Providing marketers with the ability to target audiences across multiple Google surfaces including the Discover feed, Gmail and YouTube, Deutsche Bank analyst Lloyd Walmsley sees a “significant opportunity for this ad unit.”
With 2.9 billion users and 800 million MAUs (monthly active users) on Discover, more than 2 billion MAUs on YouTube and 1.5 billion Gmail users, the 5-star analyst believes the platform is ripe for monetization.
“We think this ad unit could drive several billion dollars of annual ad spend for Google, with almost $6 billion in the Discover Feed on a bottoms-up analysis and up to $13 billion in revenue based on our Yandex Zen case study,” Walmsley explained.
Yandex, known as the “Google of Russia,” has a product called Yandex Zen which closely resembles Discover. Yandex started monetizing its Yandex Browser with ads in 2Q16. Since then, annualized revenue run rate on the platform has increased from RUB 1.5 billion in 4Q16 to RUB 8 billion in 1Q20.
Although the “competitive landscape” in Russia is different from that of its US counterpart, Google Chrome’s market share is actually bigger than Yandex’s – 40% compared to 21%.
So, applying Yandex’s “O&O (owned and operated) sites revenue to Google’s sites revenue on a 3-year forward lag,” and taking 1Q20 as Google’s starting point, Walmsley crunched the numbers and estimates the Discover Feed could bring in “$4.8 billion of revenue in 2020 growing to $13.0 billion in 2022.”
The opportunity, Walmsley notes, is currently flying under the radar. “While investors near-term seem focused on post COVID ad recovery, we think new product and potential revenue contribution will regain focus later this year as the recovery continues, with our recent conversations in the online ad space pointing to a robust continued recovery from late March bottoms. We think this is one small aspect of a compelling bull case on Alphabet shares,” the analyst concluded.
It will come as no surprise to learn that Walmsley has a Buy rating on Alphabet shares to go with a $1,700 price target. The analyst, therefore, expects gains of 18% in the coming months. (To watch Walmsley’s track record, click here)
The rest of the Street backs Walmsley’s call. Barring 2 Hold ratings, all 33 other analysts who have published a review over the last three months rate the stock a Buy. Yet, the average price target stands at $1,488, which suggests a modest upside of 3%. (See Alphabet stock analysis on TipRanks)
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