How much exactly is the Nexus One line of Android phones worth to Google? The folks at Trefis have modeled Nexus One sales into their financial forecast for Google and estimate that it will account for nearly $20 billion of Google’s market cap (based on its target price pf $659 per share), accounting for 9.3 percent of the total. That is more than its estimated contribution of ad and search partnerships (5.1 percent), Google Apps (3.2 percent) or YouTube (2.4 percent). Only search ads account for more of Google’s total value (68.1 percent).
How does Trefis come up with these numbers? Trefis is an investing site which comes up with financial models for stocks which translate into interactive stock charts and price targets. If you don’t agree with their model, you can change some of the underlying assumption sin the drag-able charts and create your own model (see below). Trefis is assuming Google will sell 5 million Nexus One phones this year, and that the Nexus One market share will grow from 0.4 percent this year to 3.4 percent in 2016, when the iPhone will have an 11.5 percent global mobile phone market share (as shown by the olive-colored line above) and Blackberry will have an 8.2 percent share (green line).
That seems a bit aggressive, but as I mentioned, you can always change the assumptions to something you think makes more sense. For instance, if the Nexus One even manages to capture 1 percent of global mobile phone market share, it would add 2.44 percent to Google’s market share, or about the same as YouTube. The Trefis model takes into account other factors, such as the unsubsidized price and margins declining over time. Remember, even though HTC is making these phones, Google is the one who is selling them, both directly and through carriers such as T-Mobile (who are subsidizing the $530 unlocked price and offering them to consumers for $180 with a contract). The Trefis model projects Nexus One revenues to be:
2010: $2.8 billion
2011: $5.7 billion
2012: $8.5 billion
2013: $11 billion
2014: $14 billion
While it’s fun to play around with these numbers, nobody can really predict how successful the Nexus One family will be. And it is not safe to assume typical mobile phone margins since Google has other motivations for pushing these phones, namely to increase adoption of the mobile Web where it will make its real money through mobile search. Also, this model does not take into account the software revenues from all the other Android phones out there. It is only Nexus One. Trefis estimats that Googl eis making a $231 gross profit on each phone, based on iSuppli’ s$174 component cost estimate plus other costs such as warranty, R&D ($50), and HTC’s cut ($75). Google has publicly stated that the profits from the Nexus One are minimal. Yet, if two thirds of Apple’s market share can be attributed to the iPhone (as estimated by Trefis), it doesn’t seem like a stretch to think that Nexus One can become 9 percent of Google’s.
In fact, if you look at Google’s stock price on the day before the Nexus One was confirmed, it was $590, and it rose to $627 just before the official launch on January 5, adding nearly $12 billion to Google’s market cap in that time alone. Of course, there were other factors contributing to the stock’s rise during that time, but an extra $20 billion on top of Google’s current $185 billion market cap is not unthinkable. (The stock today is trading at $585, after the disclosure that it might be exiting the China market).
How much do you think Nexus One is worth to Google?
Yeah… let me know how that works out for you.
Thanks for the post – it along with demonstrating an investor’s mentality does a good job of highlighting why APPL, GOOG and others are all close to topping out at these price levels.
Unless these shares decide to pony up and pay a dividend, the upside in these shares become limited, compared to downside risk.
What is the exit of GOOG at a $200B market cap? There is no exit – nobody (realistically) can afford to buy these companies which is what ultimately should drive the decision to invest. The other metric is cash flow, but without paying a dividend what good does that do?
At P/E levels north of say 20-23, these deals couldn’t finance themselves either without taking risk on future earnings capability.
If only predicting the stocks were as easy as this one, then we don’t need to hire economist to do the math for us. lol
Today, we are seeing some of the errors and glitches that a future user may want to look before buying the N1 phone. As they said, 530 USD has never became cheap. Details: http://bit.ly/nexus-one-disadvantages-compiled-details
Ya, I suppose it could be true, if you calculate $1,000,000 per N1 sold…
Only 20k of them sold in week one. ‘Twas a “Google Bomb” of a whole new flavor…
Somehow, I don’t put much faith in this kind of Enron accounting.
Is this a joke? They sold 20K the first week. TWENTY THOUSAND. 1/80th of the amount of iPhone 3GS in their first week. Media, please go home.
Stevo – i am an apple fan too, but dont think i want to be too smug reading just the week 1 numbers. Especially considering google phone does not have distribution through stores — that is a big factor, that over time, as more people have the phone, may not matter as much. Moreover, it is possible google will make these available over the store.
In addition, what i like about this is the article (and i guess the site), lays out the numbers but lets you change it, so you can express your numerical view, instead of qualitative hand waving
Google tried to trick people into buying an “unlocked” phone for $550 that only works [3G] on on T-Mobile, thereby making the term “unlocked” worthless. No one fell for it and it turned people off. If Google would have added the AT&T frequency then people would have been given the choice to choose what provider they want without having to buy a new phone for each service. Personally I would have bought the [unsubsidized, no contract] phone and migrated to T-mobile later when my AT&T contract ended, but now I’m going to hold on to my iPhone and keep AT&T until a “multi-provider frequency” phone comes out. Before Google shadiness, that last sentence would have included “Android OS”.
The hope was that this “unlocked” phone would change everything and other carriers (Sprint/Verizon/MetroPCS/Boost) using CDMA networks (non sim-card) would convert to GSM in order to keep up creating a flood of competitive wireless service options. Wireless carriers are still using CDMA because the phones are locked to the service. A business model that will evenutally fail when people are given a choice of phones.
