Is Mama Ripe for a Takeover?

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 |  About: Copernic Inc. (CNIC)
by: Greg Wilder

Mamma.com (MAMA) takeover rumors have circulated throughout much of this year, starting in January and then recurring throughout the rest of the year. Google (NASDAQ:GOOG) has typically been the rumored acquirer, although Mark Cuban has also been rumored as being interested. Yahoo (NASDAQ:YHOO) has also been named on occasion as a possible acquirer.

MAMA

Mamma.com Inc provides search technology for the Web, for desktop space, and now has entered the mobile search/multimedia market with their new "revolutionary" plug-in (See press release from May 1, 2007).

Although the traffic for Mamma.com is relatively low in comparison with giants like Yahoo! Or Google, at only 0.05% of all internet traffic compared to Google's 30%, they are still able to bring in quarterly revenue of about $3M.

mama_traffic

The market cap for MAMA is currently about $75M, and the company has been disappointing enough to investors to fall from over $17.00 per share in 2004 to the low of $0.86 per share in 2006. In 2007 the stock has picked up again and has risen to where it is today at just over $5.00 per share. MAMA has posted losses with some regularity.

MAMA

In and of itself, MAMA hasn't been the most exciting company until recently. Smaller search engines have a difficult time taking any thunder from Google or Yahoo!. As we can see from the below graph, Google, Yahoo! and MSN have a combined 92% market share of all searches in the US, and a combined global market share of a little over 80%.

global_search.gif

This graph shows market shares for four major search engines: Google (orange), Yahoo (blue), MSN/Live (green) and Ask (maroon) in forms of areas. Global search market is presented as a big red circle while a smaller white oval shows the US search market (see source article).

Breaking into the search market is extremely difficult to do. Microsoft (NASDAQ:MSFT), although already having a foot into the internet search market, decided in 2006 to spend $500M in order to expand its online business (see article).

Live.com (Microsoft's search engine) grew steadily last year, yet hasn't seen much growth this year when Microsoft's investment was supposed to have its effect. We may yet see some growth from their investment, however, as has been shown, it is extremely difficult to break into the search engine market even with a large investment.

Why MAMA?

In the past, it would have been easy to argue that takeover rumors on MAMA were ridiculous, seeing they have such a small portion of the market share. In fact, Thomas at Ant and Sons posted early in April an article about MAMA takeover rumors, stating that

It is not clear why Google would be mentioned in the same sentence as Mamma.com or if there is any credible interest in a takeover. What appears to be certain, however, is that Mamma.com is riding the YouTube popularity wave and that the release of its video search engine in beta format earlier this year which caused the stock price to triple, is again sparking rumors that other companies' could be interested in its video search technology.

Why then, would Mamma.com be an attractive takeover target? It definitely isn't because of the search engine market share of Mamma.com. It also isn't because of the company's earnings (its losses).

Takeover interest in MAMA is based on its technology. Thomas mentions the video search engine as a reason in early April. Although the video search engine appears to be a reasonable idea, it doesn't look as impressive as the new technology that Mamma.com has introduced:

New plug-in [which] will enable CDS users to search and access their own emails, files, music, pictures, videos and other content remotely via any mobile device, such as cellular phone, PDA, etc.

GOOG, YHOO, AAPL, and MSFT

While Google and Yahoo! have some mobile capabilities, they are very limited in comparison to MAMA's new technology. Google, for example, allows users to search the internet, to view maps, to access their email, and to read news from their mobile devices. People want to access their own music, photos, videos, etc., as we have seen from the growing demand for the iPod, iTunes, and iPhone, along with that entire industry. MAMA's solution to this is letting users access their content which is on their computer directly from their mobile device without ever having to sync, thus solving the storage problem for mobile devices and the pain of syncing.

Google is known for acquiring technologies they can implement (See a list on Wikipedia). In July, 2005 Google acquired Reqwireless for their Web browser and Mobile email. An acquisition of MAMA could fit perfectly into Google's acquisition track record.

A takeover from YHOO might also fit well, as Yahoo! Mobile currently offers similar services to those of Google and they can always use a boost in technology to gain an advantage in their struggle with Google.

With the new iPhone being released, Apple (NASDAQ:AAPL) could use something like this to integrate computers and their iTV into their new mobile devices. AAPL already dominates the online music market, and is taking over much of the online retail video market. Acquiring (or making their own) technology such as this could be a positive move for AAPL in the right direction and help maintain their supremacy at the top of the electronic/internet entertainment industry. A company like AAPL could be interested in such a takeover.

Microsoft is trying to get their presence on the internet more solid. An acquisition and integration of such technology could be a way to get ahead and even compete with the big internet companies and also edge their way further into the mobile industry (they tried and failed to grab hold of the online music industry with the Zune, and they have been rumored to be working on a "Zune Phone"). Integrating MAMA's technology with their own could help them enter these markets.

Further interest from Mark Cuban is less likely but also possible. As Thomas at Ant and Sons has said:

In the past, Dallas Maverick's owner Mark Cuban has often been mentioned as a candidate that has had some interest in the company, although Cuban has repeatedly denied such speculation that he would re-acquire a stake in Mamma.com. In 2004, Cuban disclosed a 6.3% stake in the company, but eventually closed out his position after the company completed a $16.6 million private placement.

Altogether, MAMA now appears to finally be a strong candidate for a large internet or tech company wishing to take their mobile operations to a new level. How long will it be before we see a bid?

Disclosure: Author is long MAMA