Expedia Inc's stock (EXPE) was pummelled earlier today by 4% in early US exchange trading.
The selloff was in response to a report that the flagship site, Expedia.com, may have lost as much as a quarter of its visibility in search results due to a Google penalty for unsavory link practices.
But the market may be over-reacting. Expedia Inc's results may be hurt from the traffic loss by less than 1%, says one leading analyst.
Search Metrics is claiming -- according to a report in Search Engine Land -- that Google punished Expedia for allegedly participating in "paid linking schemes" to manipulate its ranking in Google organic search results for most of their generic keywords.
It is unclear as to the process behind the alleged activity - indeed, if Expedia's in-house SEO team or an outsourced agency, or a combination of both, could be the culprits.
It is difficult to verify the report of a Google penalty, which cites "cheap hotels" as a natural search term where Expedia has been booted down to 11th position.
Expedia sites outside of the US and Canada are understood to have not been affected by the slump in performance in search engine rankings.
In tests, Tnooz sees it at 4th place currently. Search Metrics says its ranking data doesn't take platform (desktop or mobile) into account.
As of this morning, two main organic search affected are "hotel" and "hotels", which in unscientific searches are gyrating wildly in position, but are not dramatically far down the page.
That said, SEM Rush, another analytics service, is also seeing a decline in overall volume for key commercial words.
Brian Nowak, analyst at Susquehanna Financial Group, released a report this morning forecasting that Expedia Inc's revenues would be harmed by less than 1% because of the estimated drop in search traffic (presumably due to a Google penalty) in the fourth quarter of 2013.
To gauge the potential impact of a Google traffic drop-off, we looked at the Comscore U.S. desktop traffic source/loss data. In it we found that Google U.S. desktop traffic to Expedia fell ~1.5% Y/Y in 4Q:13 after being up ~11.5% in 3Q:13, a notable degradation.
First, Expedia.com is the only entity to be affected, which we estimate makes up 50% of total Expedia revenue.
Also, this impact would only affect desktop traffic, which we estimate is 85% of the total.
In addition, we estimate ~20-25% of Expedia.com’s business is sourced from Google.
In aggregate, this means the fall off in 4Q:13 traffic is only impacting ~11% of the base.
As such, assuming a 10% degradation of growth would be an estimated 1% hit to EXPE 4Q:13 revenue.
The incremental margin on this revenue is difficult to determine, but using our 4Q:13 incremental margin of ~41%, we estimate it would impact our EXPE 4Q:13 EBITDA by ~2%.
Nowak's calculations came too early to include today's announcement from Sabre Corp, the owner of online travel agency Travelocity, that:
by December 31, 2013, the majority of the online hotel and air offering had been migrated to the Expedia platform, and a launch of the majority of the remainder is expected in early 2014.
That faster than expected transition to Expedia powering Travelocity's sales could boost Expedia's revenues by the tens of millions of dollars in the upcoming quarters.
Rumors of Expedia not completely following Google's stated webmaster rules have dogged the company lately, such as in recent discussions on Tnooz.
But the most severe accusations of shady link building tactics came in December from a blog post at nenadseo.com which received a partial, unofficial response at Webmarketing School and in comments on Hacker News.
Google is know to often crack down on organisations for such frowned-on behavior, but often the penalty is more of a temporary shot across the bows, with penalties soon lifted and results returning to normality.
In response to this latest saga, Google says:
"We typically don't comment on specific companies regarding search rankings."
Expedia says it has "nothing to add" to the story.
For full details on the Expedia Google penalty report, see Search Engine Land's post "Expedia Lost 25% Of Their Search Visibility In Google Possibly Over Unnatural Links".