Squashing Google's 'App Bear' Case

• Google Inc GOOGL shares are up 22 percent year-to-date, supported by the jump from $541.70 on July 8 to $699.62 on July 17.
• Morgan Stanley’s Brian Nowak maintained an Overweight rating on the company, with a price target of $820.
• Contrary to the app bear case, Nowak pointed out that mobile browser traffic was stronger than app traffic.

Analyst Brian Nowak said that mobile browser traffic in the US is twice as large as app traffic. Moreover, the former has grown 1.2 times faster than app traffic over the last 3 years, despite the popularity of mobile apps, with an estimated 76bn downloaded in 2014).

The results are across the 50 leading mobile web properties. “Only 12 of the top 50 U.S. mobile sites - including YouTube, Instagram, Snapchat, and Pinterest- have larger app audiences,” Nowak added.

In the report Morgan Stanley noted, “Our findings also run counter to the common GOOGL "app disintermediation" bear case that people will migrate to mobile apps rather than mobile search/browser.”

Google's biggest search spend categories are Retail, Finance and Travel. Mobile traffic in these 3 of “over-indexes toward browsers.” Moreover, around 90 percent of the companies analyzed in these 3 categories generate more than 50 percent of their mobile traffic growth from browsers.

“This speaks to the structural advantage of GOOGL's search product (still at the top of the mobile consumer funnel), and the need for companies to continue to spend on GOOGL paid search to grow,” Nowak commented. Therefore, Google enjoys an “entrenched position” to continue driving the mobile ad market.