Google (NASDAQ:GOOG) announced in its quarterly earnings that mobile search is becoming more important to its search and display revenues. Mobile search revenues are expected to pass $1 billion this year at the current run rate accounting for roughly 4% of Google revenues. 
Most Popular Articles
We believe that Google will continue to build upon its lead in the search advertising market, and expect its market share to increase from around 67% in 2009 to 71% over the forecast period. However if its search business takes off faster than we anticipate, Google could potentially grow market share to 80% implying just about 7% upside to our price $632 price estimate – which is 20% above the current market price.
3 Driving Factors for Mobile Search:
1) Rapid Adoption of Android
According to Gartner, Android share in the mobile phone OS market worldwide will increase from 4% in 2009 to 18% by 2010, and then to around 30% by 2014. Google search is the default search engine on Android phones and so Google should benefit from the rapid adoption of Android.
2) Better Payment Mechanism
Presently, the payment mechanism system on Android is not as smooth as that of Apple’s app store, which discourages people from completing the transaction from their mobile phones. According to TheStreet, eBay’s (NASDAQ:EBAY) Paypal is expected to be integrated with Android soon, which will make the payment process much better.  This will enable more transactions to be completed through mobile, which will drive up the mobile cost-per-click rates for Google.
3) Location Based and Personalized Searches
Location based and personalized searches are helpful to the user looking for information nearby. For example, the user searching for car rentals will see an ad telling him or her how far it is to the user’s present location and a map.
Similarly, other features such as ‘click to call’ enables the user to call the vendor directly by clicking on an ad link shown beside the Google search result rather than clicking through to a web site and searching for the number – helpful for popular destinations such as restaurants.
These personalized features are likely to create more clicks or in other words better click through rates, driving up the mobile revenues for Google.
… Leads to Market Share Gains
According to Google, mobile revenues will reach around $1 billion and mobile search queries have grown 5x over the past couple of years. This equals about 4% of total revenues and we believe the above factors will help this grow rapidly in the coming years.
We currently estimate that Google’s market share will reach 71% by the end of our forecast period. However if mobile search grows faster than we anticipate, this could help Google reach market share of close to 80%.
There could be an upside of 8% to the $632 price estimate for Google’s stock, and imply a projected price estimate of close to $680.Notes: