Jefferies notes Google's search-market share hit a new high in December.
Jefferies & Co.
THERE SEEMS TO BE A PATTERN now showing Google (Ticker: GOOG) and [ Microsoft's (MSFT)] Bing gaining share, at the expense of Yahoo (YHOO) and other smaller players.
Google gained 10 basis points in December and Bing gained 40 basis points, while Yahoo lost 30 basis points. Interestingly, the combined Yahoo/Bing share remains relatively stable.
Google gained an additional 10 basis points month-to-month of U.S. search market share in December at 65.7% -- its highest so far, as per comScore's report published last night. Notably, the qSearch data excludes the Web's second-largest search engine YouTube, which posted 37% year-over-year growth in December (versus overall core-search growth of 16.5% year-over-year), approaching query volume that is nearly the size of both Yahoo and Microsoft combined.
While Google has carved out an impressive 80 basis points of incremental share gain from its pre-Bing levels (May 2009), we note that the gains remain lower than about 170 basis points uptick during the same period last year in the absence of Bing's marketing assault. That said, Google's dominance in Search and superior yield makes it THE "must buy" platform for advertisers, which bodes well for its profit-and-loss statement and the stock short-term. Yahoo lost another 30 basis points in December, coming in at 17.3% of the total.
While the rate of loss seems to be moderating (negative-80 basis points in October and negative-40 basis points in November), the continuing roll-over of tool bar partnerships is likely to further depress its market share short-term. That said, management has reiterated its resolve to stem the decline and reinvigorate query growth in 2010 through the launch of product upgrades and better user experience. Our expectations for flat-to-slightly up single-digit growth Search revenue (gross) in 2010 may prove to be too optimistic if Yahoo keeps losing market share even if we see improvement in pricing.
Microsoft's Bing had its third-monthly gain with 40 basis points and landing at 10.7% in December. While the fourth-quarter uptick in traffic may have been boosted somewhat by the company's marketing push and e-commerce friendly cash-back promotions, we view Bing's 270 basis points gain in search-share post its launch as an indicator of sustainable traction. With Yahoo's traffic added to its own in late second-half 2010, Bing should be on its way to becoming the viable second alternative to Google -- a duopoly most advertisers would welcome.
The combined Microsoft/Yahoo share remained relatively stable at 28%, gaining about 15 basis points month-to-month, thanks to Bing's continued rise. We believe it is critical for Yahoo to stabilize its market share in 2010 if it were to maintain the expected revenue stream from the Microsoft partnership starting in fiscal 2011.
We're maintaining a Buy rating on Google and $695 price target. We're also maintaining a Buy rating on Yahoo with a $23 price target despite its market-share loss, mainly on expected improvements in display advertising in 2010, material cost containment and value of nonoperating assets.
-- Youssef H. Squali
-- Naved Khan
-- Sandeep Swadia