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Google Should Benefit Most From Search Market Growth
9/9/2010 12:39:00 PM
As online search grows more complex and encompasses new categories of content, we expect overall search volumes to increase sharply during the Trefis forecast period. We think search advertising market leader Google ( GOOG ) will reap the lion's share of benefits from this trend, followed by distant competitors Yahoo ( YHOO ) and Microsoft ( MSFT ).
Our analysis follows below.
Search advertising market
Google is the overwhelming leader in the search advertising market with a global share of 65%, versus 10.4% for Yahoo, 9% for Microsoft and 3.2% for AOL. Google posted $15.2 billion in search advertising revenue in 2009, compared to $1.4 billion for Yahoo and another $1.4 billion for Microsoft.
We estimate that search advertising contributes around 72% of Google's stock value, 21% of Yahoo's stock and less than 2% of Microsoft's stock. As a result, Google's stock is far more sensitive to changes in the search market than Yahoo's and Microsoft's.
New search trends
The days are long past when Internet search was mostly confined to text on websites. Search now extends to digital videos, images, books, music and so on. Crucially, search is becoming an increasingly mobile business. Going forward, we expect search growth to be driven by rapid adoption of search-capable mobile phones, higher mobile Internet speeds, and increasing partnerships between search engines and mobile phone manufacturers.
This broadening of search has been stimulating increased user engagement in search. As a result, the average number of searches per Internet user per month has risen sharply in recent years, from around 17.9 per month in 2005 to 33.4 per month in 2009.
We currently expect this trend to continue going forward, reaching an average of 49 searches a month by the end of the Trefis forecast period. You can drag the trend-lines in the charts below to create your own search growth forecasts and see how they impact the three stocks.
If growth in the average number of searches per user exceeds our expectations, reaching 55 searches per month by 2016, it could yield a 5% upside to our stock price estimate for Google and a 2% upside to our Yahoo estimate. The impact on Microsoft's stock would be minimal because search advertising represents only a tiny share of Microsoft's revenues.
You can see the complete $19 Trefis Price estimate for Yahoo's stock here.