Analysts Say Google is Best Placed for Mobile Growth

Google

After Google Inc. posted its 18th straight quarter of 20 percent-plus revenue growth, analysts said the company was best placed for growth from mobile, wearables, increased local advertising and the “Internet of things.”

Google’s second-quarter revenue rose 22 percent to $15.96 billion, higher than the $15.61 billion expected by analysts. Google stock has risen 26 percent this past year.

Jefferies analysts wrote in a note to Reuters that Google’s growth was driven by the company’s core search business, YouTube and product-listing ads, which together resulted in three times as much mobile traffic for merchants than last year.

Google earns most of its revenue from advertising. Due to smaller screen size, the average price of a mobile ad is cheaper than an ad on the Web. While some analysts are quick to deem the lower prices of mobile ads a mobile problem for the company, “average [cost-per-click] stats don’t really tell us much at all about what’s happening in Google’s mobile business,” Ginny Marvin writes at Search Engine Land:

George Michie, RKG co-founder and chief marketing strategist, explains how, as mobile gains more click share, it’s possible to see declining CPCs overall even if mobile CPCs are in fact increasing. Here’s Michie’s illustration of how this can happen:
 
Hypothetical example, Year 1:

Desktop CPC = $1 and comprise 90% of traffic
Mobile CPC =$0.20 and comprise 10% of traffic
Average CPC for Google = ($1 * 0.9 + $0.20 *.1) = $ 0.92
 
Year 2

Desktop CPC = $1.10 and comprises 70% of traffic
Mobile CPC = $0.30 and comprises 30% of traffic
Average CPC for Google = ($1.10 * .7 + $.30 * .3) = $0.86

Deutsche Bank analyst Ross Sandler told Reuters, “Google is successfully transitioning its business from PC to mobile, and is arguably in a more favorable position in mobile than it was in PC, which should eventually be reflected in a higher multiple.”

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