Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s actually reaching a nice chunk of the Kansas City market with its Fiber Internet service, suggesting that the search giant may actually have something worth investing in there. In a report dated May 6, 2014, analysts Carlos Kirjner and Peter Paskhaver showcase a recent survey they did in Google’s “Fiberhood,” as they call it.

Google fiber

Google Fiber penetration higher than expected

The Bernstein team said some have suggested that Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) is targeting only high income neighborhoods with its Fiber service. However, they have found that this isn’t the case. Across the board, they said penetration was better than expected, with 75% of the homes it passes signing up for it. In low income neighborhoods, penetration was almost 30%.

Because of the results of their survey, they believe Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s Fiber will capture at least half the homes it passes throughout Kansas City with paid services within the next three or four years. They believe at least 10% of the homes passed will sign up for the free broadband offer, making the total number of homes served at about 60% of the homes passed.

Currently they say Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s Fiber is on track to reach or pass 40% penetration of the homes it passes with its double play service, which includes pay TV and 1 Gbps broadband, and 1Gbps broadband only service.

Google Fiber could be quite profitable

Based on these penetration rates, the Bernstein team sees a lot of potential for Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) in its Fiber Internet play. They note that we don’t yet know what kind of impact competition will have on Google Fiber, but they think it will still be profitable even if competitors match Google’s offer. They estimate that Google could end up signing up millions of homes in several markets and believe Fiber could be profitable even at “significantly lower” penetration rates than what it has secured so far in Kansas City.

The Bernstein analysts see little downside risk to Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) because of Fiber. They note that the company is deploying the service in just a limited number of markets while it learns the economics, behavior of customers and “competitive response.” The search giant is also learning what the upsides are and gauging the risks by rolling Fiber out gradually.

If Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) discovers that the economics don’t look good, it can simply stop, whether that’s now or after it deploys in the 34 cities it is currently negotiating with. As a result, if Google moves forward to roll out to more cities, then they see it as a positive for Google. They believe they’re in the “vast” minority in their positive view of Google Fiber. The Bernstein analysts have a $700 per share price target and an Outperform rating on Google stock.