How A Dip In Overstock’s Organic Rankings Contributed To An 17% Stock Drop

Much to the  chagrin of shareholders, Overstock.com stock dropped a whopping 17.24% today. Why? According to the earnings report a major portion of the decline was due to a change in Google’s organic algorithms. Unfortunately, Overstock wasn’t on the favorable side of the modifications.

In the earnings report Overstock stated:

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 is no stranger to organic traffic drops but this issue appears to be more algorithmic than past drops. The culprit of the changes may well be Google’s confirmed “Quality Update” that occurred in May. The Quality Update isn’t a penalty or a manual action, rather this was a change to the core ranking algorithm. According to SearchMetrics This update appeared to have some ecommerce sites like Amazon, Groupon seeing big increases. But other more content heavy sites like UpWorthy, WeHeartIt and eHow saw big drops according to SearchMetrics.

According to SimilarWeb, organic traffic to Overstock saw a drop of roughly 11%:Of course with drops in organic, traffic needs to be fulfilled via other mediums to maintain sales. In the case of Overstock, they reported an 18% increase in ‘sales and marketing’ expenses. On the increase Overstock stated  that “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.”

For a deeper dive, head over our piece on Search Engine Land.