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RetailMeNot Not Bothered By Google’s Search Algorithm Change

Posted on Thursday, Jun 5th 2014

A recent eMarketer report projects that nearly 55% of the country’s Internet using population above 18 years of age will redeem digital coupons at least once this year. The number has increased by 8% over last year. The researcher estimates the total number of adult digital coupon users to grow from 103.5 million last year to 111.7 during the current year. By 2016, the number of people using digital coupons is expected to grow to 124.4 million. The digital coupon industry is being driven by the increased use of mobile coupons and the report estimates the number of mobile coupon users as a percentage of total adult digital coupon users to grow from 59.5% last year to 70.3% this year and to 82.9% by 2016.

RetailMeNot’s Offerings
In the wake of such statistics, online couponing giant RetailMeNot (Nasdaq: SALE) has reported strong financials. First quarter revenues grew 51% over the year to $61.3 million, ahead of the Street’s projections of $55.6 million. EPS of $0.20 was also ahead of the market’s projections of $0.19 for the quarter.

During the quarter, RetailMeNot’s international revenues grew 55% to $13.7 million. Their overall site visits grew 26% to 155.2 million. Mobile initiatives have also delivered strong results with revenues from mobile devices increasing 127% to $9.3 million. As of March this year, more than 16.3 million mobile apps had been downloaded globally compared with 6 million last year. Mobile app sessions have also increased significantly from 20.2 million last year to 125.3 million during the quarter.

For the current quarter, the company projected revenues of $58 million-$60 million and expects to end the year with revenues of $276 million-$282 million. The Street was looking for revenue of $59.56 million for the quarter and $280.85 million for the year.

RetailMeNot and Google’s Search
Last month, Google announced the launch of Panda 4.0, a component of its search algorithm that increases the relevance of search by increasing exposure to higher quality sites and removing spam and lower quality pages from their search results. Within two days of the launch of the update, reports revealed that RetailMeNot lost 30% of their traffic. Stifel’s analyst Jordan Rohan says that the update has led to RetailMeNot seeing a 10% decline in overall traffic.

RetailMeNot is not significantly worried about this change and believes that the numbers for the loss of traffic are overstated. Google needs to keep changing their search logic to continue to deliver strong search performance and RetailMeNot would just need to update their site to make sure it is able to meet Google’s algorithm change requirement. Additionally, the 10%-35% loss in traffic doesn’t necessarily translate to similar loss in revenues. Nearly 600,000 of RetailMeNot’s coupons or promos are not monetized and it is not known whether that traffic loss is affecting the monetized coupons or not.

But, as a knee-jerk reaction to the announcement, their stock slid to $22.45 – the lowest price since it listed at $21.00 last July. It has recovered since and is trading at $25.50 with a market capitalization of $1.37 billion. It touched a high of $48.73 in February this year.

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