Search Growth Crucial for Google, Yahoo

Includes: AABA, GOOG
by: Trefis

The number of internet searches conducted worldwide is crucial for the stocks of Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO). The number of worldwide internet searches has an impact on the search advertising business of both companies. We estimate that the search advertising business constitutes about 68% of the $703 Trefis price estimate for Google’s stock and 25% of the $21 Trefis price estimate for Yahoo’s stock. We believe that increases in the number of searches made by an average internet user will be primary source of growth for the overall volume of searches.

56 Billion Monthly Internet Searches in 2009

We estimate that the average internet user conducted about 33 per month for 2009 and that there were about 1.7 billion internet users in 2009, implying total average monthly search volume of 56 billion search queries. We expect that both the searches per internet user and number of internet users will grow over time; however, growth in searches per internet user is expected to be higher and the driving force behind growth in the search volume.

Searches Per Internet User to Reach 51 Per Month

We expect that searches per internet user will increase 55% from 33 per month in 2009 to 51 per month by the end of Trefis forecast period. In comparison, we expect the number of internet users to grow only 18% from 1.7 billion in 2009 to about 2 billion by the end of the Trefis forecast period.

Searches per internet user is expected to increase for the following reasons:

1. Real-time search will make search results more useful for users

In 2009, Google and Yahoo began incorporating real time search from Twitter and blog feeds. Real time results can increase the usage of search by making search results more relevant.

2. Increased use of search toolbars in software applications and computer operating systems

We believe that internet search tools will increasingly be embedded in software and operating systems. Google’s search toolbar within Mozilla’s Firefox browser is a classic example of this.

3. Faster mobile phones will encourage internet search without a computer

Internet search is available on many mobile phones sold today and the increasing prevalence of smartphones (iPhone, BlackBerry, Droid, Nexus One) will make it easier for mobile subscribers to use internet search.

You can modify our forecasts for Searches per Internet user on Google and Searches per Internet user on Yahoo to see how the stocks of Google and Yahoo would be impacted if searches per internet user were to trend higher or lower than our forecast.

For additional analysis and forecasts, here is our complete model for Google’s stock and our complete model for Yahoo’s stock.

Disclosure: No positions