Photo: Daniel Goodman / Business Insider
Google’s (GOOG) recent quarterly report showed the impressive revenue growth many have been anticipating from mobile for the last several years.At this time last year Google projected a run rate for its mobile revenues at around $1B/year and now they are at a run rate of $2.5B/year.
While some may argue exactly what the definition of run rate and revenues really means the trend is what to focus on.
In a year their run rate has jumped to 2.5 times what it was just a year ago.
Impressive numbers and the stock was well rewarded jumping over 5% on Friday.
The underlying driving force in Mobile growth is the every expanding reach of smart phones. Currently 40% of every phone sold is a smart phone and that trend is only going to increase.
Tablet devices are also being sold at a huge clip and that trend seems likely to continue.
The move towards more and more mobile advertising is like the move from dial up to cable internet to eventually wireless.
The main difference is even though dial up will eventually go away standard internet advertising will remain a factor even though I strongly suspect mobile advertising will dominate going forward. This was echoed by an analyst from Susquehanna Financial Group when discussing Google.
“We think mobile is near a massive volume inflection point,” wrote Susquehanna Financial Group analyst Herman Leung in a note to investors on Friday.
“At these growth rates, we think mobile revenue could be larger than display (advertising revenue) by 2012.”
As many questioned Googles purchase of AdMob for $750M which was well over 30 times it revenues at the time I think it is clear that they are a critical component of this growth. This type of purchase is an excellent example of how a large company can scale up technology at rates 10 to 20 times faster than the original company ever could.
So while at the time these purchases can look pricey the eventual investment turns out to pay for itself much quicker than anyone can imagine other than Google themselves. A true case of buying the right company right before it explodes and valuations make it unlikely to be acquired.
Google’s next main purchase, Motorola Mobility (MMI), is actually being purchased more for its intellectual property than the business itself. While the purchase price of $12.5B is steep and current MMI shareholders will decide in the next month if it is adequate, this is more a strategic move to protect Google’s business than grow revenues.
This comes on top of the two separate purchases of IP from IBM of over 2000 patents in the last several months. Even though the public purchasing of IP has quieted a bit over the last few months it is likely still brewing behind the scenes as companies try to position themselves and their customers away from potential large damages caused by infringement of IP. A previous article was written on this subject called Intellectual Property stocks to Remain Hot.
Google is showing the clear case for what mobile is going to do to the advertising markets. Companies who have been hesitant to jump in with mobile campaigns are going to be left behind in the dust. This years shopping season which starts in a little over a month will be unique with more utilization of mobile technology than ever before.
It is not hard to imagine a year from now Google having a run rate of over $5B/year from mobile alone. While it will still not be as large a percentage of their revenues that it will eventually become it will continue to be a sign of the trends in mobile advertising.
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