Quick Update On Google – Mobile & China [citibank research] $GOOG (great Report)

• Google’s Mobile Ad Enhancements Include: -- 1) An easier AdWords interface where marketers can pick between different phones, carriers, etc.; 2) Click-to-Call which was rolled out last month; and 3) Local Layered Ads (experimental), where

• users can add favorite brands to their Google Maps. One of the biggest takeaways was management’s stated belief that CPCs and CTRs on the mobile phone could, in the future, be equal to or greater than CPCs and CTRs on the PC.

• Indications Seem To Point To Google Pulling Out Of China – Per the Wall Street Journal, it appears that Google could well pull out of the China Search market within the next few weeks. As we noted in our January 12th note, China is not currently material to Google, as we estimate that China will account for only approximately $300-$350MM (1.5%) of the company's 2010 total revenue. Citi Asia Internet Analyst Catherine Leung estimates China Search leader Baidu will generate approximately $980MM in 2010 revenue, and our market research suggests Google has around 25% share. That said, while China may not be materially impactful to Google today, we view Google pulling out of one of the world’s fastest growth Search markets as a long-term negative.

• Our Long Thesis On GOOG Remains: 1) There is still significant secular growth ahead for Internet Advertising, given that only approximately 10% of global advertising/marketing dollars are currently online; 2) Search has been and remains the most dynamic/best growth segment of Internet Advertising, and Google is the clear market share leader/gainer in this segment; 3) Google’s option value in terms of other Internet Advertising segments – Mobile, Display, Video – is increasingly becoming material; 4) As a heavily fixed cost model, Google presents very well as a Cyclical Recovery play; 5) Relatively newfound cost efficiencies have combined with 4 to create an outlook for modest – but sustained – margin expansion; and 6) Google management has increasingly proven itself to be in the class of the sector’s best.

Quick Update On Google – Mobile & China