Back in 2000, I used to work at Mamma.com (MAMA), the so-called “Mother of All Search Engines.” I worked there before the search engine industry took off, before the stock price tripled in price in one day, before Mark Cuban bought and sold his shares in the company.
Late last year, I bought a few thousands shares in the company. In January, for some odd reason, volume spiked and I sat on a nice, juicy return. I did not sell. My rationale was the company had some $25M of cash on its books, and the market cap being at $30M, it was a safe investment. Larger companies and old media firms were also looking to invest in search.
Mamma.com lost some money in the ensuing quarters and I regretted not selling the stock. Well, regret is a big word, for in the stock market, what goes up must come down (eventually, usually) and vice-versa (eventually, usually).
Indeed, I knew that there would be something in the horizon that would eventually cause the stock to pop again. Yesterday, Mamma.com announced that it had launched a video search engine using Pixsy’s media database. The stock soared 45%.
For the record, I have no idea what made the stock pop in January. But, I learned from history.
What’s that saying? Oh yes: Buy the Rumor, Sell the News.
I sold all of my shares yesterday and made a nice profit. Don’t get me wrong, I like the company (I’m a loyal guy, usually). If the stock continues to do well, I’ll be happy as a former staffer. If the company’s stock tumbles, I’ll be glad that I cashed out.
The company’s market cap is $50 million. Sure, that’s a tiny amount compared to market leaders Google (GOOG) who are worth $150 billion, but, there is a reason why the former is worth $50 million and the latter $150 billion. As a side note, when I joined Mamma.com, we then had 4-5 million uniques, Google had nowhere near that.
When I bought the stock late last year, I used to think that some companies would eventually want to buy out Mamma.com, but as a meta-search engine, I am not sure many would. After all, a meta search engine lacks its own index, it parses and returns results from other, underlying search engines. It’s got its place online, but as an M&A target, I’d rather buy an index and crawler.
But increasingly, I do not think many companies will look to buy into the search market.
Case in point: News Corp. (NWS) could have bought Mamma.com, Answers.com (ANSW), Looksmart.com (LOOK) and pushed them much like InterActive Corp. (IACI) bought Ask Jeeves and invested in it. Of course, that was after Barry Diller put a contract out for the butler.
But instead, News Corp. gladly accepted a $900M payment from Google to use it instead. Today I noticed the “Powered by Google” logo on MySpace.com for the first time. I think Google overpaid, but it was a defensive move against MSFT and Yahoo!.
I also bought LookSmart for that same very reason: potential target in an M&A. Of course, I liked LookSmart mainly because it was repositioning itself as a player in the rapidly growing vertical markets, which I myself have directly invested in (more on that in the disclosure). But seeing Looksmart double in price over the past few months, I decided to join my sale order for Mamma with one for Looksmart.
After all, you can’t be greedy. LookSmart is worth $110 million. It’s doing well. But at a $110 million, it was time to sell.
What’s that other saying? Oh yes, bulls make money, bears make money, but hogs get slaughtered.
Disclosure: As mentioned, I used to work for Mamma.com. At the time of writing, I just sold my positions in Looksmart and Mamma.com.
Of all of the companies mentioned: I own Answers and Yahoo! To see why I like Answers, read this.
Also, as the founder of Mojo Supreme, our company runs a vertical search network called MetaMojo.com. Like Mamma.com, we are about to launch a video search shortly; though I doubt it merits a 45% spike in our “stock price.” Well, maybe it does…
MAMA vs. LOOK 1-yr chart:
UPDATE: When the dust settled, Mamma rose 80% in one day (thank God for those small floats, valuing the company at $60M. It does make you wonder if the launch of a video search relying on another company’s database on a site with some 5M uniques - I estimate - is worthy of all of this excitement?). I will say this: it’s a great time to be in this business, and I can’t wait for when we launch our search engine shortly.