Doubts over Goldman Sachs Group Inc (GS) Estimation on Google Inc (GOOGL)’s Mobile Revenue


There appeared to be a strong debate on the question of Google Inc (NASDAQ:GOOG)(NASDAQ:GOOGL)’s mobile search revenue for the year 2014. As part of their analysis of the search engine giant, Goldman Sachs Group Inc (NYSE:GS) has resorted to calculating the revenue generation model of Google. However, the financial services provider did not disclose how it arrived at the figures. New York Times Co (NYSE:NYT) kick-started the debate introducing questions about Goldman Sachs’ calculations.

Mobile Search Revenue

Based on the calculation of Goldman Sachs Group Inc (NYSE:GS), Google’s mobile search generated 75% of its total revenue by users of iPads, as well as, iPhones. This might suggest why a renewal of deal with Apple Inc. (NASDAQ:AAPL) is necessary for Google Inc (NASDAQ:GOOGL). However, this meant that the company’s revenue generation from other users of Android is only 25% or less.

This surprised many investors and analysts. That was primarily because Google Inc (NASDAQ:GOOGL)’s Android has enjoyed tremendous market share for a long time. Apple Inc. (NASDAQ:AAPL)’s iPads and iPhones uses the iOS platform. However, its Safari browser has Google as its default search engine. This has obviously not convinced many and came in as not only shocking but also a surprising factor.

Goldman Calculations

According to the calculations of Goldman Sachs Group Inc (NYSE:GS), Google Inc (NASDAQ:GOOGL) generated about $11.8 billion of revenue from mobile search. Of this, approximately $8.8 billion is said to have come from iOS gadgets. Further splitting it, nearly half of that or $4.4 billion came from Apple Inc. (NASDAQ:AAPL)’s browser Safari due to its agreement for default search.

For the whole of the year 2014, the search engine giant reported advertising revenue of $59 billion. Of this, Goldman analysis is that 20% of them came from mobile search ads. This does not seem to tally with the company’s recent claim that over 50% of its search volume comes from mobile devices in the United States. Therefore, there appeared to be a gap between the calculation of revenue and the traffic provided by Google Inc (NASDAQ:GOOGL).

PC – Mobile Split

For the current year, Goldman Sachs Group Inc (NYSE:GS) provided an estimation. Accordingly, the search engine’s ad revenue generation would be split with 58% from the desktop and 23% from mobile. The search would constitute 81% of the company’s overall ad revenue. In the next year, 27% of ad revenue would come from mobile while 54% of ad revenue will be from the desktop. However, both the numbers appeared to suggest there are still gaps between the revenue distribution and the traffic.

In a recent Code Conference, Google Inc (NASDAQ:GOOGL)’s executive said that Apple Inc. (NASDAQ:AAPL) is an important customer and the renewal was a key one for the company. While there may be continuous debate over the figures, one thing is sure. The latest figures ensured some hard bargaining between them.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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