Trefis: Collaborate on Forecasts
View | Modify | Create | Collaborate

Alphabet Inc. (GOOG)

New Scenario
Request Scenario
Sankey Grid
Subscribe to Updates
Component
% of STOCK PRICE
Select a component to explore
 
Top Drivers for Period
Key Drivers

Notifications

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Alphabet's value that present opportunities for upside or downside to the current Trefis price estimate for Alphabet:

Alphabet's Google Search Ads


  • Google Search Ads Revenues: Google continues to lead the search market with an estimated market share of over 90% in 2018. As the company improves its in-app search with deep links, Google revenues from mobile search will improve. We currently project search ads revenues to grow to $209 billion by 2024.

  • Google Search EBITDA Margin for desktop and mobile: We currently forecast Google's PC Search EBITDA margin to decline from 2018 level of 43.4% to 41.2% by the end of the Trefis forecast period. Historically, Google's main operating cost component has been traffic acquisition costs (TAC). We believe that investments to allay privacy related concerns, growth rate of TAC and employee compensation relative to revenues are likely to pressure its margins.

For additional details, select a driver above or select a division from the interactive Trefis split for Google at the top of the page.

BUSINESS SUMMARY

Google.com and Google's international sites (e.g. Google.ru, Google.com.br, and others) offer a dedicated platform to conduct searches on the Internet through PCs and wireless devices.

Google makes money from contextual advertising known as keyword advertising that is shown based on the type of search a user conducts. For example, a user searching for "NYC restaurants" would be shown a variety of ads on the right-hand side of Google's search results pertaining to restaurants and food services in New York City.

Advertisers on Google bid for keywords (such as "NYC restaurants ") to display their advertisements on the Google search page. Google AdWords allows these advertisers to display advertisements in Google's search results and the Google Content Network through either a cost-per-click or cost-per-view scheme. The pricing of keywords, the inventory of keywords available, and the frequency of user search, impact how much money Google makes on search.

In addition to advertising on its search engine, Alphabet makes money by placing advertisements on other Google-owned properties such as video sharing site YouTube, email service Google Mail (Gmail), etc. Alphabet also makes money by facilitating the placement of advertising on its "partner" websites (via ad serving platform AdSense) from which it receives a share of the advertising revenue.

Google search on mobile is increasingly gaining importance as more and more users are shifting towards mobile devices like smartphones and tablets for desktop-based web browsing. According to our estimates, derived from publicly available sources, tablets and smartphones surpassed PC's in use globally in 2014. As a result, mobile search is increasingly gaining importance for Google, rivaling its PC-based search in contributing towards Google's stock.

SOURCES OF VALUE

We believe Google Search Ads is much more valuable than Ad Partnerships for Search & Content, YouTube, Gmail and other divisions of Alphabet due to the following reasons:

Google Dominates Web Search on a Global Scale

Alphabet's flagship search business, Google, continues to dominate globally. Competitors such as Microsoft have been consistently pushed back as Google retains market shares of around 63% and 95% in PC and mobile devices respectively. The company's superior algorithms and brand recognition have clearly found favor with users, and to date the search engine market has not boasted of a better search tool. Given the current trends, Google's dominance is expected to continue, although one cannot discount future technologies such as Apple's Siri as possible future threats.

Growing Internet Searches per PC in Use

As web penetration increases across emerging markets like India, users are expected to increasingly become more familiar and comfortable with using web search as the flagship tool to look for information. In addition to this, web browser development has increasingly made it easier to promptly do a web search. For example, Google Chrome obviates the need to actually open the Google homepage to do a search. These above factors should contribute significantly in growing web searches for every PC device globally.

Smartphone and Tablet Usage on the Rise

The mobile revolution would have a big role to play in the way Google search is utilized. Smartphone and tablet capabilities are improving by leaps and bounds. This includes personal usage like finding restaurants and utilizing maps and GPS (Global Positioning System), as well as professional uses such as sending/receiving e-mails and making presentations. As bandwidths increase in emerging markets, mobile device functionality is expected to come at par with PCs in the coming years. This should lead to a substantial increase in the number of mobile devices in use globally.

