Samsung Electronics (PINK:SSNLF), the largest television maker, will partner with Google to provide the latter’s services on Samsung TVs.  This is a continuation of their partnership on the Android platform which has catapulted Samsung into the market leader in the smartphone space globally. As part of the TV partnership, Samsung will seek to offer the Chrome browser and the Android apps store on its TVs by the end of the year. We think this TV partnership can pay dividends for both companies as users will prefer to have a similar OS experience across their media devices.
We were slightly surprised earlier when Google announced its plan to sell Motorola’s home business division as it gave the company a platform to make a stronger entry into the home business segment. However, the announcement of a partnership with Samsung provides more insight into Google’s TV strategy and provides explanation for the planned sale of Motorola’s home business. It seems that Google wants to tackle this industry with a smartphone-like strategy, focusing on software rather than hardware. Until now, Google’s attempts to enter the TV space have not been as successful as desired, but we think that the partnership with Samsung will help its browser and app store gain market share led by Samsung’s leadership in the TV industry (captured 19.2% of all flat-panel TVs sold in Q2 2012).
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However, even if Google’s products gain market share in television, we don’t expect it to provide much upside to Google’s stock as standalone segments. But, as with most other Google products, we do think that it provides the company the opportunity to cross sell its other products, specifically Youtube.
We currently forecast that Youtube makes up approximately 8% of Google’s total value. If Google’s integration with Samsung is successful and the company is able to create a more streamlined Youtube experience, we could see new users on the platform. Additionally, since Youtube primarily makes money from advertisements, we think that it can charge more for advertisements on TVs. This would have a direct impact on Youtube’s revenue per page view and could provide upside to Google’s value.
We currently have a $661 price estimate for Google, which is approximately 5% below the current market price.