Local.com Heading For Big Media

Nov.19.07 | About: Local Corporation (LOCM)

Local.com (NASDAQ:LOCM) shares surged 45% on the news of new license agreements Thursday. The stock has been on a wild ride since it tripled during July and fell back to its lower levels. Now, after cleaning the balance sheet, they have zero debt, 18M in cash, and local revenues growing over 80% per year.

If you look at future revenue expectations for Local.com, they operate in two main areas; let's explore both. Firsly, local search is estimated by a recent Marchex report to be around 5 billion today, growing fivefold to 25 billion in 3-5 years. According to the Kelsey Group, mobile phone advertising is about 400-500 million, going to around 1.4 Billion in 3-5 years. So that means that Local.com has a market of roughly 5.5B going to 26.4 Billion over the next 3-5 years. If they can get only 5% market share, and deliver earnings of 10% on that revenue base, I think the shares should be valued between 48-232 dollars, assuming the outstanding shares of 14.2 million remain and the PE ratio is 25. Even if I am too optimistic, the shares appear way undervalued, hence I think they will go up significantly, regardless of the speculation/rumours about buyout offers (despite that I think it seems logical).

Do your own diligence, but it seems to me like a huge opportunity for smaller investors to get in early before the market cap gets high enough to put them on the radar of the big media. Remember how few people knew about Google (NASDAQ:GOOG) in 2000? Just look at them today.

Disclosure: Author has a long position in LOCM