Alphabet Inc. (GOOG)

New Scenario
Request Scenario
Sankey Grid
Subscribe to Updates
Select a component to explore
Top Drivers for Period
Key Drivers



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 mobile Search Market Share: Google also continues to lead the mobile search market with an estimated market share of 95% in 2016. However, as the company improves its in-app search with deep links, Google revenues from mobile search will improve. There could be a downside of 10% to the Trefis price estimate if Google's mobile search market share declines to around 65%. On the other hand, if Google continues to bring innovation such as enhanced campaigns that bundle mobile search with desktop search and in-app search with deep links, it could continue to gain market share. There could be an upside of 7% to the Trefis price estimate if its mobile market shares increase to 98% by the end of Trefis forecast period.

  • Google Desktop Search Market Share: Google's global PC search market share has stayed at dominant levels, from 66% in 2011 to around 62% in 2016.However, Microsoft has been able to gain some market share over the past few years. While this might impact the number of searches on Google, we expect that Google's share will improve given that it is the most recognized search engine in emerging markets, where internet penetration is growing rapidly. We expect its share to increase to 63% in the ensuing period. There could be a downside of 10% to the Trefis price estimate if Google's PC market share declines to levels of 50% and its mobile search market share declines to around 75%. On the other hand, if Google continues to expand its reach, through increased internet penetration and new search products, it could continue to gain market share. There could be an upside of 10% to the Trefis price estimate if its PC and mobile market shares increase to 75% by the end of Trefis forecast period.

  • Google Search EBITDA Margin for desktop and mobile: We currently forecast Google's PC Search EBITDA margin to stabilize at 2016 level of 57% by the end of the Trefis forecast period. Historically, Google's main operating cost component has been traffic acquisition costs (TAC). We believe that if Google can limit the growth rate of TAC and employee compensation relative to revenues its margins can stabilize and even improve to historical levels. There could be an upside of 10% to the Trefis price estimate for Google if Google's PC Search EBITDA margin were to improve to 65% over the forecast period. However, if its margins were to decline to 45% over the forecast period, our price estimate could decline by 10%.

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 and Google's international sites (e.g.,, 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.


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 like Yahoo and Microsoft have been consistently pushed back as Google retains market shares of around 63% and 85% 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.

High Search Monetization on Mobile

We estimate Google's revenue per 1,000 searches (RPS) on mobile devices to be around $10 in 2016 and expected it to decline going forward. Advertisers are increasingly recognizing that users spend a lot of time on their smartphones/tablets, with activities including music, watching videos and social networking. However, the effectiveness of search on mobile has been in question. As a result, monetization of search on mobile devices should decrease, inline with the RPS levels for PC-searches.


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 eMarketer, global mobile ad spending is expected to grow to $101 billion in 2016, an increase of 30% over 2015 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 affects of in-app search, and the mobile revenues for the company have improved.

Threat from AD-Block Software

Penetration of Adblock software, which restricts websites from displaying ads on websites, is increasing. There are 198 million active Adblock users around the world. This number is expected to cost publishers nearly $30 billion during 2017. This trend is especially detrimental to Google's business as the company heavily relies on Ads for its revenues.

Recent Trefis Articles

How Smart Speakers Can Boost Alphabet’s Revenues

Recently, Google (NASDAQ: GOOG, GOOGL) launched the Home Mini smart speakers. While Home Mini is a smaller and cheaper version of Google Home, it boasts most of the primary features available in Google Home, such as the ability to stream music and manage a wide variety of connected devices. ...More

Alphabet Earnings: Stock Soars To New High As Revenues Beat Expectations

Alphabet (NASDAQ:GOOG) announced its third quarter results on October 26. The company posted 24% y-o-y growth in revenues to $27.7 billion. In line with our expectations, much of the growth was driven by mobile search, the programmatic platform, and YouTube. ...More

Alphabet Earnings Preview: Revenues From Search Ads, YouTube, Mobile Set To Grow

Alphabet Inc. (NASDAQ: GOOG) is set to announce its Q3 2017 earnings on October 26th. We believe that Google’s search ads revenues improved in Q3 as ad volumes increased, offsetting the likely declines in cost per click. ...More

Why The Success Of New Pixel Phones Is Important For Google

Last year, Google (NASDAQ: GOOG) launched its “Made By Google” campaign to signal its intent to aggressively participate in the hardware market, and last week it launched new devices to bolster its hardware revenues. ...More

Google Bets On Mobile Hardware Again With HTC Deal

Google (NASDAQ: GOOG) recently announced that it was acquiring part of HTC's mobile phone business for $1.1 billion. This is the second time Google has made an acquisition in the handset space. ...More

Alphabet Earnings: Despite Growth In Revenues, EU Fine Impacts Profits

Alphabet (NASDAQ:GOOG) announced its second quarter results on July 24. The company posted 21% growth in revenues to $26 billion. The key highlights of the results were as follows: Google segment revenues for the quarter grew by 20.6% y-o-y to $25.7 billion. While Google’s operating profit grew by 11. ...More

