Traffic Acquisition Cost TAC
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Traffic acquisition cost (TAC) refers to payments made by internet search companies to affiliates and online firms that direct consumer and business traffic to their websites.
Key Takeaways:
– Traffic acquisition costs are payments made by internet search companies to affiliates and online companies for directing traffic to their websites.
– TAC is a significant source of expenditures for online search firms, such as Google and Yahoo.
– Investors use TAC to gauge the financial and performance strength of companies.
– Increasing TAC negatively impacts profit margins.
Understanding Traffic Acquisition Cost (TAC):
TAC is a critical cost of revenue for internet search firms like Google. Investors and analysts monitor TAC to determine if the cost of traffic acquisition is rising or declining, as rising TAC has a detrimental effect on profit margins.
Many internet companies report revenues on a gross and net basis, with the net basis excluding traffic acquisition costs. TAC is measured as a percentage of advertising revenues, with a rising percentage indicating cost pressures on profitability. Some companies use the term "ex-TAC" to describe payments excluding traffic acquisition costs.
Google acknowledges increasing TAC in the "Risk Factors" section of its 2018 annual report. In 2018, TAC accounted for 23% of Google’s advertising revenues, similar to 2017. Google, like other online companies, must closely monitor the trend of its TAC as it greatly affects its overall profit margin.
TAC can also stand for total active cannabinoids in relation to marijuana. TAC calculates the amount of cannabinoid present in a strain of marijuana, including chemicals other than tetrahydrocannabinol (THC).
Two factors influencing Google’s traffic acquisition costs are new regulatory moves and mobile fees.
Benefits of Traffic Acquisition Cost (TAC):
Despite the significant expenses, TAC is a necessary part of doing business for many companies. It helps increase website traffic, resulting in higher monetization and potential revenue generation. Companies often need to spend money to make money, and TAC is an investment in driving up the number of visitors to a website.
While generating traffic is crucial for making money online, companies need to find a balance with TAC expenses. Spending more on TAC than the revenue it generates is not sustainable and causes concern for company heads and investors. Therefore, companies must carefully consider the amount of money allocated to traffic acquisition.
