Monday, October 25, 2004
To TAC or not to TAC
so GOOG (Google) reports earnings in gross terms including TAC (Traffic Acquisition Costs). The very impressive 805.6 million includes TAC. Excluding TAC the revenue for Q3 is ~500 Million. Not that this number is something to sneeze at, however, it puts the overall GOOG (Google) revenue numbers in a different light, as we try to compare it to it's peers (YHOO, EBAY).
Excluding TAC, GOOG is more likely to be earning somewhere between 1.5 to 2B in revenue for the year 2004. This is markedly smaller than it's peers YHOO (Yahoo!) or EBAY (eBay).
However, looks like they also have the advantage of staying in the high margin text ad business. EBAY (eBay) is expected to earn a net income of ~800M on a revenue of 3.22B roughly 25% net margins. GOOG (Google) earned ~212M on a revenue (ex-tac) of 503M, roughly 42% net margin.
So even though, Google's revenues are smaller, their growth rate is strong and margins are strong. Does that justify the valuation? My judgement says, YES.
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