Google parent company Alphabet posted revenues of $20.3 billion in its latest financial report but missed its targets for both revenue and profit for the first quarter of the year. This was due to heavy investment in its efforts to build traffic for its mobile advertising platforms.
Despite the fact that the results were below market expectations, Google’s finance officer Ruth Porat said that the results were testament to a “tremendous start to the year,” and that the company is now well-positioned for long-term growth after pursuing innovative new tech and other big bets.
Alphabet’s consolidated revenue rose from $17.26 billion to $20.26 billion between January and March, which was down slightly on the analyst consensus of $20.37 billion. Porat revealed in a conference call with investors that traffic acquisition costs (TAC) accounted for a fifth of advertising revenues at $3.8 billion.
The increased spending on traffic acquisition is a trend that is set to continue due to the emergence of mobile as the central outlet for advertising and the increasing importance of programmatic advertising. An analyst for B. Riley & Co, Sameet Sinha, said that the rising costs of doing business should be seen as the new norm for investors.
“If you’re getting mobile searches from Apple devices you have to pay Apple for traffic so that revenue can happen,” Sinha added. “The same thing on the programmatic side, when you end up representing more people and selling their ad space or buying their ad space, you have to pay somebody else.”
Google’s advertising revenue soared by 16.2 per cent to $18.02 billion during the first quarter, while the number of paid clicks increased by 29 per cent during the same period. However, the tech giant also revealed that the average cost per click has fallen slightly during the last twelve months.
While profits increased from $3.5 billion to $4.2 billion along with a revenue increase, shares on Wall Street were down six per cent on Thursday following the earnings miss. Google remains the second-most valuable company behind Apple, with market capitalisation of more than $500 billion.