Google Acquires Wildfire And Enters Into Social Ads

Google (NASDAQ: GOOG) announced that it will acquire Wildfire, a firm that helps companies deploy marketing campaigns on social networks such as Twitter and Facebook. ^[1] The exact terms of the agreement have not been released, but estimates state that Google paid approximately $250 million for the company. ^[2] This acquisition shows that Google continues to focus on the lucrative social arena, and we expect it will integrate Wildfire’s offerings with Google+ to improve advertising experience on the platform. In the social advertising space, Google primarily competes with social networks such as Facebook (NYSE: FB) and LinkedIn (NASDAQ: LNKD).

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With over 90% of Google’s revenues coming from ads, it makes logical sense that it seeks to make its ad offerings, either organically or via acquisition. Google+, the social platform that the company released last year, has been growing steadily, and this acquisition should empower the company to better generate  high value advertisements targeting specific users. ^[3] If Google integrates Wildfire without any  problems, we believe the ad campaigns on Google+ would also help increase revenues for the company’s search platform.

Earlier this year Google launched social search, an integration of Google+ with the Google search engine. In this service, if a person in a user’s circle has +1’ed a similar search result, the specific result will show as one of the top results in new searches. We think that as more ad campaigns are conducted on the Google+ platform, Google will also be able to provide more targeted advertising on its search engine.

For example, if a user does a Google search for a general Mexican restaurant and a specific one has been +1’ed during a Google+ ad campaign by someone in his or her circle, an advertisement for that specific restaurant would show at the top of their search results. This increases the likelihood that the user will at least click on the ad to determine whether or not they are interested in the product offering. We think that the integration of campaigns on Google+ and Search will benefit both advertisers and consumers because of accurate targeted advertising, but can also increase the click through rate (CTR) and cost per click (CPC) on Google’s search platform.

We currently estimate that Google’s revenue per search on PCs will decrease to $12 by the end of our forecast period; but, if the revenues stay relatively flat because of more targeted ads, we estimate a 5% upside to our target price. You can use our tool below to assess the impact that a change in Google’s revenue per search on PCs will have on the stock price.

Overall, this acquisition presents an interesting revenue generating opportunity for Google. We think that a successful integration of Wildfire will not only drive revenues on Google+, but also on its search service due to its social search offering. We currently have a $681 price estimate for Trefis, which is approximately 8% above the current market price.

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1. Wildfire is Joining Google!, Wildfire Blog [↩]
2. Google to Buy Social Agency Wildfire Interactive for $250 million, Ad Age [↩]
3. Larry Page: Google+ Is “Social Spine” With 170M Users, “Healthy Growth” and “Impressive Engagement”, TechCrunch [↩]