RBC Capital Markets analyst Mark Mahaney attributed the earnings miss to higher expenses related to so-called traffic acquisition costs, or fees Alphabet pays to such partners as Apple Inc. to put its services front and center on their devices. Those fees rose 33% to $6.45bn from a year ago.
“The negative is expenses came in heavier than expected,” he said. “That raises a question: How much revenue is this company having to give away to maintain these growth rates?” Ms. Porat blamed the rise in traffic-acquisition costs on the company’s highest-growth areas—mobile search and so-called programmatic ads where Google places ads on partners’ content—which carry higher fees. Ms. Porat said some of these costs would ease after the first quarter.
Yet the amount of money Google rakes in for each ad click has fallen steadily in recent years. It earns less from mobile-search and YouTube ads, which are rapidly growing, than from traditional desktop search ads. Google said its revenue per click fell 14% in the quarter from a year ago, after an 18% decline in the third quarter.