KEY TRENDS

Growing Mobile Search

We expect increasing adoption of Internet search capable mobile phones, higher mobile Internet speeds, and increasing partnerships between search engines and mobile phone manufacturers (for e.g. think Google search on iPhone). According to a report by Zion Research, global mobile ad spending is expected to grow to $245 billion by 2022, a CAGR 15% over 2016 numbers. Google's open source mobile OS, the Android, should greatly benefit from this, as it uses Google search as the default search option. The Android also has the advantage of being used by multiple manufacturers, including Samsung, LG HTC and most of the Chinese vendors.

Increasing Video Advertising

In contrast to search, which is more functional and commercial in nature, online video and social networking are more entertainment-focused, where ads are generally seen as a distraction. Currently, ads displayed on such platforms are graphical and static in nature, which does not drive the same recall as a moving video (e.g. television ads). As YouTube and other video sharing sites figure out better ways of displaying ads which are not intrusive and do not interfere much with the user experience, advertisers will be willing to pay more for such ads, driving up overall video advertising monetization.

In-App search Can Be A Challenge

With the advent of the smartphone, application development has taken center stage. Most smartphone users now use specific apps to search for products and services. For example, users tend to use Amazon's app to search for products they want to buy, and Yelp's app to search for services (Resturant, Taxi's etc). As a result, Google's search engine is circumvented completely. This can lead to a loss in revenues and market share for the company. However, to get around this issue, Google introduced deep links that surface information stored in apps. This has helped the company to counter the effects of in-app search, and the mobile revenues for the company have improved.

Recent Trefis Articles

Brisk Revenue Growth, Improving Margins Helped Google’s Stock Double In 5 Years

Alphabet (NASDAQ:GOOG) recently disclosed that its cloud business now has a run rate of $8 billion a year. The company has done extremely well to double its cloud revenues from the billion-dollar-a-quarter level in Q4 2017. ...More



Did Google’s Cloud Focus Mitigate Advertising Revenue Headwinds In Q2?

Alphabet (NASDAQ:GOOG), Google's parent company, is scheduled to report its Q2 earnings on Thursday, July 25. The tech giant had reported an earnings beat in Q1 despite missing market expectations on revenue owing to weakness in advertising revenues. ...More



Can Google’s Advertising Business Cross $200 Billion In 3 Years?

Per Trefis estimates, Alphabet's (NASDAQ:GOOG) advertising revenues are likely to reach $211 billion by 2022 despite regulatory challenges and increased competition. ...More



How Has The U.S. Online Advertising Market Grown Over The Last 10 Years, And What’s The Forecast Over The Next 5 Years?

The U.S. advertising market has seen a marked shift in dynamics over the last decade due to the rise of digital advertising. In terms of component growth, non-digital revenues are expected to decline due to budget shifts towards digital. ...More



A Detailed Look At Trends In Advertising Revenues For Google, Facebook And Amazon

Google, Facebook, and Amazon are some of the largest and most successful companies in the tech world. In 2018, Google, Facebook and Amazon posted total revenues of $137 billion, $56 billion and $233 billion respectively. ...More



Google Doubles Down On Its Cloud Bet After Advertising Headwinds Hurt Q1 Results

Alphabet (NASDAQ:GOOG) reported its Q1 earnings earlier this week, and the company beat consensus expectations on earnings despite missing market expectations on revenue due to weakness in ad revenues. The management attributed this miss to forex headwinds over the quarter, and warned that this is also likely to weigh on the top line in Q2. ...More



Why Cloud Could Be A Game Changer For Google

While Google (NASDAQ:GOOG) continues to be the world's dominant search engine, the company’s margin growth is likely to be impacted due to investments towards ensuring that Google complies with data privacy laws across the world. A key growth driver for Google going forward will likely be its Cloud business. ...More



How Much Revenue Can Google Fi Add To Alphabet’s Top Line?

