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Mapping Out Google's Waze Deal

Plus we can't entirely rule out that Microsoft (MSFT), which is pretty irrelevant in the mapping space, could have been interested in Waze to help spur the adoption of Windows Mobile.

There are also offensive benefits in Google's deal.

The question is, how fast can Google integrate Waze into its existing map app and start realizing revenue benefits. I don't believe that Google will see an immediate impact, though. Nor do I believe this to be the expectation of Google's management.

However, if estimates are correct that Google's current map program can generate close to $5 billion in revenue over the next three years, it certainly makes the potential revenue contributions for Waze, which boasts about having 45 million users, all the more interesting, especially since the company projects to end 2013 with a user base of 70 million.

That's a pretty significant number. And to the extent that Google can leverage this base of 70 million to increase the value of mobile ads, this can potentially become a $300 million annual revenue stream for Google. This is assuming that Waze can generate a reasonable average revenue per user rate of $4.25. For Google, even at 50% adoption, this still amounts to $148 million.

This may seem like chump change. But the key here is in the perceived real-time value that Waze brings with its GPS location service. Google will be able to tell drivers where the alternative hot spots are to dine, given the newly learned congested route. This is why Facebook wanted Waze and why Google had to keep Waze out of the hands of Apple.

In the near term, this deal (if/when completed) doesn't really change Google's valuation all that much. I have always liked Google's stock, and I believe with or without Waze Google was a compelling buy, especially when it trades for less than $900. But investors should continue to pay attention to new developments regarding Waze. Google may just have dropped the first domino of a group of Waze-like deals that may follow.

At the time of publication, the author was long AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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