Tag Archives: tac

Google is making more money from mobile search, as Yahoo ( YHOO ) and Microsoft ( MSFT ) ad platforms falter. But it’s not all gravy, as parent Alphabet ’s ( GOOGL ) Q1 earnings attest. The good news is that clicks on Google’s mobile search ads are rising fast. Mobile rose from 44% of all Google clicks in Q2 2015 to 57% in Q1 2016, says digital marketing firm Merkle. But mobile ad clicks continue to pay less than desktop ad clicks because consumers buy less often on smartphones. Google’s average cost of a click on one of its ads fell 9% in Q1 vs. Q1 2015. Lower-priced mobile clicks were a big factor. Google aims to drive mobile cost-per-clicks (CPCs) higher with new ad technology. There’s also the matter of traffic acquisition costs (TAC). That’s where Apple ( AAPL ) may or may not come in. Google’s overall TAC — what it pays partner websites, both desktop and mobile, in fees for carrying its ads — rose 13% in Q1, to $3.8 billion. Higher TAC shrunk Alphabet’s earnings, which missed Wall Street estimates. More alarming to analysts was that TAC paid to “distribution partners” jumped 33% to $1.22 billion. Google’s search engine is the default on most mobile devices, and it’s the default search engine for Apple’s Safari browser. There’s been speculation over whether Apple and Google will renew the Safari contract. To some analysts, the 33% jump in “distribution partner” TAC was a red flag. On the company’s Q1 earnings call last month, Alphabet CFO Ruth Porat attributed the TAC hike to general mobile trends and new advertising technology — and not to any one major contract renewal. Mobile TAC is higher than desktop TAC, Porat said. But analysts wonder. “I certainly can’t rule out a higher Safari TAC rate tied to a renewal,” Mark Ballard, senior research director at Merkle, told IBD. “There are so many moving pieces here, and Google and Apple have been very tight-lipped about their dealings over the years. “It very well could be a combination of higher Safari traffic share and TAC rate. (But) Google has made some moves in the past few quarters to significantly ramp up the monetization of its mobile results. This additional revenue may be coming at a higher TAC.” Google Ad Contracts ‘Have Potentially Changed’ Ballard notes that Google in late 2015 added a third ad atop mobile-search results. Growing use of product listing ads (PLAs) in mobile phone search results may be another factor. Google’s Q2 earnings in July could provide more evidence either way. “We think the terms of (Google’s) contracts have potentially changed and could be another driving factor of the growing TAC,” Evan Wilson, a Pacific Crest analyst, said in a research report. “At this point, we’ve modeled (TAC) increases to be gradual and not a significant new headwind. “We’re going to keep a close eye on news of a potential new Apple deal, as this would be a primary suspect to further fuel this dynamic.” The big picture, though, is that if TAC rises sharply, it would be a problem for Google’s profitability, whether or not Apple is directly involved. At RBC Capital, analyst Mark Mahaney wrote in a research note: “We view the Q1 TAC trends as one of the clear negatives of the quarter. That 8.5% TAC rate for Google Sites is a material step up. We wonder whether a renegotiated Apple contract had anything to do with this. (But) we are modeling modest growth in TAC going forward.” Documents released in January in the ongoing Google- Oracle ( ORCL ) court battle revealed that Google paid Apple $1 billion in 2014 to make its search engine No. 1 on Safari. TAC payments, though, are separate, analysts say. Goldman Sachs, in a 2015 research report, estimated that 75% of Google’s mobile search revenue came from iOS users (iPhone and tablet), and half of that was related to Safari. Goldman Sachs estimated that 65% of ad revenue went to Apple, while Google kept 35%.