Google (NASDAQ:GOOG) reports 4Q11 on January 19th. The Street expects the company to earn $10.46 per share on $8.38 billion in revenue. Investors will likely see continued ramp up in display ads from Youtube and mobile search from Android. Because of the gradual slowdown in desktop search, display ads and mobile search are expected to be key drivers for Google’s future growth.
In Q3, Google delivered a “Gangbuster” results due to strong core growth coupled with acceleration from mobile and emerging markets:
- Gross revenue was $9.72 billion (+33% y/y) while net revenue, after deducting TAC, was $7.51 billion (+37% y/y)
- Paid clicks was up 28% y/y and CPC was up 5% y/y
- Mobile revenue grew 150% y/y to $2.5 billion run-rate, driven by 190 million active Android devices
- Revenue outside of US and UK grew 34% y/y and accounts for 54% of Google’s total revenue
- Chrome installed base rises to 200 million with 23.2% of the global market share, helping to drive query share
- User base for Google+ reached 40 million, compared to 10 million in Q2
Expect Continued Ramp Up In Display And Mobile Search
Display and mobile search will be two key themes for Google in 2012.
According to eMarketer, display advertising will likely surpass search advertising by 2015. Youtube, Google’s display website, will be the main beneficiary of this trend. Youtube has over 800 million unique visitors per month, which is as same as Facebook. However in terms of monthly search, Youtube’s volume is 10x that of Facebook. For the trailing six month as of Q3, display revenue totaled approximately $600 million, and will likely to exceed $1 billion for FY2011 and close to $2 billion for FY2012 after the redesign of Youtube Channels that will increase time spent on the platform. Despite accounting for 4% of Google’s expected 2011 and 2012 revenue, I expect Youtube to be a significant contributor to Google’s display advertising revenue.
Mobile advertising will be another key focus. Despite its lack of desktop presence in the growing economies, such as China and Russia due to barrier-to-entry by the incumbents, Google’s Android leverages smart phones to gain access to these markets. I note that despite Google’s rocky relationship with the Chinese government, Android-powered phones such as Samsung (OTC:SSNLF), Motorola (NYSE:MMI) and HTC rank in the top 5 smart phone brands in China, along with Apple (NASDAQ:AAPL) and Nokia (NYSE:NOK). Despite achieving $2.5 billion in run-rate, or $625 million in revenue, for the last quarter, mobile search still only accounts for 6.4% of Google’s total revenue, implying significant upside as the desktop search market reaches maturity.