Google (NASDAQ:GOOG) announced on Thursday that it is testing the integration of Gmail search with its Google search platform to generate more personalized search results for the users.  The feature will be available on a trail basis for select users (if you want to participate in the trial you can sign up here). We think, if successful, the integration of the two functions can increase the number of searches per PC and revenue per search, consequently increasing Google’s overall value. Google primarily competes with Microsoft’s (NASDAQ: MSFT) Bing in the online search space.
Currently, we estimate that Google’s search revenues from PC ads represent approximately 30% of the company’s value. We would probably see an upside to the Trefis price estimate if the product succeeds as it is likely to directly influence our forecasts for two drivers:
1) Internet Searches per PC in Use
Previously, if users wanted to search their Gmail inbox for a message or a piece of information they had to log into the Gmail platform and conduct the search. However, the integration of Gmail search with Google search will likely change this behavior as users will be able to use the search interface for both email and Internet searches. We think that as more users change the way they search their inbox, we would see an upside in the number of searches per PC in use.
We currently estimate the number of searches per PC will increase slowly to 116 by the end of our forecast period, but if this number increases to approximately 140 per month, it would provide a 5% upside to our price estimate.
2) Google’s Revenue per Search
Google’s intention for integrating Gmail search with its search client is to generate more accurate search results for its users. If search accuracy does increase, Google will have the opportunity to provide more targeted ads for each search. Since advertisers are willing to pay more for a well-targeted ad campaign, the increase in ad accuracy can increase revenue per search.
We currently forecast Google’s revenue per thousand searches will decrease to approximately $12 by 2019, but if it remains more or less flat at $16, we could see an approximate 5% upside to our price estimate. You can assess the impact of a change in revenue per search on Google’s stock price by using the chart below.
We currently have a $661 price estimate for Google, which is approximately 3% above the market price.Notes:
- Building the search engine of the future, one baby step at a time, Google Official Blog [↩]