Three Developments Driving Shares Into A Frenzy

| About: Local Corporation (LOCM)

Yowza! (NASDAQ:LOCM) has been, until recently, a sleepy stock, trading nearly by appointment, with a focus on operating a search engine intended to help people find local businesses. But in the last two trading days, the stock has gone absolutely bonkers.

Let’s look at the time line.

Thursday: The stock falls 16 cents, to $3.94, on 30,000 shares.
Friday: The stock jumps $2.98, to $6.92, on 8,323,700 shares.
Monday: The stock rises another $2.04, to $8.96, on 28,290,855 shares. ranked among the 20 most active U.S. stocks Monday, just a hair behind General Electric (NYSE:GE).

Oh, and before we move on, let me mention that the company has just 9.3 million shares outstanding; so Monday it turned over its entire share base three times over.

So, there were three developments that seem to be affecting the stock:

The first was an announcement June 25 that the company has received a patent covering location based search. said that it covers “technology related to identifying location information from Web documents, indexing that information and making it searchable geographically.” In the release, CEO Heath Clarke said the company encouraged other local search companies to consider licensing the patent.

The market’s response to that news was a giant collective yawn. The stock that day fell 15 cents.

Things didn’t heat up, in fact, until Friday. That’s when a blogger named John Gilliam posted an item about the patent on the financial blog aggregation site which was picked up by Yahoo Finance. Gilliam wrote that the company seemed to have a very broad patent that encompasses a lot of what the other search engines are already doing in local. He speculated that someone might attempt to buy the company for $100 million or so rather than pay royalties; he also theorizes that the patent could generate $100 million in royalties a year. He’s guessing; but it attracted people’s attention (obviously).

Livening things up even further, the company Monday announced that it had been awarded a second patent, this one covering a method for responding to enhanced directory assistance inquires using various protocols, including voice-enabled and SMS systems. The patent also covers an associated advertising referral model. In an interview Monday afternoon, Clarke said the idea is that you would call 411, and want to find a place for pizza in Palo Alto, but wouldn’t know where to go. So you call up, say “Pizza in Palo Alto,” and it provides you one or more responses - including a way to have your response e-mailed or texted back to you. The responses could include sponsor listings - what used to be called “ads.”

The company says the patent “provides us with intellectual property coverage for what’s now a widely accepted monetization method - pay-per-referral - within the directory assistance marketplace.”

So, either the market has become 100% convinced that is about to be a subsidiary of, well, somebody, or investors believe the company is going to milk these two patents for millions.

I don’t know which it is. But I do know that there will come a point in a situation like this where the stock activity snaps from the underlying fundamentals. And we seem to be headed in that direction.