Alphabet Results Hit from Increased Traffic Costs and Strong Dollar

On Thursday, Alphabet Inc the parent company of Google missed targets on Wall Street for revenue and profit for its first quarter as it spent more to build traffic for it advertising services on mobile devices.

The results, which were hit as well by a strong U.S. dollar, drove the shares of the search company lower by 6% in Thursday late trading.

The consolidated revenue at Alphabet increased from $17.25 billion to $20.25 billion, which was slightly less than analyst expectations of $20.37 billion.

Its non-GAAP per share earnings were $7.50, excluding special items, which missed Wall Street expectations for $7.97.

Ruth Porat the CFO said during an investor’s conference call that payments to other sites on the Web, known as TAC or traffic acquisition costs, were $3.8 billion, which accounted for over 21% of the overall advertising revenues.

The ad revenues percentage spent on TAC increased 13% from the same period one year ago.

That reflects an ongoing shift toward mobile advertising as well as an increased importance in programmatic advertising, where ads are purchased, sold and displayed via automated systems.

Investors will get used to seeing TAC increase as a cost of doing business, said an analyst on Wall Street.

If you get mobile searches from device made by Apple, you must pay Apple for that traffic so that revenue could happen, said the analysts.

The same on programmatic side, when you represent more people and are selling their ads or buying their ad space someone has to be paid.

Spending is expected to continue rising on traffic acquisition as the shift to mobile advertising continues, pressuring the traditional robust margins of the company in its advertising arm.

Google’s revenue from advertising increased by 16.1% to over $18.01 billion, while the amount of ads, or the paid clicks, rose by 29% said the company.

Losses grew in the Other Bets business of the company, which includes Google Fiber it broadband business, Nest, its home automation products, X the research division and self-driving cars.

 

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