Stock Market Leaked Research on Google by Citibank

“Updating The Long Thesis” report, we view our core Long Thesis on GOOG as well-intact:

1) There is still solid secular growth ahead for Internet Advertising, given that at best 15% of global advertising/marketing dollars are currently online;
2) Search has been and will remain one of the most dynamic/best growth segments of Internet Advertising, and Google is the clear market share leader in this segment;
3) Google’s option value in terms of other Internet Advertising segments – Mobile, Display, Video – has now become material at over 10% of total revenue; and
4) Adjusted for cash, GOOG trades at close to a market multiple, which we view as a relatively attractive valuation for a Secular Growth leader.

Google’s Traction With Display Advertising – On its Q3 EPS call, management disclosed that Display Advertising (including primarily its Display Ad Network and YouTube) had reached a $2.5B revenue run rate. Management also indicated that it would likely not continue to provide this detail going forward. But we’ll be looking for any disclosures on continued growth for this segment. Our work – detailed in our December 20th report – suggests that Google’s Display Ad Network was likely the largest component of this $2.5B, and we project this segment could grow 20% to 40% in 2011, driven materially by market share gains. Per our March 20th note, we peg YouTube’s current gross revenue at $1.3B and we believe this could grow 25-30% in 2012. Per our March 20th report, we have seen significant monetization advancements at YouTube (81% of the top 100 videos viewed are now showing ads) as well as consistently robust unit growth.

Google’s Traction With Mobile Advertising – On its Q3 EPS call, management also disclosed that Mobile Advertising had reached a $1B revenue run rate. We believe that this is largely being driven by Mobile Search advertising and expect this segment to grow over 100% in 2011, especially given that Mobile Search queries are likely currently growing at over 200% currently. Again, Google management indicated last quarter that they wouldn’t provide a specific update on Mobile Advertising going forward, but we’ll be looking for qualitative indications of traction. Summarizing our views on Google’s 2011 growth outlook, we continue to believe that the Street’s assumption of 24% Y/Y revenue growth could be reasonable, but somewhat conservative given the likely growth range of each of Google’s key segments. We detail below the Segment Growth Sensitivity analysis we published in our December 20th report. Our conclusion is that a broad range of ’11 top-line growth ranges could include as high as a 30% growth outlook, which we don’t believe is reflected in GOOG Street estimates nor in its valuation.

Source: Stock Market Leaked Research.

About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at or you may learn more about me and my family by following the link "Author's site" from the menu above.
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