January 5, 2006

According to a recent Piper Jaffray study, paid search is estimated to grow by more than 40 percent this year, with Google being the strong contender in market share and overall growth.

Globally, the paid search industry is expected to grow forty-one percent in this year.

According to two research notes released this week by Safa Rashtchy, senior research analyst at Piper Jaffray, Google expects its net revenues to increase by more than 58 percent during 2006.

In 2005, Google captured as much as 64 percent of the market, and that will only increase as the company takes advantage of its strong brand and high revenue-per-search metrics, Rashtchy concluded.

"Over the next five years, we estimate the paid search industry will grow at a 37-percent CAGR [compound annual growth rate] to more than $33 billion in 2010, and we expect Google to capture the lion's share of that revenue and grow faster than the market as a whole," Rashtchy wrote in the Google research note.

Rashtchy also raised the one-year price target for of Google's stock from $445 to $600, based on the company's dominance of a strong overall market, new initiatives like Google Base, and other factors.

Google shares closed Tuesday at just over $435.

In the Internet Industry report, Rashtchy predicts that stocks in the Internet sector will bring returns over 20 percent for 2006, exceeding the 12-percent return of 2005.

Within the sector, search and online advertising performed best, increasing by 23 percent for the year, and advertising services were up 18 percent.

Google itself will be a factor in the growth of the overall industry, according to Rashtchy. "Google is pushing the industry to expand its offerings and create better versions of existing applications, creating a much more dynamic industry where innovation is pushing forward at much faster speed than the past few years," he wrote.

"The mere competition with Google, to keep up the service levels, is benefiting the customers and causing companies to improve their offerings significantly."

In December, Rashtchy made a "conservative" estimate that online advertising will exceed $55 billion globally by 2010, a 27-percent compound annual growth rate (CAGR) over 2005, largely due to an expected inflection point for brand advertising this year.

"Crossing the 50-percent threshold on broadband usage, increasing focus of traditional media companies on Internet, and most importantly, the gradual but profound change in consumers' behavior for content consumption is pushing many more advertisers to allocate more dollars online at the expense of traditional media," Rashtchy noted.

Source: Click-Z

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