The revenue growth was more than 20 percent over the period of the past five quarters for Alphabet but in the recent quarter the traffic acquisition costs (TAC) have increased by 28 percent to 5.09 billion, which is the highest in terms of percentage in the past nine years.
Analysts believe the TAC may further jump high and probably hamper the margins even though it is true that the fundamentals of the company would remain strong.
Google primarily relies on partners for its various products like the iPhone of Apple comes with the default Google search engine. The company simultaneously pays websites to facilitate displaying of its advertisements.
According to Goldman Sachs analysts, Google mainly is focusing on mobile and programmatic and this is the reason for an increase in the TAC. It is assumed the TAC may further increase in the near future and in absolute terms. It will be significant with respect to the percentage of revenue.
Google has lately focused more on mobile and programmatic ads and the ads are run on automation systems based on buying, selling and displaying algorithms. This has led to more spending on TAC.
The ad revenue in 2022 was 18 percent in the last quarter while it has dropped to 16 percent in the recent quarter. The TAC has risen 22 percent of the net ad revenue in the current quarter.
Canaccord Genuity writes the TAC may further jump high and probably could be higher by 25 percent compared to a year ago. This may cause a slight pullback of the company's share price.
Alphabet is the parent company of Google and was created by restructuring Google. It was founded in October 2015 while Google was founded in September 1998 by Larry Page and Sergey Brin. The company is headquartered in Mountain View, California, United States. The key people currently responsible for the smooth functioning include directors Larry Page and Sergey Brin, chairperson John L. Hennessy, CEO Sundar Pichai and CFO Ruth Porat.