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Google flattery lifts Etsy, but buyer beware

What Google giveth, Google can taketh away.

On Thursday's earnings call, Google Chief Business Officer Omid Kordestani said one flattering thing about Etsy, and the e-commerce company's stock surged as much as 38 percent in Friday trading.

While that's great in the short term, adding more than $700 million in market value at its peak for the day, the reason for the rally serves as a reminder: Google can just as easily cause the reverse to happen.

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Just ask eBay, which was hurt by an algorithm change in May 2014, or RetailMeNot, whose stock tumbled 19 percent in a single day from that same tweak.

Etsy, which sold shares to the public in April, spelled out the risks in its IPO prospectus. Don't be fooled—this is about Google.

"We obtain a significant number of visits via search engines such as Google, Bing and Yahoo," the filing said. "Search engines frequently change the algorithms that determine the ranking and display of results of a user's search, and those changes can negatively affect the placement of links to our marketplace and, therefore, reduce the number of visits to our marketplace."

Boosting Etsy's stock on Friday was less about a specific algorithm change and instead related to an emerging trend in mobile called "deep linking." The purpose is to make mobile searching less painful by maximizing every click.

It goes like this: Type "vintage necklace" into Google's mobile engine and the first organic link is for Etsy. Click on that link and it takes you to the exact page in the Etsy app for vintage necklaces.

If you don't have the app, the prompt lets you install it or go to the relevant Web page.

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"Developers like Etsy are really seeing a boost in traffic as a result of deep linking," Kordestani said on the call.

And that was enough to lift Etsy's market value by more than one-third. (The stock is now trading up 30 percent at $21.82.)

A spokesperson for Brooklyn, New York-based Etsy declined to comment.

Google has been investing in deep linking to more quickly get smartphone users to their desired spots, and recently started showing deep links even in searches on Apple devices.

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Start-ups like URX, Branch Metrics and Quixey are building software to connect the mobile Internet and enable deep linking across the Web and app ecosystem.

In 2013, URX published a blog post showing Etsy sellers how to add deep links in five steps, touting the increased sales that could follow.

"They were one of first companies to actively implement deep links," said Mike Fyall, head of marketing at San Francisco-based URX. "It would make sense that as Google starts to emphasize the importance of app content in search results, they would look to partners who have done a good job of indexing sites."

Google did not immediately respond to a request for comment.