Mamma and Looksmart: Buy the Rumor, Sell the News

I guess it’s time to roll out the stock market cliches.

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.

Why?

With Google, MSN (MSFT) and Yahoo! (YHOO) now all having a proprietary search index and paid listings databases, I believe these companies will basically pay for market share.

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.

Comments

[Ross Bradley]

Ashkan Karbasfrooshan advises he has sold his MAMA and LOOK too? But I'm not so sure on Looksmart.

"Mamma and Looksmart: Buy the Rumour, Sell the News"

Hi Ashkan ................... I agree with your timely disposal of your MAMA shares (it's truly amazing what traders can achieve) but I truly do feel that you have 'bailed out' way to early, in regards to your selling of Looksmart. I continue to hold and buy as many as finances permit and see a very bright 2007 and beyond.

That the Co has guided for increased revenues of 26% - 28% (over Q3) for this Q4, is no 'fluke' & demonstrates that the new model is working. FindArticles is growing & now has an estimated 5M 'uniques' monthly, itself. Furl.net continues to increase it's membership (and by a stated 1% each week) & along with the Co's AdCenter has already been taken up by a dozen or, so publishers and media Co's, including Top Tier's of the likes of The NY Times, both the NWS's MyFoxTV and CBS TV Sites, IACI's ask.com plus a 'no fuss' announcement in the Q3 CC, of a growing relationship with the much talked of (12M member), facebook.com.

That's not bad for a Co with some $40m 'cash' and a market Cap (at close of day, Wed. Dec 13th, 2006 - $4.94cps), of just a little over $113M. And everything to date about Looksmart's CEO Dave Hills, has been of the (heads down/bums up) 'no nonsense', 'low key' type/variety.

Your post also makes mention of News Corp gladly accepting a $900M payment from Google, (as you wrote), to use it instead of their buying search in, to solve what may really be the Co's true need. You also noted that you saw the “Powered by Google” logo on NWS's MySpace.com for the first time.

From within a recent Motley Fool advertorial, the mention was made that something described as 'disruptive technology' will play an even larger role over the next 10 years & that 'disruptive innovation' takes root at the low end of the market.

They then quote that:

[ A disruptive innovation is a new product or service or a new business model that doesn't attack the core market by bringing a better product to established users in direct competition with the leaders in an industry, but rather it comes into the low end of the market, either through a business model that can compete at much lower costs, can compete profitably at lower costs, or brings to the market a product or service that is so much more convenient and simple to use & affordable, that a whole new population of people who previously couldn't afford or, didn't have the skill to own and use a product, can now own one.] - And it did make a lot of sense to me, as an investor.

www.fool.com/news/comm...;logvisit=y&np...

And I do feel that the simplicity of the Looksmart business model, the transparency that it offers to both partner sites and advertisers, plus the added bonus of their (marginally) "sharing" of all their (partner's) advertising revenue increases along the way, makes it very much a "buy", rather than a "sell", at this stage of it's continued development. And it has only just begun. (The NY Times alone have predicted a 30% web advertising increase in revenues, with that being some $80M, for 2007).

Many years of quality "free" archived (articles) content belonging to and shared among partner newspaper publishers/media Co sites, (millions of articles that get to be indexed in relevance/popularity by their many collective users), may very well be a "next step" or, a graduation for Looksmart, to play an all-important kind of "fat controller" role. Thus allowing all 'users' from each of their own & partner sites, to then bounce "to & from" each other's sites. (Via Looksmart's 181 Vertical sites?). And seeking research information on their favourite topic of interest or, passion. And an ideal platform then for the "Long Tail" aspect of search (& their unique products or, services offered) & for Looksmart (& partners) to geo-target (such) and 'share' a lot more of that estimated $26.1 Billion for Global Internet advertising, in 2007.

www.ozestock.com.au/bo...;postID=451562&amp...

Newscorp have over 300 Global Sites. And like other Newspapers & Publishers, (who already have a "shandy" of Tier One Search - GOOG, YHOO, ask.com & MSN) they too may yet choose to 'spread the lode' (sic) on their properties, with an addition of their own search offering, to their many users. This keeps things competitive after-all and any future partner sites can also keep their existing/any organic search they may have, in place.

And whilst Looksmart are said to be "NOT FOR SALE" it wouldn't surprise me at all, if NWS were to take up that once talked of "controlling stake" in the Co. I'm hanging onto my shares, regardless.

Ross Bradley - Shareholder