Google Fi is a mobile virtual network operator (MVNO) service operated by Alphabet (NASDAQ:GOOG) that uses networks operated by T-Mobile, Sprint, and U.S. Cellular and over 2 million Wi-Fi hotspots. Google Fi will be switching between these networks to enable best connectivity services to its end users. ...More



How Will Focus On Cloud Impact Google’s 2019?

Alphabet (NASDAQ:GOOG) reported its Q4 earnings on February 4. The company’s results beat consensus expectations on revenue and EPS. While management mentioned that cloud remains one of its fastest-growing businesses, management did not break out the specific figures for cloud. ...More



What To Expect From Alphabet’s Q4 Results

When Alphabet (NASDAQ:GOOG) reports its Q4 earnings on February 4, one of the top investor questions is likely to be the progress on Google Cloud after Thomas Kurian joined the search giant. In addition to the search business, we expect the company to talk a bit more about its cloud strategy in wake of the changing world order with the IBM acquisition of Red Hat. ...More



Could Google Buy Snapchat?

Snap reportedly turned down an offer from Google to buy the company for $30 billion, just before Snap went public. Snap's strong stature among teenagers (and the ensuing growth) has been stunted of late as Facebook has introduced similar features in its Facebook, Instagram and WhatsApp apps. ...More



A Look At Alphabet’s Non-Search Businesses

While Alphabet (NASDAQ:GOOG) has seen tremendous success with its search business, the company’s other consumer initiatives have gone largely under the radar. The rise of cloud computing, coupled with Google’s technological prowess and increasing focus on the Google cloud, could make it the company’s next major growth driver. ...More



What To Expect From Alphabet’s Q3 Earnings

Alphabet (NASDAQ:GOOG) is scheduled to announce its Q3 earnings on Thursday, October 25. The company has consistently reported solid growth in revenues in recent years, driven by Google's core search advertisement business. ...More



Why We Maintain Our $1,200 Price Estimate For Alphabet

Alphabet (NASDAQ:GOOG) has witnessed strong growth in revenues from the core Google advertising segment in recent years. This is primarily attributable to a consistent increase in the number of paid clicks on Google-owned properties as well as network members' properties. ...More



How Will Alphabet Perform In The Second Half Of 2018 After Solid Q2 Growth?

Alphabet (NASDAQ:GOOG) announced its Q2 earnings on July 23, reporting a solid 26% increase in revenues to $32.7 billion. Much of the revenue growth came from Google's core advertising segment, particularly on Google owned and operated properties such as Search, Gmail, Maps and YouTube. Google Properties revenues were up 26% to $23.2 billion, forming 70% of the company's net revenues. ...More



What To Expect From Alphabet’s Q2

Alphabet (NASDAQ:GOOG) is scheduled to announce its Q2 earnings on Monday, July 23. The company has consistently reported solid growth in revenues in recent years, driven by Google's core search advertisement business. ...More



Can Competition Derail WeWork’s Growth?

WeWork is undisputedly the fastest growing company in the co-working industry. This start-up which was valued at $20 billion at its most recent round of funding by Softbank (2017) doubled its members between 2016-2017 and is expecting another 100% increase in value this year. With this rapid paced growth, the company expects to generate revenues of $2. ...More



Here’s How The “Future Of Work” Can Drive Revenues For WeWork

WeWork, the fastest growing co-working space provider was valued at $20 billion in its latest funding round by Softbank.  This valuation commands a Price/Sales multiple of 8.5 with WeWork’s projected revenues of $2.3 billion in 2018. While this revenue multiple is high (WeWork’s closest listed competitor Regus commands a multiple of around 1. ...More



With A Strong Monetization Platform, How Much Can Quora Be Worth?

Quora, the question and answer website founded by Facebook’s ex Chief Technology Officer in 2009, is gaining significant traction. The company now has nearly 200 million monthly active users and was valued at $1. ...More



Can WeWork Sustain Its High Growth – The Key To Its Lofty Valuation?

The collaborative workspace industry is witnessing exponential growth. As enterprises look for efficient workspace solutions which are managed externally, and startups and freelancers explore better infrastructure to work in, the co-working industry is gaining momentum. ...More



My Notes

Name (Required)
Email (Required, but never displayed)