Why RetailMeNot Inc. Shares Tumbled

Is this meaningful? Or just another movement?

May 22, 2014 at 4:43PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of RetailMeNot Inc. (NASDAQ:SALE) were getting hammered today, falling as much as 21% and finishing down 19% on fears that its search engine ranking has gone down significantly.

So what: According to SearchMetrics, a provider of digital marketing software, RetailMeNot's visibility on Google searches fell 33% because of a change in Google's algorithm to push out unwanted marketing sites. RetailMeNot, which provides a digital coupon marketplace, responded to the report, saying it "greatly overstates the impact." The company also said: "Over RetailMeNot's history, search engines have periodically implemented algorithm changes that have caused traffic to fluctuate." It also said it was too early to "judge any potential impact" from the algorithm update. 

Now what: SearchMetrics said the algorithm change rolled out on Tuesday and "seems to be a major one." At least two research firms stepped in to defend RetailMeNot, and management said it wouldn't update its guidance at this time, noting that brand awareness was at an all-time high as the company attempts to branch away from search. Though it may be too soon to assess the damage from the Google switch, the move underscores an important vulnerability, as RetailMeNot is highly dependent on search engines. Shares hit a 52-week low on the news but could bounce back if these fears turn out to be overblown.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends RetailMeNot. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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