uploads///Google TAC Q

Here’s Why Apple’s Services Unit Could Grow Faster Than Expected


Oct. 3 2018, Published 10:21 a.m. ET

Google’s traffic acquisition costs have been climbing

Google’s ad revenue has been accelerating over the past couple of years. However, what’s been accelerating at a similar pace—if not faster—is its traffic acquisition cost (or TAC), its biggest expense. Lately, fears of a surging TAC have been weighing on the stock despite its robust revenue growth.

Google’s TAC includes the billions it pays iPhone-maker Apple (AAPL) to remain the default search engine in its browser, Safari. Neither Apple nor Google has ever spoken about the deal, but the amount is rumored to be in the billions.

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Apple’s Services segment could get a boost

According to Goldman Sachs’ Rod Hall, Alphabet’s (GOOGL) biggest unit may be paying Apple $9 billion this year to make it the default search engine on iOS’s Safari.

The analyst believes that Google will have to pay more in the coming years. He predicts that Google could shell out $12 billion next year—a whopping 33% increase.

Those payments are a part of Apple’s fast-growing Services segment, which also includes Apple Music, Apple Pay, and the App Store. This segment is expected to be the next big growth driver for the tech giant as its hardware business plateaus.

Apple stock is up 35.4% year-to-date and is at an all-time high. Meanwhile, Alphabet stock is up 11.2%.


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