Alphabet and Google investors are upset over Alphabet’s decision to raise the cost of driving traffic to its site. Google’s parent company has enjoyed a steady growth rate of over 20% for the past five quarters, and the company has chosen to increase its TAC, traffic acquisitions costs, by 28% to amount to $5.09 billion in the second quarter.
Alphabet’s recent increase in TAC is the highest percentage increase in the past 9 years, and industry experts predict their decision will “weigh on margins even as the company’s fundamentals remain strong.” As a big contributor, Google relies heavily on its partners to use the search engine as their main source and also pays websites to run ads. Apple Inc is the primary partner that uses the platform, and with an increase in TAC, it is obvious the act is perceived questionable by other companies.
TheStreet also emphasizes that the “cost per clicks, a key metric that measures the average price each click, continued to fall during [the previous] quarter” and the “total cost per click slid 23% year-over-year, which was greater than analysts’ projected decline of 16.4%.” With the declining click trend, Jim Cramer’s Action Alerts PLUS team had the following to say:
“Overall, we are encouraged by the strong quarter despite the discouraging click trend. We believe GOOGL can be successful with its diversification away from advertising, but we understand the business represents the heart of its business and the process will take time… While the company may see short-term weakness immediately following its report, we do not believe it will be sustained as the company continues to deliver and improve on its long-term objectives,” the AAP team noted. “However, we do recognize the click concerns moving forward and we will update members accordingly should we believe it to be a larger part of the company’s story.”
Alphabet’s actions have been put into question, but the company has enough stability to make good change and still succeed. With their given past, it will be quite difficult for the company to lose its dominance in the industry.
Mohammad Sultani for TechFunnel.com