast is likely to be very conservative given that the Dropshipping Business has ~70% - 80% incremental EBITDA margins. Caro-Kann Capital LLC 65

Dropshipping Business: What’s It Worth? CommmerceHub Dropshipping Business Valuation, ths USD 2020E DS EBITDA minus Public Co Costs minus Capialized Software $77,714 minus SBC Multiple 16.0x EV $1,243,424 Cash build up $184,881 Debt + DE 10,000 Equity $1,418,306 FD S/O as of now (including options outstanding but not exercisable) 45,091 Annual dilution 1.5% 2020E FD S/O 47,858 Target Dropshipping Business Value Per Share in 2020, $ $29.64 Caro-Kann Capital LLC 66

Dropshipping Businesses 2020 Valuation: Important Notes • Exit multiple of EBITDA minus Capitalized Software minus SBC of 16x is justified for many reasons. (1) We expect that even after 2020 CHUB will have a long growth runway. (2) By 2020 CHUB’s competitive position will be even stronger. (3) This is the multiple after SBC and the implied multiple of Adjusted EBITDA (before SBC) which sellside always uses would be ~13.25x. Caro-Kann Capital LLC 67

Brands Initiative: How Should We Value It? There is no right answer. Valuation Approach Comments We estimate that Brands Initiative generates ~$4M to $8M 1 Capitalize Losses Forever of cash losses (including capitalized software) per year. We view this scenario as extremely unlikely. 2 Losses for 2 Years, Failure & More realistic than #1 due to aligned incentive and Dr. Subsequent Shutdown Malone’s involvement. We view it as the most likely scenario. However, we cannot predict 3 Losses for 2 Year => how successful this business will be. Can it be $20M in revenue? Successful Business $30M? $50M? Can EBITDA margin be 25%? 35%? Any of this is possible. We will go with #2 since it is more conservative than #3. #1 seems to be almost unrealistic. As more data about Brands Initiative becomes available, one should revise valuation. We tend to think that CHUB will build a very valuable business out of Brands Initiative. Caro-Kann Capital LLC 68

Brands Initiative Valuation • We are assuming $30M in losses over 2017 – 2019. • This is despite current losses of less than $10M / year and management aspirational goals to get to breakeven or above in late 2018 or early 2019. CommerceHub Brands Initiative Valuation, ths USD Brands Initiative Losses (notional, not discounted) before Shutdown ($30,000) Value per Share, $ ($0.63) • We want to emphasize that we do NOT think that Brands Initiative has a negative value. We are using the negative value above as a thought experiment to show that CHUB is still a great investment despite this draconian approach. Caro-Kann Capital LLC 69

CommerceHubValuation: Putting It All Together • We believe that 15%+ IRR is achievable through 2020. • We also believe that 2020 will not be the end of CHUB story. • Finally, we are assigning a small negative value per share to Brands Initiative while in reality we believe it would evolve into a successful, valuable business. CommerceHub Valuation Dropshipping business value per share in 2020, $ $29.64 Brands Initiative value per share, $ ($0.63) CHUB Valuation $29.01 $17.00 Upside, % 70.6% IRR (holding through 2020/12/31), % 16.2% Caro-Kann Capital LLC 70

Risks Caro-Kann Capital LLC 71

Key Risk: Overall Health of Retailers • To thrive CHUB needs to be working in an environment where there are multiple retailers. • Some CHUB’s customers are weak (e.g., JCP, Sears). • Other customers are strong (e.g., Home Depot, Costco). • Note that we are not betting on brick-and-mortar retailers’ revival. Not at all! • We just need enough traditional retailers to stay in business. • In fact, massive store closures would likely shift traditional retailers focus to e- commerce and dropshipping. • Still overall health of retailers is the key risk. Caro-Kann Capital LLC 72

Risk: Customer Concentration • Two retail customers together with their suppliers accounted for more than 10% of CHUB’s revenue each in 2016. • The 3rd largest customer (most likely QVC) together with its suppliers accounts for ~7% • Top 4 – 6 customers account for 5%+ each. • At the very least top 6 customers account for 42% of revenue. • Loss of any of them would be very detrimental. Caro-Kann Capital LLC 73

Note on Share Classes Caro-Kann Capital LLC 74

Note on Share Classes • There are two publicly traded classes of shares: • Class A shares (ticker: CHUBA) • Voting • Class C shares (ticker: CHUBK) • Non-voting • Usually trade at a small discount to CHUBA • We prefer CHUBK as Dr. Malone has ~33% of voting power. Caro-Kann Capital LLC 75

Questions and Further Inquiry ArtemFokin [email protected] +1-917-667-2334 Caro-Kann Capital LLC 76

Appendix Caro-Kann Capital LLC 77

Note on Historical SBC and Why It Was Overstated (1) • Until the spinoff transaction equity or equity-linked awards granted to CHUB’s employees were cash-settled as opposed to share-settled. • The difference is critical for all practical purposes. Let’s use an example. • In Year 1 a company grants RSUs to an employee that are worth $100. In Year 1 the company records $100 of SBC expense (we are assuming immediate vesting). • The Company does very well in Year 2: sales are growing, customer count is rising, etc. The company grants RSUs worth $100 to the same employee in Year 2. • However, the RSUs granted in Year 1 have increased in value due to the company’s strong performance (that would be calculated by internal finance department). Let’s say that they are now worth $140. • Since RSUs are cash-settled, the company will record $100 of SBC expense due to new RSUs and $40 of “incremental” expense due to Year 1 RSUs increase in value => $140 of SBC in total. Caro-Kann Capital LLC 78

Note on Historical SBC and Why It Was Overstated (2) • Obviously, incremental $40 of SBC would not be viewed as a real economic expense if RSUs in question were share-settled. • The same exercise would be repeated in Year 3 for both RSUs granted in Year 1 and RSUs granted in Year 2. • The incremental “paper-only” SBC expense will keep accumulating over the years as long as the company performs well. • This is exactly what happened with CHUB’s SBC expense and this is exactly the reason why pre-spinoff SBC expense is grossly overstated. Caro-Kann Capital LLC 79

Questions and Further Inquiry ArtemFokin [email protected] +1-917-667-2334 Caro-Kann Capital LLC 80