UPDATE: Citigroup Reiterates on Google on Underappreciated Scale/Growth of Mobile App Business
In a report published Monday, Citigroup analyst Mark May reiterated a Buy rating on Google (NASDAQ: GOOG), and raised the price target from $1,025.00 to $1,190.00.
In the report, Citigroup noted, “While all of the focus has been on Facebook's mobile app install business, we believe investors under-appreciate the scale and growth of Google's mobile app business. Our analysis suggests that Google is on track to generate $4.2bn in gross bookings and $1.3bn in GAAP revenue in CY13 from its Google Play mobile app store. This represents nearly 500% y/y growth (+$3.5bn in bookings) and we forecast the business will grow at a 43% CAGR over the next four years, reaching $5.2bn in revenue by CY17 and over 40% of Google's total Other/Licensing revenue and 6% of total gross revenue. While significant from a revenue standpoint, we estimate Play represents less than 1% of total gross profit due to the mobile carrier rev share (see Figure 4). That said, we see the significant opportunity for Google to generate more than $1bn in incremental high-margin revenue from introducing app marketing on the Google Play store (see Figure 6). Excluding the potential for high-margin app marketing revenue, we are raising our Other revenue forecasts for Google as well as shifting the calendar forward for our 12-month price target and, as a result, increasing our target to $1,190 from $1,025.”
Google closed on Friday at $1,035.17.
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