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EXPE: Expedia Has More to Fear Than the Google Penalty Box

Getting dinged on search won't help EXPE in the short run, but a bigger bogeyman awaits down the road

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On the surface, Google’s (GOOG) punishment doesn’t look like any more than a slap on the wrist for Expedia (EXPE), despite Tuesday’s pounding of EXPE stock. After all, JCPenney (JCP) and (OSTK) have both survived the same punishment.

expedia-EXPE-stockBut when you take a step back and think about the underlying vulnerability this wrist slap underscores for any and all companies, the setback becomes far scarier — and cuts deeper — than anyone might realize at first glance.

The punishment? In simplest terms, Google has lowered Expedia’s search engine ranking, meaning those who go to and perform a web search for “cheap flights” are far less likely to find the Expedia site at the top of that search’s results page.

Specifically, trend-followers at web-traffic-research outfit Search Metrics say Expedia’s visibility via the popular search engine has fallen by about 25% since it was suggested the travel-booking company pays a few too many people to post a few too many links (at non-EXPE websites) that point back to Expedia.

Google’s Hit to EXPE: Not Fun, But Not Permanent

More links pointing back to a specific site suggest that site is popular and relevant, so Google is apt to present it higher in its listings when you search for a particular phase or term. When those links cross a proverbial line and reach spam-like proportions, though, GOOG makes an adjustment that can actually undo the effectiveness of the search-visibility effort (and then some) for an unspecified period of time … usually on the order of days, or weeks at the most.

EXPE appears to be in that penalty box now.

While neither company is making an official comment, Search Metrics has been a credible source for details on the what, when, how and why of sites being placed in Google’s penalty box before. The group had its finger on the pulse of Rap Genius’ punishment doled out late last year, and most everything it said about Interflora’s timeout was on target too.

Point being, is Search Metrics says Expedia is getting the cold shoulder from the search engine, then it probably is.

So now what? Truth be told, there’s not a lot Expedia can do about it, nor is there a great deal that EXPE stock owners have to worry about on this end. That’s because while the penalty might crimp revenue and earnings a bit for the current quarter, other companies have survived being sent to the penalty box as well., for instance, found itself out of Google’s good graces in early 2011 after a few too many links back to the shopping site were found at “.edu” websites. Educational sites are given preferential treatment in Google’s search algorithm, primarily because they’re (supposed to be) non-commercial sources of information. Getting a little too much traction for the wrong reason, however, the search giant weakened’s visibility in the Google search engine until most of those links had been removed. OSTK is on pace for a record-breaking year, sales-wise, so clearly Google is at least somewhat forgiving.

JCP was in the same penalty box that Overstock was at one point, and like OSTK, got out of it. When the popular bricks-and-mortar retailer saw enormous progress with its web-based sales in early 2011, a closer investigation found that many links pointing back to the retailer’s e-commerce arm were posted at completely unrelated websites. Lacking the true relevancy Google likes to see in those web links, the search engine made it more difficult to find JCPenney’s products online until about three months later when the company resolved the questionable approaches that landed it in hot water in the first place. Yes, the retailer is still hanging by a thread, but that has nothing to do with its e-commerce efforts.

The point is, Expedia can, and likely will, get past this dose of bad news. That’s why EXPE stock recovered so well Tuesday following the initial bearish jolt once the idea of the punishment was floated to the public.

Being sent to the penalty box for a few weeks, however, is the least of what EXPE stock holders — or an investor in any company, for that matter — have to worry about.

When Opportunity Knocks

While Expedia is apt to work past this hurdle just like JCPenney, Overstock and Rap Genius did, there’s clearly something unnerving about the fact that one company can ultimately decide your fate in terms of how easy it is to find another company online.

Article printed from InvestorPlace Media,

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