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A critical metric for Alphabet’s success is suddenly showing signs of life



Alphabet delivered a knockout quarter today, handily beating the estimates from Wall Street — but, perhaps more importantly, showing actual growth in a critical metric that has seen a consistent decline for quite some time.

Google’s cost-per-click — a metric that helps define how valuable its ads are — grew 1% quarter-over-quarter this year. While still down 18% year-over-year, that tiny nudge forward is likely going to be a big positive signal for Google as it looks to show that its advertising business won’t be challenged by other platforms and it is still going to remain a critical ad buy even as user behavior shifts to mobile.

It’s a problem that Google has had to contend with for some time, with quarter-over-quarter declines going back to the first quarter last year when its aggregate cost-per-click didn’t decline. But it didn’t grow that quarter, either, and it’s been a major sticking point for the company as it tries to make up for the decline in its cost-per-click with volume (called “paid clicks” in Google parlance). That number is, of course, still on a massive run, up 47% year-over-year.

That’s a good look for Alphabet, the parent company of Google, which saw its shares make a big jump today by Google standards and adding billions of dollars to its value. You can find the full financial details below the post, but it’s adding on to an already impressive run for the company’s shares, which are now well over $1,000 per share this afternoon. This year, shares of Alphabet are up 29%, including its tick up today by another few percentage points.

One storyline we were watching for this report was what would happen with Google’s traffic acquisition costs, and what percentage of its advertising revenue it would be. This quarter, TAC accounted for 23% of Google’s advertising revenue, which is another slight tick up from where it was year-over-year. It’s a little tick, but it’s one that Wall Street may be watching pretty closely as Alphabet’s story continues to play out and it starts to set up its “other bets” to succeed.

“We expect TAC to increase as a percentage of site’s revenue, as we remain focused on profit dollar growth, and these areas are additive to growth,” CFO Ruth Porat said in the call to discuss the company’s third-quarter earnings.

On the rest of the Alphabet front, the company’s other bets — which includes stuff that isn’t Google like Nest or Fiber — continued to improve as its revenue jumped from $6.8 billion in the third quarter last year to $8.7 billion in the third quarter this year. It grew while managing to control its losses as well, with the division losing $812 million this quarter compared to $861 million in the same quarter last year.

Here’s the final slash line for the company:

  • Q3 revenue: $27.8 billion, compared to $27.2 billion analyst estimates
  • Q3 earnings: $9.57 per share, compared to $8.33 per share analyst estimates
  • Other Bets: $8.7 billion in revenue, loss of $861 million
  • TAC as a % of revenue: 23%
  • YoY Paid Clicks: up 47%
  • YoY cost-per-click: down 18%
  • QoQ cost-per-click: up 1%

Featured Image: Jeff Chiu/AP



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