Announcement Raises More Questions $GOOG

• Redirect to Google.com.hk appears to be a compromise Google today began redirecting users visiting Google.cn to Google.com.hk where it offers uncensored search results in simple Chinese (designed for mainland China users). Though we think it’s likely that results would be censored by Chinese authorities for users within mainland China soon, we view this move as a positive for Google as it can maintain a search and advertising presence in mainland China (vs. a complete withdrawl), though we think market share declines are likely
•  Looking back pre-2006 provides a precedent for Google.com.hk GOOG’s rationale for launching Google.cn in Jan 2006 offers some clues to how Google.com.hk might appear to users in mainland China. Prior to 2006, users in mainland China accessed search results via Google.com and according to GOOG, the site was down 10% of the time or was slow. Clicking on results would stall a user’s browser. Google News was unavailable while Images worked only about half the time. We believe these issues could re-occur if authorities begin restricting results, which could lead to market share losses vs. search engines operating in China.
• Ball in China’s court; Some unknowns remain The largest unknown is the extent to which authorities restrict Google.com.hk to users in mainland China. Best case: Only controversial queries are censored; Worst case: Google.com.hk is completely blocked, like YouTube. Google will provide performance data for its China sites, raising visibility on the filtering issue.
• Valuation Our $700 price target is based on our DCF analysis.