) and Google (
) recently extended their search partnership for another five
years. Under the deal, Google provides search services to AOL
websites in exchange for a share of the revenue from text ads that
AOL places next to search results.
The deal also incorporates mobile search and will make AOL video
content available on YouTube. We think this partnership makes sense
for AOL, which benefits from Google's much larger presence in the
search advertising market. Our analysis follows below.
Hitherto, Google has only provided search capability to users
who access AOL sites from their PCs. Under the new Google/AOL
contract, Google will also power AOL search from smartphones and
other mobile devices.
Last year advertisers spent $128 million on mobile search and
display advertising in the U.S.,
according to eMarketer research cited in the Wall
Mobile ad spending is expected to read $187 million in 2010. That's
still tiny compared to the PC-based search market PC Internet
search market, which was worth $10.9 billion in 2009 according to
Credit Suisse (also quoted in the Wall Street Journal).
Search advertising constitutes around 12% of the
$24.97 Trefis price estimate for AOL's stock
. AOL competes with Google, Microsoft (
) and Yahoo (
) in the search market, where its share has been declining for
years. We expect AOL's search market share to continue its long
slide, from around 3.2% in 2009 to 1.8% by the end of the
Trefis forecast period.
We expect mobile search advertising to grow quickly in coming
years. There could be a small upside to the
$25 Trefis price estimate for AOL's stock
if mobile search helps slow AOL's search market share
declines. You can drag the trend-line in the chart above to
create your own mobile search forecast for AOL and see how it
impacts the company's stock price.
Under the terms of AOL's new partnership with Google, AOL's
video content will be available on YouTube as well as on AOL sites.
As of May 2010, YouTube had around 145 million unique visitors per
month in the US, according to Comscore. The average U.S.
visitor viewed more than 100 videos per month in May.
Although the revenue-sharing terms were not disclosed, AOL
should benefit from YouTube's massive reach. Internet media
companies typically reap more advertising revenue per page view
from video than they do from text. Last year AOL's revenue per page
) was around $3 per 1,000 impressions.
We expect the company's RPM to slide going forward, reaching
$2.65 by the end of our forecast period. However, AOL's stock could
see a 3% bounce if RPM stays constant at about $3 between now and
2016 as a result of the YouTube partnership.
In the next interactive chart you can drag the trendline to
create your own revenue per page view forecast for AOL and see how
it impacts the company's estimated share value.
And you can see
the complete $24.97 Trefis Price estimate for
AOL's stock here.