Google’s Search Changes Send RetailMeNot Shares Tumbling

Google Inc. (GOOG) is trying to push out spammy sites from its search results, and RetailMeNot Inc.’s stock is paying the price.

RetailMeNot shares plunged a record 19 percent today after a report said that recent changes in Google’s search algorithm made results leading to the Web couponer 33 percent less visible. Searchmetrics, a provider of digital-marketing software, wrote a list of the winners and losers, with RetailMeNot as one of the biggest losers.

“These reports greatly overstate the impact on RetailMeNot.com,” the Austin, Texas-based company said in a statement today about the changes. “Over RetailMeNot’s history, search engines have periodically implemented algorithm changes that have caused traffic to fluctuate. It is too early to judge any potential impact of the latest Google algorithm change.”

Whether or not the threat is real, the plunge in RetailMeNot (SALE)’s shares underscores the control Google has over Internet traffic and the risks faced by companies that rely on the search engine for users. Google captured 68 percent of U.S. search queries in March, more than triple the market share for Microsoft Corp., according to ComScore Inc.

Matt Cutts, the head of Google’s Webspam team, said in a Twitter post on May 20 that the Mountain View, California-based company was rolling out its new algorithm, called Panda 4.0. Searchmetrics said in its post that the “update seems to be a major one.”

RetailMeNot fell $5.81 to $25.23 at the close in New York, and the 19 percent drop was the biggest one-day decline since the stock started trading in July.

Digital Coupons

RetailMeNot provides coupons from its website to more than 70,000 stores and brands, including retailers Sears Holdings Corp. and Walgreen Co., travel sites such as Expedia Inc. (EXPE) and fast-food restaurants like Burger King Worldwide Inc. Much of RetailMeNot’s traffic comes from consumers searching for coupons on Google.

Brian Pitz, an analyst at Jefferies LLC, wrote in a report today that RetailMeNot’s stock decline was an “over-reaction and that the real impact is much smaller.” Pitz, who recommends buying the stock, said the company has effectively dealt with algorithm changes in the past.

Jason Freidenfelds, a spokesman for Google, said the company doesn’t comment on specific sites. He said that the algorithm change will affect about 7.5 percent of queries in English that users might notice.

Searchmetrics urged readers of its winners and losers list to “interpret with caution,” and said it will provide an update after diving deeper into the data. The initial list of losers includes IAC (IACI)/InteractiveCorp’s Ask.com and EBay Inc. (EBAY) Winners, or those sites with improved visibility, include job-search site Glassdoor Inc., Automattic Inc.’s WordPress blog service, and health site Everyday Health Inc.

IAC shares fell 1.3 percent to $61.98. EBay slipped less than 1 percent to $51.50, while Everyday Health climbed 5.7 percent to $16.56.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Jillian Ward

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