Loss Of US Search Share Will Hurt Google

Amigobulls |

Google_string.jpgThe fact that Google’s ad revenue growth is slowing down has raised some concerns for investors. Recent reports suggest that the trend could continue as Google, Inc. (GOOG) is losing search market share in the US to Yahoo! Inc. (YHOO) .

With ad rates typically being the highest in the US, the loss of search share in the US could hit Google harder than it would in other geographies. Google’s ad revenue growth could be hurt, impacting its already slowing core business growth. Our Google stock analysis shows that Google valuations are currently cheaper than those of its peers. However, if Google’s advertising revenue growth continues to slow, valuations could slip further.

In November 2014, Mozilla, which runs the Firefox browser, signed a five year deal with Yahoo to power the browsers default search in the US, replacing Google. Google had been the default search engine on Firefox since 2011, and the change is hurting Google’s US search share.

Google Search Market Share Drops In The US

As per reports by ComScore, Google’s search share in the US has declined quite a bit since November 2014, when Mozilla made Yahoo the default search engine on its Firefox browser.

 

Nov-14

Dec-14

Jan-14

Google

67.0%

65.4%

64.4%

Yahoo

10.2%

11.8%

13.0%

Bing

19.6%

19.7%

19.7%

 

Do note that ComScore’s data covers only desktop search statistics. Besides, ComScore’s search engine ranking for Feb 2015 aren’t out as yet. StatCounter’s US search stats should give us a better overall picture of search share across devices.

US_Search_Share_Movement.png

Statcounter’s US online search share report estimates that Google’s US search share has contracted by about 2.4%, while Yahoo’s US search share has expanded by 2.1% since November 2014.

Stats excluding Firefox users in the same report, show flat to marginally negative trends for both Google and Yahoo, indicating that it is the Mozilla Yahoo deal that is hurting Google.

This theses is more effectively corroborated by Statcounter’s estimates of search share among Firefox users. On the Firefox browser, Yahoo’s search share has spiked to 27.3%, adding 17.4% search share in four months, with Google’s search share plummeting to 65.1%, down from 81.9% in November 2014.

Is Google Pulling Things Back?

There’s a silver lining here for Google, though. StatCounter’s data indicates that Google might have started to pull things back a few notches, with US search share on Firefox rising from about 64% in Jan 2014, to about 65% in Feb. This is accompanied by a drop in Yahoo’s search share in Feb, from 28.3% to 27.3%., indicating that users might be manually switching to Google as the default search engine.

Undoubtedly, Google will be hoping to reclaim more of its search share in the coming months. However, Google might still feel the impact of the search queries it has lost in 2015 so far. After all, lesser search queries translates to lesser opportunities to monetize users.

Google Search Queries Loss

From Dec. 2014 to Jan. 2015, Google’s search queries declined by 120 million queries. Additionally, Google conceded about 235 million search queries to Yahoo. Add the two, and Google could have lost as many as 355 million search queries on desktops in Jan 2015 alone.

Google Ad Revenue Per Search Query

At last count, Google announced that it handles 100 billion search queries a month, translating to 1.2 trillion search queries a year.

Trefis estimates indicate that Google earned about 66% of its ad revenue or 59% of its total revenue, from online search advertising revenues (Google desktop search revenue and mobile search combined).

Based on the estimation by Trefis, Google’s revenue from search should stand at $39.2 billion for FY 2014.

In 2014, Google's US revenue contributed 43% of its total revenue. Assuming a similar contribution from the region to Google’s search revenue, US search revenue should be about $16.7 billion.

With 148 billion US search queries (compiled from ComScore data), Google’s ad revenue per search query on desktops in the US would translate to about $79 per 1000 search queries on an average.

Google Market Share Decline Impact On Revenue

As we mentioned earlier, the decline in Google’s market share implies that it has lost as many as 355 million search queries in the US in Jan 2015.

Based on our computation of Google’s ad revenue per search query in the US on desktops, the search giant could potentially have lost about $28 million in search advertising revenue, in January alone. These losses may be partially offset by the 1% odd gain of search share on mobile, but given the significantly lower monetization rates on mobile search, Google is still likely to be hurt the losses on desktop.

These potential losses may seem quite insignificant on Google’s revenue base of $18 billion in Q4 of 2014. However, if the losses mount over a few months, it won’t be as negligible anymore.

What’s more, Google’s stock is still down by close to 5% over the last 12 months. With Facebook, Inc. ($FB) closing in on Google in the online video advertising space, and Google’s declining market share of global digital ad spends, Google remains under pressure to regain its growth trajectory.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 115.40 0.30 0.26 25,070,364
GOOGL Alphabet Inc. 764.46 0.13 0.02 1,718,846
GOOG Alphabet Inc. 750.50 2.58 0.34 1,452,484
YHOO Yahoo! Inc. 40.07 0.44 1.11 8,588,544

Comments

Emerging Growth

AfterMaster Inc

Studio One Media Inc is a diversified media and technology company. It is engaged in the development and commercialization of proprietary, edge audio and video technologies for professional and consumer…

Private Markets

Uber

Uber connects riders with safe, reliable, convenient transportation providers at a variety of price-points in cities around the world. Uber makes money from charging their drivers 20% of the fare…

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…