Alphabet Earnings Preview: Mobile, Video Ads To Drive Revenue Growth

Alphabet Inc. (NASDAQ: GOOG, GOOGL) is set to announce its Q2 2017 earnings on July 24th. For Q2, we expect that Google continued to dominate the online search ad market and its revenues improved as ad volumes increased, offsetting likely declines in cost per click. ...More

How YouTube Can Add $50 Billion To Alphabet’s Revenues By 2020

According to Trefis estimates, YouTube makes up nearly 18% of Alphabet’s (NASDAQ: GOOG) value. While most of YouTube's revenue stems from online ads, it did generate some revenues from its subscription services as well. We estimate that the company disbursed close to 70% of the revenues to video content producers as part of its content sharing agreements. ...More

3 Innovation Trends You Can’t Ignore

Innovation never disappoints. That was the battle cry upon which I started at Wall Street Daily 10 years ago at the top of the oil boom. I’m especially bullish on three specific industries at the moment. The post 3 Innovation Trends You Can’t Ignore appeared first on Wall Street Daily. By Louis Basenese Related posts:Why Pokémon GO Has the Power to Save Lives Will We Be Ready When Robots Attack? Wearable Tech: From “Peak Hype” to “Peak Adoption” Friday Charts: Apple Pops, the Death of Volatility, and Fitbit’s Tragic End ...More

Alphabet’s Strong Earnings Propel Stock To New High

Alphabet (NADDAQ:GOOG) announced its first quarter results on April 27th. ((Alphabet Earnings Release)) For the quarter, the company reported 22% year-on-year growth in revenues to $24.75 billion, about in line with our expectations. On a constant-currency basis, revenues grew 24%. ...More

Alphabet Earnings Preview: Revenues Set To Grow Even As Moonshot Projects Bleed Cash

Alphabet Inc. (NASDAQ: GOOG, GOOGL) is set to announce its Q1 2017 earnings on April 27th. ((Alphabet Investor Relations)) For Q1, we believe that Google continued to dominate the online search ad market and its revenues improved as ad volume increased, which offset the decline in cost per click. ...More

A Closer Look At Google Play Music’s India Debut

The Indian music streaming market is growing steadily, with rapid smartphone adoption and increasing demand for streaming from younger users. Streaming music users in India are estimated to grow rapidly and reach 273 million by 2020. ...More

How Effectively Can YouTube TV Compete With Other OTT Providers?

Google (NASDAQ: GOOG) continues to explore avenues to boost YouTube’s revenues. In 2015, the company launched ad-free video streaming subscription service YouTube Red, while last year it announced its plans for a paid subscription cable service that would offer customers a bundle of cable TV channels streamed over the Internet. ...More

Should AT&T Be Worried As Google Unveils YouTube TV?

Competition in the streaming TV market looks set to heat up, with Internet behemoth Google announcing that it will roll out a new service called YouTube TV in major cities in the United States over the next few months. AT&T (NYSE:T), which became the largest U.S. ...More

Alphabet Earnings: Mobile Search And YouTube Continues To Boost Revenues

Alphabet (NADDAQ:GOOG,GOOGL) announced fourth quarter results on January 27th. ((Alphabet Earnings Release)) For the quarter, the company reported 22% year-on-year growth in revenues to $26.04 billion, in line with our expectation. On a constant-currency basis, revenues grew 24%. ...More

Alphabet Earnings Preview: Search And Video Ads Revenues Set To Grow, Moonshot Venture Will Continue To Hemorrhage Profitability

Alphabet Inc. (NASDAQ: GOOG, GOOGL) is set to announce its earnings on January 26th. ((Alphabet Investor Relations)) While we believe that its search company Google continued to dominate the online search ads market in 2016, its ‘moonshot’ (i.e. ...More

Why 2017 Will Be A Important Year For The Premium Smartphone Market

2017 is shaping up to be a very interesting year for the high end of the smartphone market, for multiple reasons. Firstly, demand for premium smartphones should grow further, as first-time smartphone customers from a few years ago upgrade to more capable and potentially expensive devices. ...More

Reviewing Alphabet’s Performance In 2016.

Alphabet’s (NASDAQ: GOOG, GOOGL) search company Google continued to dominate the online search ads market in 2016. The company also made headway in its moon shot businesses, which span life sciences, self-driving cars, IoT and Internet Fiber businesses. Nevertheless, the investment outlay in these businesses continued to impact the profitability. ...More

Alphabet Earnings: Mobile And YouTube Boosts Google Revenues As Other-Bets Still Bleed Cash

Alphabet (NADDAQ:GOOG,GOOGL) announced third quarter results on October 27th. For the quarter, the company reported 20% year-on-year growth in revenues to $22.45 billion, in line with our expectation. On a constant-currency basis, revenues grew 23%. Google segment revenues for the quarter were $22.25 billion and were up 20% over the prior year. While Google’s operating profit grew by 16. ...More

Alphabet Earnings Preview: Revenues To Grow On The Back Of Increasing Video And Search Ads Google

Alphabet (NASDAQ:GOOG) is set to release Google's Q3 2016 earnings on Thursday, October 27th. ((Alphabet Announces Date of Third Quarter 2016 Financial Results Conference Call, September 15 2016)) In Q2, the company reported that its revenues grew by over 21% year over year to $21.50 billion. ...More

My Notes

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