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Apple Gains in Mobile Ad Market

Google (GOOG) , Microsoft (MSFT), and Yahoo! (YHOO) have all lost share in the U.S. mobile advertising market since Apple's (AAPL) iAd platform debuted in July 2010, according to recent estimates that the market research firm IDC provided to Bloomberg BusinessWeek.

iAd is a mobile ad network that application developers use to incorporate advertising into their apps.

Apple entered the mobile ad market last year. IDC expects its market share to reach 21% in 2010. Meanwhile, Google's share is expected to decline from 27% in 2009 to 21% by 2010. Similarly, Microsoft and Yahoo! are expected to see their market share drop from 10% to 7% and from 12% to 9% respectively.

In a recent article, we argued that iAd could potentially boost Apple's stock by 5% if the new platform encourages users to spend more time viewing mobile ads. Given that the U.S. mobile advertising market is currently a small fraction of the PC-based advertising market, however, we see little impact on Google, Yahoo! or Microsoft's stock prices. Our analysis follows below.

Last year, advertisers spent $128 million on mobile search and display advertising in the U.S., according to eMarketer research cited in the Wall Street Journal. Mobile ad spending is expected to read $187 million in 2010. That's still tiny compared to the U.S. PC Internet search market, which was worth $10.9 billion in 2009 according to Credit Suisse.

However, the mobile ad market is growing rapidly and could be worth around $2 billion by 2014, according to a recent report from BIA/Kelsey.

We expect Google to post about $21 billion in advertising revenues this year vs. $4.7 billion for Yahoo! and $2.7 billion for Microsoft.

Based on IDC's market share estimates, we estimate that Google's mobile ad revenues will total $39 million this year, or 0.18% of total ad revenues. Yahoo!'s mobile ad revenues should come in at around $17 million, or 0.36% of total ad revenues. We estimate Microsoft's 2010 mobile ad revenues at about $13 million, or 0.48% of total ad revenues.

Yahoo! seems to have the most to lose from Apple's sudden rise in the mobile advertising market. Assume that Yahoo! loses another 5% of market share over the next four years. In this scenario, Yahoo! would give up $100 million in potential revenues between now and 2014.

We currently expect traffic on Yahoo! sites to increase from an average of 590 million monthly unique visitors in 2009 to 725 million by 2014. But if Yahoo! loses another 5% of the mobile advertising market over the next four years, we would expect the average monthly unique visitor total to reach only 697 million by 2014. This scenario yields a potential downside of around 1% to the $19 Trefis price estimate for Yahoo's stock.

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