THE NUMBERS:
Three-year growth: 152%
12-month sales through June: $45 million
12-month loss through June: $7.1 million
Recent market value: $72 million
Employees: 85 in OC, plus call centers overseas
Company: online search engine
Irvine’s Local.com Corp. has found a way to attract online advertisers.
The online search engine directs users to local businesses, an Internet niche that still is growing.
“Many people believe that local advertising is one of the largest untapped markets for online media,” said Jeff Rath, managing director of technology equity research at Canaccord Adams Inc. in Boston. “Local.com is growing very quickly as more people are searching for local merchants and those merchants are moving more of their ad budgets online,” Rath said. “While it’s a small company, the trend itself is very large.”
Local.com posted 152% revenue growth during the three years ended June 30. The company went from $18 million in revenue in the 12 months ended June 2007 to $45 million in the 12 months ended in June.
A local search is generally defined as one for a product, service or business coupled with a location—such as “flowers in Irvine.”
Local.com features two fields for searching—one for what a user wants to search for, and one for the desired city.
“About 24% of all searches on the Internet are local and commercial in nature,” Local.com founder and Chief Executive Heath Clarke said. “People aren’t just looking for information online, (they are also looking) for some kind of product or service. That’s the segment we are focused on.”
Why would someone choose local.com as opposed to google.com or yahoo.com?
They go to local.com for “a different experience,” Clarke said.
They also get search results that include offers from local businesses, reviews, links to local Web sites, maps, driving directions and other features, Clarke said.
Local.com attracts advertisers because it can offer them a target audience.
“Consumers who do local searches tend to convert into buying services at such a greater rate than regular searches,” Clarke said. “They have a very specific need they are trying to fill. That means that advertisers can pay a bit more money to get in front of those particular consumers.”
This targeted audience is especially attractive to smaller companies that provide professional services, such as lawyers and accountants, according to Rath.
“With Internet search, the more focused you can get, the potential has always been there for higher monetization,” he said. “The professional services segment can pay quite a bit for that local sales lead.”
Local History
Local.com got started a decade ago as Interchange Corp.
It developed technology around local searches and, during its early years, licensed it to Yellow Pages, now a unit of AT&T Inc.
In 2005, the company acquired the Local.com domain name.
Later that year, it did an about-face and halted the licensing business in order to run its own local search site at Local.com.
“Over the past four years we’ve reinvented our business,” Clarke said. “The catalyst for our move was the increase in the adoption of local search as search engines become more accurate.”
Local.com gets revenue from a few sources.
Its sponsored listings are derived from its advertiser base, which includes its direct ad-vertisers as well as in-direct advertisers from other paid-search and directory companies.
The company supplies these aggregated sponsored listings to its own Web site and also sells them through agreements with other local search sites, such as Yahoo Inc. and Idearc Media LLC’s Superpages.com.
Local.com has a direct sales team that sells online advertising to small businesses on a subscription basis.
The company has around 30,000 of such advertisers who each pay about $50 per month to subscribe.
Last year, Local.com launched LocalConnect, a search and advertising platform it sells to local newspapers, radio and TV stations and other regional sites.
In the second quarter, Local.com reported that it sees some 63 million unique visitors to its site and network each month, up 32% from a year earlier.
Organic Web site traffic, which industry watchers define as traffic stemming from unpaid listings at search engines or directories, increased 57% from a year earlier to 30 million monthly unique visitors.
“The hardest part of the business, which is getting traction with consumers, is behind them,” Merriman Curhan Ford Group Inc. analyst Richard Fetyko said. “Sixty million unique visitors is plenty to make a real business out of.”
During the June quarter, the company turned a profit for the first time when charges are excluded.
“It took us a long time, a year longer than we thought, but that was a huge milestone for us,” Clarke said.
Local.com posted profits, excluding charges, of $943,000 on sales of $14 million. With charges, the company lost $7 million.
There are quite a few things that Wall Street likes about Local.com.
“They have a very high rate of organic traffic growth and they continue to increase the revenue per click of that traffic,” Rath said. The company has just recently turned cash flow positive.”
Rath has a buy rating on the stock.
The company’s shares are up more than 120% in the past 12 months on a recent market value of around $70 million.
Others see big growth ahead for Local.com.
Analyst Fetyko said in a research note he sees a 25% to 50% upside on Local.com’s share price and said he believes the stock is worth $5 to $6 per share. Shares were recently trading at around $5 per share.
Fetyko estimates Local.com could see revenue grow 40% in 2009 and 16% in 2010.
