Google Stock Forecast: Increasing Number Of Gmail Users Is A Tailwind For Google

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Alphabet recently announced that its premium email service, Gmail touts more than 1.5 billion users. This is 50% higher than 2015’s 1 billion monthly active users.
  • There were 3.7 billion email users worldwide last year. Alphabet’s Gmail has 40.5 share of this massive advertising/marketing audience.
  • Majority of Gmail users are likely not paying the $5 or $10 month fee of Gmail’s premium versions. However, Google still monetizes by delivering targeted ads to free users of Gmail.
  • Email marketing is still the top lead generation channel for marketers. Email returns more than 4x the ROI of paid search and social media.
  • Growing number of Gmail users can help Alphabet sustain its average 20% annual revenue growth rate.

Alphabet’s (GOOGL) stock is down 16% for the past 90 days. However, I am endorsing it as a buy. I like Gmail’s more than 1.5 billion active users. Gmail used to have 1 billion users back in 2015. The 50% jump in users count is testament to the growing leadership of Gmail among email services.

Statista estimated that there were 3.7 billion email users in the planet last year. Alphabet’s Gmail has 40.5% share of this rich/huge advertising/marketing audience.

(Source: Statista)

Most users are likely not paying for the $5 or $10 per month versions of Gmail. However, Gmail is a fertile ground for advertisers to market their products and services. Google’s Gmail Ads or Gmail Sponsored Promotions help companies and professionals promote their products/services to 1.5 billion Gmail users. These advertisers do not have to spend money to build their own email addresses lists. Google’s algorithm and personal data library can deliver targeted ads to the right email users.

Email, not social network promos, is still the best way to generate leads. Marketers/advertisers will also always prefer to do their email campaign on the biggest email service provider, Gmail. Alphabet has long-term benefits from Gmail because email marketing has a median ROI (Return on Investment) of 122%. This is 4x higher than the average ROI on other marketing formats like social media and paid search. This is why 89% of marketers use email as their primary lead generation channel.

The high 24.79% average open rate on email campaigns is compelling incentive for marketers/advertisers to keep using the said platform for their products and services.

(Source: emailmonks)

Why Gmail Ads Are Valuable

Almost 50% of people now use their phones/tablets to use their email apps. As far as I know, Google and Apple (AAPL) are not yet allowing ad-blocking software to block advertisements on email apps on Android/iOS devices. They only allow ad-blocking extensions on Android/iOS internet browsers.

(Source: Litmus.com)

Due to the advent of ad blocking on web/desktop platform, mobile is the emerging platform where Alphabet can sustain its double-digit annual revenue growth rate. Alphabet’s 10-year average revenue growth rate is 20%. Sustaining this performance is harder now with rising number of ad block users.

(Source: Seeking Alpha)

Conclusion

Continuous growth in users of Gmail is an important growth driver for Alphabet. Investors should appreciate the long-term contribution of ever-increasing number of Gmail users. They are as important as Android device users and Google Search users. Gmail is also a growth driver for Alphabet’s productivity Software-as-a-Service product, G Suite.  Gmail is the best selling point for budget-conscious companies and organizations to avail of the $3 per month per user plan of G Suite. It is cheaper than the plain $5/month Gmail Premium package.

In other words, Gmail is helping Alphabet reduce the overwhelming lead of Microsoft’s (MSFT) Office 365 in Enterprise SaaS. In spite of the massive lead of Alphabet in search engine usage, it is trailing far behind industry leader Microsoft in Enterprise SaaS.

The implementation of self-destructing emails is a killer feature of Gmail. Perhaps addition of better artificial intelligence features on Gmail that can help office workers read/write email faster/better will encourage more business customers to switch to G Suite. Corporate workers need to reduce their time on daily email reading/composing to be more productive. Business users and ordinary users of Gmail will appreciate it very much if Alphabet integrates superior spelling and grammar check tools. Perhaps buying leading grammar software like Grammarly and integrating it will help Gmail attract 500 million more users. The AI-based Smart Compose feature of Gmail right now has a sub-par grammar correction algorithm.

My buy rating for GOOGL is supported by its bullish one-year algorithmic market trend forecast from I Know First.

How to Interpret this diagram

The weighted tone from monthly technical indicators and moving averages also still favor a buy rating for GOOGL.

(Source: Investing.com)

Past I Know First Forecast Success with GOOGL

I Know First has been bullish on GOOGL shares in past forecasts. On June 23, 2017, an I Know First algorithm issued a bullish 1 year forecast for GOOGL with a signal of 44.91 and a predictability of 0.52, the algorithm successfully forecasted the movement of the GOOGL share.  Since then, GOOGL shares have risen 20.73% in line with the I Know First algorithm’s forecast. See chart below.

(Source: Finance Yahoo)

This bullish forecast for GOOGL was sent to I Know First subscribers on June 23, 2017. To subscribe today click here.