Google (GOOG, GOOGL) is an unapologetically dominant company.
The search engine behemoth has faced antitrust scrutiny from governments across the world; Yelp‘s (YELP) CEO has publicly shamed it for strong-arm tactics, and its algorithmic tweaks can literally force a company into web obscurity overnight. (Just ask the guys over at RapGenius.)
That’s great for Google, but a potentially big problem for the countless companies that rely so heavily on it.
Investors should know all the risks they can about their portfolios, and anyone counting eBay (EBAY), Shutterfly (SFLY) or TripAdvisor (TRIP) stock among their holdings needs to know the hidden crutch those companies grasp for stability.
3 Stocks That Desperately Need Google: eBay (EBAY)
EBay (EBAY) is the least-dependent of these three companies upon Google. And that is a very sad thing.
Consider this excerpt in eBay’s 2014 annual report, which describes with harrowing corporate dullness how Google managed to effortlessly send EBAY stock lower:
“Our net transaction revenue growth was negatively impacted by declines in volume caused by a reduction in traffic from lower organic traffic, such as Google’s search engine algorithm changes and our second quarter cyberattack described above.”
Putting the cyber attack aside, investors saw for themselves just how important Google was for eBay’s business — and by extension, the EBAY stock price. When GOOG rolled out Panda 4.0 in May 2014, eBay lost its first-page rankings for about 75% of its long-tail keywords in a matter of days, according to online advertising company WordStream.
The resultant losses are unknowable, but eBay suggested at the time that Google’s Panda 4.0 algorithm change could’ve cost the company $200 million in revenue.
Keep that in mind if you’re an EBAY stock believer going forward, especially now that it doesn’t have Paypal (PYPL) around to insulate it.
3 Stocks That Desperately Need Google: TripAdvisor (TRIP)
Online travel-booking service TripAdvisor (TRIP) is even more dependent on Google than eBay. To make matters worse, GOOG is emerging as a direct competitor to TripAdvisor.
Google already has travel booking infrastructure in place with Google Flights, and you can easily sort through hotels by price, rating, and class on Google search as well. TRIP acknowledged this (massive) risk in its 2014 annual report:
“If Google, Bing or any other leading search engines refer significant traffic to these or other travel services that they develop in the future, or otherwise favor supplier websites or other travel service websites over other online travel sites, including us, it would likely become more difficult and expensive for us to generate traffic to our websites and therefore maintain or grow our market share.”
Not only could TRIP stock be devastated by tweaks to Google’s algorithm, but GOOG itself could decide to turn up the heat and improve or advertise its own travel-booking services, an endeavor that could mint money if executed correctly.
3 Stocks That Desperately Need Google: Shutterfly (SFLY)
Shutterfly (SFLY) provides custom photo-based products and services like photo books, cards, calendars, and mouse pads.
Oh, it’s also hopelessly reliant on Google for success.
Like TripAdvisor, SFLY finds itself in the unfortunate position of needing Google to survive, while also competing against it.
In the 2014 SFLY annual report the company went through the usual rigmarole, reminding investors that they “obtain a significant amount of traffic via search engines.” The report also said that Google, Microsoft‘s (MSFT) Bing, Yahoo (YHOO), or some other search engine could “alter its search algorithms or results causing our websites to place lower in search query results.”
Noted.
But then, under a sub-header labeled “Competition,” Shutterfly went on to list the very search engines it so heavily relies upon:
“Internet portals and search engines such as Yahoo!, AOL, and Google that offer broad-reaching digital photography and related products and services to their large user bases”
With SFLY stock already trading at 90 times forward earnings, I’d steer clear of this risk-addled digital photography company.
As of this writing, John Divine was long shares of PYPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
