Making Sense of Blue Nile's Web Traffic Data

Includes: NILE, TIF, ZLC
by: Kevin Stecyk

Google Trends Chart showing trend data for

Please click through for a full-sized chart.

The following quote came from Sunday's Wall Street Journal article, Less Sparkle at Blue Nile (NASDAQ:NILE) (subscription might be required).

Yet Internet traffic data suggests Blue Nile's competitive position may be eroding. The number of "unique monthly visitors" to its site dropped 39% in October to 281,000, compared with a year earlier, according to comScore. That took Blue Nile out of comScore's top 10 jewelry and luxury goods Web sites. Over the same period, visitors to Web sites operated by offline retailers Zale (NYSE:ZLC), Tiffany (NYSE:TIF) and Kay saw declines ranging from 6% to 18%.

Blue Nile says comScore's data "is completely wrong." But data from another Web-measurement firm, Compete, also shows a decline--of 17%--but growth in rivals' traffic.

I find that information from the two web measurement firms interesting. According to comScore, traffic to Blue Nile is down nearly 40%, while Compete has it down 17%. What's a factor of two, or nearly 20% in absolute value, between friends? And then comScore says Zale, Tiffany, and Kay saw declines between 6% - 18%, while Compete says it saw growth in the rival websites. And to make matters more confusing, Blue Nile says comScore is wrong.

So how do we make sense of this? Let's look at Google Trend data, as shown in the chart above. There are several things that jump out at me. One, searches for Blue Nile, engagement ring, diamond ring, and wedding ring have all trended down. Two, the relationship among all four items appears reasonably constant over time. And three, every fourth quarter, there is a spike for search terms Blue Nile and Diamond Ring. We are midway into the fourth quarter now.

Recall Blue Nile's third quarter conference call article. In that article, I showed a chart with the quarterly revenues clearly shown. As seen from that chart, the fourth quarter is where most of the revenue for the year occurs. And on the conference, Blue Nile raised its guidance for this year's fourth quarter. A quote from the company's press release as is follows:

The trends in the business during the third quarter improved sequentially, and we project that trend to continue in the fourth quarter. Based on our third quarter results and our expectations for the fourth quarter, we are raising our guidance," said Marc Stolzman, Chief Financial Officer. "We are projecting fourth quarter net sales between $100 million and $109 million, and diluted earnings per share in the range of $0.35 to $0.39.

The company's quarter ended on 4 October 2009, and the conference call was on 5 November 2009. Therefore, Blue Nile had about one month's data into the fourth quarter before issuing its raised guidance.

Given that I don't see a 40% drop in Google searches, that the two web measurement firms see wildly different results, and that the company raised its guidance for the fourth quarter only ten days ago, I am skeptical of the web search firms' findings.

Disclosure: Author is long Blue Nile stock.