Mobile Searches Will Help Bing's Search Revenues

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Microsoft's ( MSFT ) Bing search engine which competes with Google ( GOOG ) and AOL ( AOL ) is seeing declining revenues from its search business. Revenue per search (RPS) refers to the average advertising revenue generated by Microsoft for every 1,000 searches conducted on Bing. RPS is calculated based on two metrics: CTR (click-through rate) and CPC (cost per click).

We estimate that Bing's RPS has declined from around $14.70 in 2008 to around $11.30 currently due to shift in high revenue generating verticals like finance and technology to lower revenue generating verticals like entertainment and consumer products. However newer channels for search like smartphones and tablets should give a boost to Bing's declining RPS.

While we expect Bing's RPS to decline gradually to $7, Trefis members expect the RPS to remain over $11 by the end of our forecast period. However higher RPS does not warranty a strong upside to Microsoft's stock because Bing (combined with MSN and aQuantive) constitutes only around 3% of MSFT stock by our estimates.

We currently have a Trefis price estimate of $31.56 for Microsoft's stock , about 16% above the current market price of around $27.

Higher Search Volumes in Lower RPS Verticals

The search volume on Bing is shifting away from high RPS search verticals such as technology, finance, and retail toward verticals such as entertainment, local, and consumer products, where monetization is appreciably lower. Lower monetization in certain verticals is attributable to lower pricing, or cost per click, of search keywords.

Growth in Search on Mobile Devices

On small, mobile devices like smartphones and handhelds users generally tend to search for a commercial purchase compared to academic research-driven searches. Searches for commercial products have higher click-through rates which means revenue per search on mobile devices should also be higher.

Although mobile searches presently form only a fraction of the overall search mix, they are expected to grow meaningfully in the coming years. And Microsoft is making some smart moves in this direction to attract more mobile phone users like sponsoring Tapulous's Tap Tap Revenge app for the iPhone.

Tapulous studio is a part of Disney Mobile which creates top-selling music and social apps for the iPhone platform. Microsoft's sponsorship is a way to attract iPhone users to download the Bing app to get free songs.

We think that initiatives like this could help drive greater share of mobile searches for Bing, which could contribute to MSFT's upside.

Our complete analysis for Microsoft's stock is here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AOL , GOOG , MSFT , YHOO

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