An increasing number of investors are following Intellectual Property (IP) as the hottest new asset class. The issuance or purchase of patents and milestones in patent enforcement and licensing are becoming huge triggers for stocks. Some investors are watching IP metrics for valuation as much as, if not more than, revenues and earnings.
In light of this, Local Corporation's (LOCM) stock may show some interesting movements in the very near term. The chart has already seen a spike since September but appears to be poised for a technical and fundamental break-out worth paying attention to.
Our search through databases at the United States Patent and Trademark Office appear to show that Local was recently granted a U.S. patent to further monetize the $2.7 billion mobile advertising market. Monetizing mobile is big and investors are following who owns the IP real estate in this market.
This patent would mark Local's 10th issued patent. Patent #8,306,208, which covers Enhanced Directory Assistance (EDA), describes a method and/or system whereby pay-per-call advertiser listings are provided to consumers in response to directory assistance inquiries.
The patent has broad applications as it may apply to voice, text or other methods such as voice-to-text or the emerging automated voice assistance/voice search methods that are now commonly used on the latest smartphones. So the next time you use your mobile phone to look up a phone number and then press click to dial, or the next time you call directory assistance from you mobile phone, the way you receive the phone number or get your response may involve Local's patent.
This is an important development and it's huge for two reasons. As a leader in local mobile advertising, Local can directly and immediately monetize this IP through its operating business that is generating $100 million in revenues this year. Secondly, if any other company infringes on any part of this patent, then Local potentially has a court case to collect a settlement or to get licensing fees.
Companies that have put a focus on monetizing their IP either just through the courts, or the through the courts and through their operations, are winning either through the courts with cash judgments, or through an uptick in their valuations.
Perhaps the most visible and recent example involving internet search advertising is the U.S. District Court case in Norfolk, VA which just last week entered its official judgment in favor of Vringo (VRNG), confirming the November 6th Jury award in the AOL (AOL), Google (GOOG) et al case. The judgment upholds Vringo's victory of $30 million plus ongoing 3.5% royalties from Google for internet search advertising.
Apple (AAPL) also won a $1 billion judgement against Samsung in August for mobile phone IP. VirnetX (VHC) won a $368 million case against Apple for mobile phone IP and also won $106 million from Microsoft (MSFT) for virtual private network technology.
On the down side, we see risks in Local Corporation's dependence upon third-party billing partners to efficiently bill and collect monies through LEC (commonly referred to as their local telephone company) billing. If Local Corporation's billing partners lose the ability to bill monthly subscription customers through LECs on those monthly subscription customers' telephone bills it would adversely impact the consolidated results of their operations.
LOCM has agreements with two third-party billing partners. The inability on the part of certain third-party billing partners to use the LECs to bill advertisers through their monthly telephone bills will increase the churn rate of existing monthly subscription customers. These risks may have already been priced in since they were disclosed in filings in late September.
As such, with solid technical support at these price levels, we see this as a low-risk/high reward trade candidate.
The fundamentals are also stronger than ever. A 30% gain in revenues this year should make Local a $100 million company, about twice the size of its market cap, keeping pace with a six-year record of 40% compounded annual revenue growth.
According to researchers from BIA/Kelsey, the U.S. online advertising market is an over $47 billion a year industry. The firm estimates that the local search market in the United States will grow to $8.2 billion by 2015. Since consumers who conduct local searches on the Internet ("local searchers") tend to convert into buying customers at a higher rate than other types of Internet users. As a result, advertisers often pay a significant premium to place their ads in front of local searchers on websites like those powered by our consumer properties business, including Local.com or other LOCM network partners' websites.
Recently, Local Corporation posted stellar quarterly numbers that beat estimates, with revenues mounting across the board. They set a company record with traffic of over 100 million unique visitors per month and Mobile traffic was up almost 275% over last year. The money the firm made from that traffic was impressive as margins were good, and costs were controlled. Management has been using cash carefully, and shares should get a healthy boost from Rovion's sale to Gannett Co. (NYSE: GCI) announced last month.