Increasing Traffic Acquisition Costs Making Alphabet’s Investors Unhappy

Published By : 26 Jul 2017 | Published By : QYRESEARCH

Alphabet’s investors are quite unhappy with the recent events, especially the increasing traffic acquisition cost (TAC), the cost incurred in attracting traffic to its site. The parent company of Google, which has been enjoying a growth rate of more than 20% in revenues for the last five quarters, stated on Monday that the TAC jumped 28% and reached US$5.09 bn in the Q 2 of this year. Over the last nine years, this is the highest rise in TAC percentage and researchers are saying that they expect the scenario to continue in the near future. Even as the fundamentals of the enterprise remain strong, the weight on margins will increase noticeably.

Alphabet's shares, which witnessed a surge of 26% in 2017, declined by 3% in early trading session on Tuesday, July 25, 2017. In a client note, an analyst at Goldman Sachs states, “the company has continued to refer mobile and programmatic as the drivers of overall rise in TAC, which researchers believe that will continue to surge in absolute terms as well as a percentage of revenue in the near future.”

The company has displayed its concerns over the increasing expenditure on traffic acquisition as it is anticipated to continue to rise with the ongoing shift to mobile advertising and programmatic advertising, as their significance is increasing substantially. Of the overall advertising revenue, the cost incurred in traffic acquisition were 22%, in the second quarter of this years. Net advertisement revenue witnessed an upsurge by 16% when compared to the 18% of the last quarter.

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