Google Deal Could Boost Yahoo Search Revenue By 10-18%

In a report published Wednesday, Citi analyst Mark May maintained a Buy rating and $56 price target on

. The company has announced an amended search partnership with

on April 16, which the analyst believes could lead to a search partnership with

. . The amendments to the Microsoft agreement make the partnership non-exclusive for desktops and mobiles, while allowing Yahoo to monetize its desktop searches to a large extent, either on its own or through a third party platform. "Following news late last week that YHOO is testing Google-powered search results, we have conducted a sensitivity analysis around the potential revenue impact and believe that such a change could lift Search revenue by $200-400mn, or 10-18 percent, on an annualized basis," May stated. Related Link:

A deal with Google would also add $43-86 million or 4-8 percent to Yahoo's consolidated EBITDA. For now, based on Yahoo's GAAP Search and mobile revenues for 1Q15, the analyst expects the company to generate GAAP Desktop Search revenue of $1.6 billion in 2015. According to the Citi report, "Because the restructured Search agreement with MSFT requires YHOO to serve Bing ads and search results for a majority of its desktop traffic, we assume that up to 49.9 percent of desktop searches, or $809mn of GAAP Search revenue, could be monetized via Google." Checks with SEM firms suggest that desktop CPCs are 25-30 percent higher on Google, as compared to Bing. In addition, the click-through rate for Google searches is higher, which the analyst believes would drive more Paid Clicks.