Search Market Share Trends: More Downside for YHOO, Upside for MSFT

According to a recent Comscore report, Yahoo’s (NASDAQ:YHOO) share of the US search market fell 0.2 percentage points to 16.8% in February, while Microsoft’s (NASDAQ:MSFT) share rose 0.2 percentage points to 11.5%. The Comscore data reflects the sixth consecutive month of US search market share declines for Yahoo.  In comparison, Microsoft’s Bing US search market share has shown gains for the last 9 months.

Below we explain the significance of search market share for the stocks of both Yahoo and Microsoft.  We also highlight how there may be additional downside to our Yahoo forecast and upside to our Microsoft forecast based on the trends indicated by the recent Comscore report.

Search Advertising: 25% of Yahoo, 8% of Microsoft

We estimate that the search advertising business constitutes 25% of the $21 Trefis price estimate for Yahoo’s stock, making it the most important business for the company.  In comparison, we estimate that search advertising is less than 8% of the $32 Trefis price estimate for Microsoft’s stock.

The search businesses of Yahoo and Microsoft both make money from contextual advertising, known as keyword advertising, that is based on the type of search a user conducts.  For example, a user searching for “restaurants NYC” would be shown a variety of advertisements on the right-hand side of Yahoo search results pertaining to restaurants and food services in New York City.

Yahoo’s Global Search Market Share to Reach 9%

We expect Yahoo’s global search advertising market share to decline from about 10% in 2009 to 9% by the end of Trefis forecast period.  However, Yahoo’s global search market share will be lower than we forecast if the company continues to lose market share at the same rate experienced over the last 6 months in the US.

You can modify our forecasts for Yahoo’s search market share below to see how Yahoo’s stock will be impacted if its market share declines at a faster rate than we forecast and ends up below 5%.

Bing’s Global Search Market Share to Increase to 10%

Microsoft’s Bing search engine has increased its market share at the expense of Yahoo.  We expect Bing’s global search market share to increase from about 7% in 2009 to about 10% by the end of Trefis forecast period as a result of improvements in Bing search attracting more users.  Our forecast may prove conservative, however, if Bing continues to gain share at the same rate it has over the previous 9 months.

You can modify our forecast below to see how Microsoft’s stock would be impacted if its search market share were to increase faster than we forecast.

For additional analysis and forecasts, here is our complete model for Yahoo and our complete model for Microsoft.