Why Search Business Is Most Valuable For Google?
Google‘s (NASDAQ:GOOG) flagship search business continues to dominate the search engine market globally. We expect that its superior algorithms and brand recognition will enable the company to retain its market share of around 65% for PC search and 90% for mobile search. With mobile phones now dominating the market, we expect mobile search to be the key driver for Google’s revenues in the future. While revenues from YouTube and Google Phone form a very small percentage of Google’s total revenues currently, we expect YouTube to be a key driver going forward as video advertising picks up. Google is experimenting with several other initiatives such as driverless cars, Google Glass, etc.; however, we feel that mobile search and video advertising revenues will be the two key growth drivers for Google.
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Search Advertising Business Accounts For Nearly 70% Of Google’s Valuation As Per Our Estimate
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Mobile search advertising accounts for nearly 40% of Google’s valuation, as per our estimates, and PC search contributes another 30%. We expect Google’s dominance in the search market to continue over our forecast period. While threat from new technologies such as Apple’s Siri, which enables users to bypass Google, exists, innovative techniques in the mobile search space are enabling Google retain its edge. The mobile revolution will play a big role in the way Google search is utilized. The company remains focused on building a mobile ecosystem. Innovations such as deep links to surface app content during mobile search and the Now on Tap feature that lets users access additional useful information based on recent search and present location are steps towards enhancing the mobile search experience. We expect this strategy to boost Google’s mobile search ad revenue and this segment to be a key growth driver for the company.
YouTube – Another Future Growth Driver
Google monetizes YouTube via video ads and has now launched YouTube Red – a subscription service which allows users to watch videos on YouTube without advertisements. While we estimate this division to contribute only around 4% to Google’s valuation, this could become an important driver for revenue growth. The video advertising market is the fastest growing segment in the digital advertising landscape and is expected to rise at over 17% annually between 2015-17. YouTube is the leader in this market and is forecast to have 3 trillion video views during 2015 [1]. Online video advertising revenues are expected to rise to $19 billion by 2017 [2]. This is a huge potential which can be tapped by YouTube. Although it faces serious competition from Facebook in this space, a strong brand recognition and first mover advantage will help it capture a higher market share.
With the digital space moving towards mobile phones, Google’s value will primarily come from its mobile search abilities and video advertising for the YouTube mobile platform.
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- Facebook Video Views Gaining On You Tube [↩]
- Online Video Advertising Revenue Doubles In Three Years IHS and Vidiro [↩]