Here's why one of Wall Street's most well known internet analysts says Google Maps is set to add billions to Alphabet's topline

• One of the top internet analysts on Wall Street has dropped a pin on Google Maps - one of the company's most widely used properties - as the next big money-maker.
• RBC's Mark Mahaney estimated that continued iterations of Google Mpas will bring in an additional $1.9 billion to $3.6 billion in revenue by 2021.
• Specifically, Mahaney believes that an increased ad load on the Maps mobile app, while allowing small to medium-sized businesses to advertise on the platform could be minor changes that lead to major financial upside for Google.
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For years, Wall Street has been trying to figure out which part of Alphabet's business - beyond Google Search ads - will emerge as its next big money maker.

There's the cloud computing division, gaining momentum, but still a distant third behind market leaders Microsoft and Amazon. And there's the Waymo self-driving car initiative, developing a robotaxi service that could change the way people travel.

But according to a recent note by RBC Capital analyst Mark Mahaney, the Alphabet asset with the most potential to become a revenue machine is Google Maps, the digital mapping product that has already become an essential part of more than one billion people's lives around the world.

Calling Maps one of the "greatest under/un-monetized" online platforms in the world, Mahaney recently flagged the app as his basis for boosting his price target for Alphabet's stock, projecting that Maps will deliver an additional $1.9 billion to $3.6 billion in revenue by 2021.

Although Google does not share its specific revenues from Maps today, Mahaney estimated that the navigation product - first released more than 14 years ago - would generate over $3.5 billion in revenue in 2019. The total revenue for Google's parent company, Alphabet, was over $130 billion in 2018.

The optimism about Google's trusty Maps product comes as newer initiatives face skepticism. Morgan Stanley slashed its estimated valuation of Alphabet's Waymo by 40% last week.

The investment firm said in a research note that it believed Alphabet's self-driving car business was now worth $105 billion, instead of $175 billion, because of Waymo'rs delays and complications launching a commercial business.

Google's 2 apps give it a massive mapping market share

Google Maps, on the other hand, doesn't have question marks surrounding its consumer viability. As Mahaney noted, navigation apps have become "something of a utility," with 77% of smartphone owners using them regularly, according to a study cited in the report.

That widespread usage is good news for Google, as the note also highlighted the company's massive, 80% market share of navigation apps today, which is split between Google Maps (representing 67% of the market, according to the report) and Waze (which represents 12%).

As Google looks to prove that there's diversity in its revenue potential beyond traditional search ads, Mahaney's note should provide a bit of relief to Wall Street. Instead of having to wait years for some of the tech giant's long term bets to start paying off, Mahaney shows that the company can make incremental changes to existing properties - like Maps - and create major upside to its bottom line.

Ads are the major revenue driver for Maps, but there's still room for more.

Today, Maps primarily makes money by selling advertisements to businesses, even though Google has repeatedly said that it doesn't want those ads to distract from its navigation features. Having to toe that line between maximizing profits while maintaining its user experience has forced the Maps team to be creative with its ad formats.

For instance, when a user opens up Maps and sees reference points for nearby businesses, some of those reference points - known internally as "Promoted Pins" - are paid for by businesses themselves.

Google also offers "Local Search Ads" in Maps. Say, for instance, a user wants a haircut and types "barber" into the search bar on Maps. When they do so, a list of nearby barbershops will appear and sometimes, the top result will be a paid ad.

Still, Google doesn't seem to be as aggressive as it could be with ads within Maps.

In a study carried out by RBS, the firm found that Local Search Ads on Maps appeared in 48% of searches on desktop, while only 21% of the time on mobile. And since most of Google Maps' usage comes from mobile (90% of total traffic happens on a smartphone, the study claims), Mahaney said the product, "has a long way to further monetization."

Specifically, Mahaney said that if Google increased its Maps ad loads on mobile to levels closer to its desktop product, the company would increase revenues by over $3 billion within the next two years.

Allowing small to medium-sized businesses to advertise on Maps could unlock major revenue.

Mahaney also said beyond increasing the sheer number of ads on mobile, he's been impressed with Google's efforts to expand and diversify its ad offerings.

At this year's Marketing Live event - the company's annual conference for advertisers - Google said it would be opening up Local Search Ads to small to medium-sized businesses (SMBs), a segment that Mahaney said "constitutes the majority of advertisers on Google," but previously couldn't advertise on Maps. Google did not say when this option would be available to SMBs beyond that it would be happening "soon," but Mahaney said his team was already starting to see smaller businesses advertising on Maps while conducting their research.

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Beyond opening up to SMBs, Google also said at Marking Live it would roll out new ad products on Maps. One such product - which Mahaney's team dubbed the "Suggested Stop Ad" - asks users, like the name implies, if they'd like to add a stop along their route for a business that paid for the suggestion.

"Suggested stops will be based on proximity to the route and Google's typical user data-driven recommendations," Mahaney said. "Google's Waze has been experimenting with similar (and more intrusive) navigation-based ad formats since at least early 2018 and this ad format has clearly taken some inspiration from the strategic asset."

Interestingly, Waze, which was acquired by Google in 2013 but kept as a separate app since then, has proven to extremely valuable to Google Maps, Mahaney said, especially when testing new ad formats.

With a smaller user base (90 million versus over one billion for Google Maps), Waze has the freedom to introduce new ad products on more of a whim. If they prove to be a success without distracting from the overall experience, those ad products can be moved over to the Maps mothership.

"In our view, Waze provides Google with a tool to test and iterate on monetizing Navigation without disrupting its much larger Google Maps asset," Mahaney said.

In what was more of a sidenote, Mahaney also touched on the alternative way that Google Maps makes money - allowing businesses to leverage its Maps service via the product's APIs.

Although only ad growth potential was considered in Mahaney's recent upgrade, the RBC director did allude to the growing importance of this particular revenue channel, especially for ridesharing companies. Uber, for instance, recently disclosed that it had paid Google over $50 million to integrate Maps into its apps for drivers and consumers, and Mahaney said he believes that number will only grow over the years.

"Though advertising revenue remains the primary near-term benefit of this asset, we believe the long-term importance of owning Navigation goes far beyond that," he said.

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