7 Reasons Advertising Will Drive Google Stock Higher
Advertising will push Alphabet stock higher.
Google parent company Alphabet (GOOG, GOOGL) is on the cutting edge of exciting growth markets such as artificial intelligence, autonomous vehicles and cloud services. While these businesses may provide tremendous upside for Google's numbers in the long term, the company's core search and advertising business provides the cash flow and earnings power to drive a higher valuation in the near term. Google is the market leader in online advertising. Bank of America analyst Justin Post has a "buy" rating and $1,450 price target for GOOGL stock. Here are seven reasons Post is bullish on Google's advertising business.
Discover ads
Google recently announced Discover ads, a new ad format that will begin appearing in Discover feeds, YouTube and Gmail before the end of 2019. The Google Discover feed appears on both the home page of the Google search app and the Google.com mobile home page. Discover ads are swipeable image carousel ads, and Post says the new format will be appealing to advertisers given the 3.5 billion combined monthly active users of YouTube and Gmail. Research suggests consumers enjoy making unexpected discoveries when shopping online, and Post says engaging shoppers during the discovery phase is a major opportunity.
Gallery ads
Gallery ads are a new form of hybrid ad style that combines text with four to eight scrollable images to create an interactive experience. Testing suggests gallery ads generate 25% more paid clicks and/or swipes than non-gallery ads. Google has been rolling out gallery style ads throughout the year and plans to launch them universally before 2020. Post says the gallery format is still being optimized but it could become a critical part of Google search and Google shopping over time. He estimates gallery ads could boost 2021 mobile search revenue by $1.4 billion.
Shopping
One of Google's most ambitious launches of 2019 has been its new immersive shopping experience, which allows users to complete transactions directly on Google's platform. Post says the new Google shopping service could compete with the third party sales business of Amazon.com (AMZN) over time. He estimates Google has already mapped more than 2 billion products and is taking a more localized approach than Amazon. Users' shopping history, search history and lists will all be incorporated into their personalized recommendations. Post estimates the new shopping experience could potentially generate $4.8 billion in incremental revenue for Google.
Local campaigns
Google is planning the launch of a new local campaigns tool, which Post says will help generate local ad spending. Post says local advertisers will determine their budget, and Google will generate their ads automatically based on the advertiser's creative elements and location parameters. Google testing has determined local ad campaigns generate much higher returns on advertising spending for local businesses. Post says a 1,542% increase in "near me" search queries in the past five years suggests there could be a tremendous opportunity for local ad spending, especially within the Google Maps app.
Google Maps
Post says Google Maps is a massive source of untapped advertising potential. Google Maps has more than 1 billion monthly active users and extremely high engagement levels, yet Post estimates Google is monetizing Google Maps at 50% the rate of core search. Post says Google's maps themselves can be a "rich canvas for ads" by optimizing features such as promoted pins. Bank of America estimates Google Maps will generate about $2 billion in ad revenue in 2019, but Post says Google should be able to reach $9.6 billion in annual maps ad revenue in the long term.
Smart bidding
Google leverges machine learning to optimize advertisers' bids to maximize conversions and conversion value. Post says smart bidding will make the entire online advertising process more efficient, driving both increased ad spending and revenue growth for Google. Smart bidding also incorporates seasonality and can account for timed promotions. Google will optimize bids during a specific time period to account for one-time promotions or seasonal demand fluctuations and then return to a baseline approach after the period has passed. Post says smart bidding is a key feature for the future of Google advertising.
Deep linking
Google has been aggressively expanding its deep linking to search, display and shopping ads. Deep linking is simply a way of linking to different apps or pages within another app, similar to the way websites are connected via hyperlinks. If Google users already have a retailer's mobile app installed on their device, they can click on a deep link within a Google app and be taken directly to the relevant page within that advertiser's app. Post says Brazilian retailer Magalu has increased its mobile sales by 40% by adding deep linking to its mobile app.
Ways internet advertising will push Google stock higher:
-- Discover ads
-- Gallery ads
-- Shopping
-- Local campaigns
-- Google Maps
-- Smart bidding
-- Deep linking
