Location-based internet search provider Local.com (NASDAQ:LOCM) shot up as much as 200% on Friday and Monday, after announcing that it had been granted two patents.
Patent No. 7,231,405 covers a method for location-based indexing, ranking and searching.
Patent No. 7,200,413 covers a method of utilizing advertising in connection with enhanced 411 services.
One commentator has suggested that these patents could transform Local.com into the local search industry's equivalent of Qualcomm(NASDAQ:QCOM), referring to the communications IP company that garnered over $8 billion in revenue last year licensing its CDMA and 3G technology to handset and other mobile equipment providers.
That comparison is unwarranted. Unlike Qualcomm, Local.com's patents have not been upheld in a court of law. Moreover, while the company plans to initiate a licensing program, it has not proven its ability to gain licensing deals. Finally, there is a lot of competing IP out there. For these reasons, while the patents are positive and should be given some value, investors should focus on LOCM's core operations.
Notably, Local.com has posted a substantial acceleration in revenue growth. This is a real operating company that generated almost $5M in revenue last quarter. Local.com remains unprofitable, which is enough to keep me on the sidelines at these prices.
Commentators have suggested that the company could be a buyout candidate. I agree, but as much for its growing operations [which would be attractive either to a search provider or a wireless provider] as its emerging patent portfolio. Additionally, if it went on the auction block, the local.com domain name could easily garner several million dollars.
DISCLOSURE: I have no position in LOCM. Not a recommendation to buy or sell any security. For informational and educational purposes only.