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Growth Prospects for Google’s Core Business in 2Q15

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Google’s core business: Search ads

Although Google (GOOG) is diversifying its business with offerings such as self-driving cars and shopping features on YouTube, its core businesses remain search and advertising.

Online advertising contributed 89%–90% of Google’s total revenues for the past five quarters. According to a survey conducted by Adobe, Google’s search advertising business has flatlined quarter-over-quarter.

Growth in Google’s search revenue dropped in 1Q15 due to the holiday season. The holiday season, or the quarter ending in December, is the most lucrative quarter for businesses. Growth in search revenue could return in the second quarter, according to the report.

In 2Q14, Google’s quarter-over-quarter growth for search revenue was 4.5%. It’s expected to grow a meager 1%–2% in 2Q15.

The reason for Google’s search advertising business flatlining is the shift in marketers’ spending on mobile and other digital advertising platforms. Advertising rates on mobile devices are much lower, partly due to the smaller screen size.

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Last quarter during the 1Q15 conference call, Google management reported that it’s now working to index mobile apps (applications) just as it does web content. In the last few months, Google has made a few changes to its mobile ad network. Advertisers can now deep link their ads on Google Search, YouTube, and Google Play to encourage users to install their apps.

Google still dominates the search engine market

In terms of consumer choice for a search engine on desktop computers, Google’s position remains unaffected. According to comScore, AOL (AOL) accounts for 1.2% of searches on desktop computers. Microsoft (MSFT) handles around 20% of searches, and Yahoo! (YHOO) accounts for 12.7%. Google dominates with a market share of 64.1%.

For diversified exposure to Google, you can invest in the Technology Select Sector SPDR ETF (XLK). XLK invests 3.8% of its holdings in Google.

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