Google was evil, Google failed.
I would not be surprised if the Nexus One will be an epic fail…
Where is the innovation in this product ?
Which kind of users does it market ?
Google fanboy geeks ? WinMo orphans ? Opensource extremists ?
And the price point : “over promise under deliver” is the new strategy ?
For $100.00 maybe someone will consider it…
For $500 no way, considering that in 3 months there will be the Nexus 2, then Nexus 3 , with better battery, better camera , look at the poor Droid … killed in few weeks….
Selling HW is not Google business.
I would not bet on that $650 share price as an investor… maybe for Apple stocks yes…
Ok I’m an Apple fan boy, it’s so easy ;-)
Um. Google will hit $650 one way or the other long before Apple at this rate. Apple would have to nearly triple their stock price just to catch up to Google’s current stock price.
Yes, you are right.
Google never split its stock, dude. If you reverse every split Apple ever did since inception… It’s a whole different story.
I’m not sure if that’s how i’d look at the market cap. The jump in the stock price isn’t indicative of the market cap of a single arm of the corp.
How to valuate the Nexus arm of google? I’d say take the TAM for the iphone then 30% of that is the max market cap for the nexus one BECAUSE iphone is the market leader. I think google could only become the runner up at best in the market despite their “better product” approach.
I will say this though that was brilliant marketing rhetoric calling it a “super phone”. Keep in mind who they are messing with Jobs and co are some of the best marketers in the world and that positioning is very very easily claimed by the next version of the iphone.
In my rankings of technologies and devices nothing has yet beat the Android OS (http://brianshall.com/products/rankings).
That said, the Nexus One is an experiment, a push to ratchet up the use of Android and create a ‘app store’ like ecosystem around it. I just don’t see the Nexus One itself contributing much to Google’s revenues.
Never happen! Very poor build quality and the “android” os as a whole needs some serious work. Maybe after a couple years of perfecting the os and having a little pride in the build quality of the device, they’ll do half of that. It’s like they just slapped it together in hopes that all the “droid” boys would drop their current device and buy it.
Your homepage is down! I m hoping u do one article regarding your site is down as u do for twitter or facebook :-)
HA! 20 billion. Let’s do the math. At Google’s PE ratio of 37.87, we can get a gues. Run the numbers and then, viola, $528,122,524 – that is the profit that Nexus One has to bring in to justify that market cap increase. Chance: 0.
NEW GAME ON FACEBOOK!! IF YOU LIKE SOCCER YOU LOVE IT!! Play with me ;) http://apps.facebook.com/footbattle?zref=plaadd
Isn’t google getting nearly zero profit off of the Nexus One? I assume the bulk is going to HTC
Nope – it is definitely more than hundred dollars for each phone
nothing is impossible
these numbers are insane, as kevin o’leary says…. STOP THE MADNESS
Erick/Mike
I thought it would take you guys 1-2 days but I can really not understand your silence when the New York Times, Wall Street Journal, BBC, PC World and all the other journals are reporting on the debacle which is the Nexus One.
Just check the news on Google News itself:
http://news.google.co.uk/news/search?aq=f&um=1&cf=all&ned=uk&hl=en&q=nexus+one+problems
Or WSJ (http://online.wsj.com/article/BT-CO-20100113-706215.html)
The fact that you’re basically not even covering this in a single post is peculiar, to say the least.
If indeed Google-fanboyism is not part of the TC DNA, I think your readers would appreciate some coverage of how Google has completely bombed with Nexus One.
“If indeed Google-fanboyism is not part of the TC DNA, I think your readers would appreciate some coverage of how Google has completely bombed with Nexus One.”
I think you’ve found the answer. TC does not provide an impartial view – Arrington and co. have explicitly stated that many times.
The amusing part is that Arrington wants the respect that traditional media like the NYTimes and the WSJ possess. Sorry, won’t happen when your articles push hidden agendas (see campaign against Zynga, love for Google)
It’s kind of interesting to learn from Trefis that MSFT is a more diversified company than AAPL and GOOG. Windows and Office account for 66% of MSFT market cap. For AAPL the iphone and mac accounts for 75%. And for GOOG search accounts for 75%.
Also I do not like the trefis model for Netflix. They assume 94% of their business if based off of DVD rental and the rest is from cash balance sheet. I am surprised they don’t include the xbox streaming service, etc.
Anyways, according to trefis, Nokia is the most undervalued stock on their list…is anyone gonna rush out and buy NOK stock now?
well how much does the iphone add to apples share price?
After the stunt the pulled in China I doubt it.
The stock market in USA and Europe is increasing… Is this Google stock price rise a Nexus one effect? Probably not because in the last days almost all markets increased. We need a Nasdaq vs Gogole chart to know it.
I am also surprised that this post doesn’t directly highlight the 20,000 unit sales during the first week, and ask how the forecast model accounts for a (possible) rise in sales. I would like to see more posts about this point at TC.
People, who think that AdSense network worth only 5% of Google value, and that almost dead Orkut is more valuable than Gmail and Blogger together, are crazy
So the idea that Nexus value is 20bn is the idea of crazy people
you amercans are so luck,,google ships to usa this time @@
we australians have no luck,,i need to buy from third party and it is more expensive
http://www.allpmp.com/goods.php?u=1553&id=140