Google: Report Mobile Revenues Could Hit $5B/Yr In 2012

Google (GOOG) announced on its recent post-Q3 conference call with the Street that it now takes in mobile-related revenue at a $1 billion run rate. While that certainly sounds impressive – a billion of anything always sounds impressive – keep in mind that the Street expects 2011 revenues to top $25 billion.

But $1 billion is just the beginning. Investment research boutique Town Hall Research asserted in a note on Wednesday that the company should reach $5 billion in mobile revenue – or maybe more – by 2012. That would be about 17% of the consensus estimate for 2012 of more than $29 billion – but if they really did hit $5 billion in mobile revenue, the total would likely be a lot higher than the current Street view.

Here are the key pieces in their thinking:

• They estimates there are 350 million smart phones in service as of Q3…
• …they estimate mobile cost per click is in the 10 cents range….
• …and conclude that Google is monetizing about one search per smart phone per month.
• They contend that over time there will be growth in all measures – the installed base of smart phones, the number of paid clicks, and the cost per click.
• And they note that search ads are only about a third of the pie; they see three roughly equal slices, with display and app ads accounting for the rest.

“If Google did nothing, and simply let the growth in smart phones drive mobile search, the business could easily double to $2 billion by 2012,” Town Hall contends. “If Google only increased paid clicks by one per month, while keeping CPC flat, the business could be $3 billion in 2012. However, in our scenario and analysis thereof, the most powerful metric to watch will be CPC. Google�s ability to increase pricing will depend on providing a superior ROI for advertisers, and the advertiser�s willingness to utilize mobile as a critical component of their advertising campaign. If Google is right, and pricing ultimately exceeded the corporate average, we would expect to see mobile revenue eventually overtake traditional search. We are confident in Google�s ability to command pricing power in mobile and expect significant improvements over time.”