Capitalizing on a booming smartphone and tablet market, we expect that Google’s mobile search segment adds almost as much value to the company’s stock as its PC search division. while monetization on mobile search is still low for Google, smartphone/tablet growth in emerging markets as well as bandwidth improvements should help mobile search queries match PC levels in the next five to six years, which we account for in our discounted cash flow analysis.
We recently updated our model for Google, dividing its search business into PC and mobile-driven search.
While we retain our price estimate of near $627 for Google’s stock, our forecast estimates indicate that mobile search is comparable to PC search in its contribution to Google’s overall value, with both divisions contributing around 32%-34% towards the stock.
See our full analysis for Google’s stock
Android’s Mobile OS Dominance and Emerging Markets to Drive Growth
Android recently crossed the 50% global market share barrier in the mobile OS market helped by both its wide range of manufacturer-partners as well as its free and open source roots. Google’s mobile OS is also becoming the preferred choice for cheaper tablet versions in emerging markets like India, with the $35 Aakash tablet being a prime example. Developing economies are expected to be a growth hub for mobile devices due to their current low penetration levels especially in non-urban areas. it is this potential future market that places mobile search in the limelight for Google, despite the relatively modest revenues of $1 billion Google generated from mobile search in 2010.
Having said that, patent litigation from arch rival Apple continues to threaten the Android’s market share through sales bans and injunctions on Android-based devices. Google’s mobile search could also be seeing some competition from Apple’s interactive search tool Siri, which employs not just Google, but competitors Yahoo and Bing as well.
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