Sunday, 20 July 2014

Google two verbs for the price of one

If you need to know something you Google it, if you want to search for a video you Youtube it. It is no surprise that becoming a verb has helped these two websites become the world's largest and second largest search engines. Fortunately for Google (GOOG) they own both these verbs with the purchase of Youtube for $1.65 billion in 2006.

Still growing faster than the industry
Last week GOOG reported sales growth of 22% outpacing internet advertising market growth of 16% according to Zenith Optimedia. Search, video and social advertising continue to take market share from traditional banner displays helping explain the good performance of GOOG/Youtube and Facebook versus declining revenue at Yahoo. GOOG is expected to take in $53 billion of revenue this year a large number but in the context of a larger market opportunity. According to eMarketer digital ad spend will be $140 billion this year out of a $545 billion global advertising market. This digital opportunity should increase over time as mobile and internet usage increase at the expense of print and TV see below.

Google it
We are expecting growth to pick up for GOOG as it rolls out more mobile advertising including app indexing. GOOG is now able to search across apps so links to apps can appear in search results. Advertisers can find new customers by reaching out to those who have already installed apps from similar categories ie the maker of Candy Crush may want to reach users who have installed apps like Angry Birds. Advertisers can also link parts of their app directly to the ad ie wotif could take you directly to their app to book a hotel deal if you click their ad.

Youtube it
Youtube has more than 1 billion unique users per month with 40% of traffic from mobile devices. According to Youtube over 6 billion hours of videos are watched each month nearly an hour for every person on the planet! We are bullish Youtube as it is beginning to be run like a traditional TV network to attract the big advertisers. Using similar metrics to traditional advertising Youtube is including third party measurement from Comscore and guaranteeing views for the top 5% of content. This is important to brands as they only want to be associated with quality material not cats playing around with balls of string. We are also bullish on GOOG inserting app install ads on Youtube similar to Facebook where users can download the app when the ad is clicked. This is a big opportunity as Youtube keeps 45% of all advertising revenue on its site.

Here are the top five most popular videos on Youtube ever, you should be able to guess no.1.

GOOG seems to be creating a flywheel effect with Google Play and Youtube where users can access free content on Youtube while also being able to watch purchases from Google Play. GOOG is betting on free viewing subsidised by advertising (75% of Youtube ads are skippable) and pay as you go subscription content on Google Play. Apparently only 10% of people always skip Youtube ads. 

Play it?
GOOG's fastest growing division was other which is Google Play. In the March quarter Apple's iTunes/software division recorded $4.6 billion in revenue this compares to Google's $1.6 billion in the June quarter. Android users are now larger than Apple as they continue to increase Google Play sales should eventually overcome iTunes sales giving it a chance to become GOOG's third verb.


Disclosure: Decisive has a position in GOOG stock
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