What’s the Effect of Google’s Panda 4.0 Update?

Google's Panda 4.0 is officially up and running, and in a brief 10 day span, its being felt wide a wide-array of companies

Jun 11, 2014 at 1:05PM

Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) rollout of Panda 4.0 earlier this year was considered a major update to its search algorithm, an attempt to boost exposure for high-quality sites. While this change is expected to help Google's advertising revenue, it has also had a negative effect for many others like Expedia (NASDAQ:EXPE) and RetailMeNot (NASDAQ:SALE), and that degree of effect might be rather significant.

The Panda 4.0 effect
Panda 4.0 officially made its debut on May 20 with the intention to connect users with better sites. Consequently, it's also believed to match better advertisements to users per search.

Goog Panda

Source: Google

While it's very difficult to measure its actual impact in terms of advertising dollars, one can look at early data combined with previous sales trends to see that something had an effect on Google in the month of May.

 

April

May

AdWords

4.3%

11.7%

Cost-Per-Click

4%

7%

Product Listing Advertising Revenue

7.8%

21.4%

According to ChannelAdvisor, Google saw a rather remarkable boost in several key fundamental metrics in the month of May, as compared to the year prior. Considering what might have been responsible for this acceleration of growth, we must acknowledge that Panda 4.0 was the company's key update, and that its effect might be greater than expected.

The wrath of Panda 4.0
While Google's update, unsurprisingly, had a positive effect on its business, it should also come as no surprise that other companies might be hurt by this update, especially those that earn significant business from Google search.

Specifically, RetailMeNot, the online coupon site, lost about one-fourth of its valuation at the end of May when a report showed that 30% of the company's web traffic had fallen since Panda 4.0's launch. As a result, further analysis showed that up to 10% of RetailMeNot's total traffic had been effected.

Clearly, this insinuates a disappointing quarter, and perhaps bearish long-term guidance, depending on whether the problem has been corrected. Yet, while RetailMeNot shares fell abruptly, larger companies like eBay are also nearing 52-week lows, due in large part to Panda 4.0 and a more consistent downtrend.

Furthermore, according to the same ChannelAdvisor research, eBay's same-store sales in Marketplace grew just 11.5% year over year in May. By comparison, Marketplace same-store sales rose 17.8% and 14% in the months of March and April, respectively, thus showing a rather sizable decline.

As most know, eBay is separated by Marketplace and PayPal, and it's very hard to make a fundamental conclusion based on just one-half of the known growth. Albeit, Marketplace has struggled for quite some time and it appears that Panda 4.0 has all but accelerated its problematic growth rates.

Where's the investment upside?
In regard to Google's strong growth in several key metrics, it's possible to imagine a handful of contributing factors. However, combining RetailMeNot's traffic struggles, Marketplace's same-store sales growth deceleration, and Google's gains, it's clear that the common denominator is Panda 4.0, and that it's playing some role in the performance.

Moreover, if Google's AdWords and cost-per-click growth is sustainable, investors can only imagine the stock gains that could be created because, after all, most of Google's business is still advertisements. As for RetailMeNot and Expedia, it might be best to sit on the sidelines until such algorithm problems are known to have been corrected, as these struggles could be long-lasting, given the fact that no solutions have been found, yet.

Foolish thoughts
With all things considered, eBay and RetailMeNot's struggles are problematic, given they are businesses that rely on search, meaning staying on Google is important. Therefore, this setback creates long-term reservations as to whether either are good investments, but in the process, further illustrates the power of Google, a company that can seemingly flip a switch and drive revenue higher.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and RetailMeNot. The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers