Overstock’s Q3 2015 financial report showed a significant earnings drop, leading to an 18-percent stock price decline this morning. Overstock has blamed the bad quarter in part on Google ranking changes that happened earlier this year.
Google Algorithm Change Blamed
Here is an excerpt from the earnings report:
We are experiencing some slowing of our overall revenue growth which we believe is due in part to changes that Google made in its natural search engine algorithms, to which we are responding.
While we work to adapt to Google’s changes, we are increasing our emphasis on other marketing channels, such as sponsored search and display ad marketing, which are generating revenue growth but with higher associated marketing expenses than natural search.
Overstock CEO Patrick Byrne also said on the earnings call:
There was as always, a Google search change. Well, we slipped a stitch on a couple of initiatives. And we’ve gotten them straightened out. But that was — I’d say that was a third of the problem.
Third of the problem was the Google search change, as it affects everybody. It affected — it was a little bit different this year than it was in previous years in some respects in who’d help and who’d hurt. But we think we’ve already learned our way out of that.
Drop Probably From May “Quality Update”
Overstock doesn’t say when exactly it was hit. However, it appears, based on both SearchMetrics and SEM Rush visibility metrics, that the drop came early May. Here are charts from each tracking tool:
As you can see, both tools show huge declines in search visibility as of May. SearchMetrics shows a 30+ percent decline in search visibility for Overstock.com and SEM Rush shows a 35+ percent decline in search visibility for Overstock.com.
SimilarWeb also shared their data with us. They are showing a direct decline of 24% in traffic from Google organic traffic to Overstock.com. SimilarWeb data, in Overstock’s case – is verified with Google Analytics – a special feature SimilarWeb has, so the data should be incredibly accurate in this case. SearchMetrics and SEM Rush estimate traffic loss by tracking keyword rankings, SimilarWeb uses actual traffic data either through panel data or linking up with Google Analytics when it is enabled by the site owner. Here is the traffic chart from SimilarWeb:
This corresponds to when the Quality Update — sometimes called the Phantom Update — happened with Google’s search algorithm.
Less Free Search Meant Higher Marketing Costs
To counter the drop in organic traffic seen by Overstock.com from Google, Overstock said they had an 18-percent increase in sales and marketing expenses. The report explained, “the increase in sales and marketing expenses as a percent of revenue was primarily due to increased spending in the sponsored search and display ad marketing channels, in part in response to changes we believe Google made in its natural search engine algorithms.”
Overstock.com is no stranger to Google ranking declines. Back in 2011, they, amongst other big brands, were hit by a paid link penalty issued by Google.