Would you buy a shares of company after an announcement that they'll be spending money on outsourcing? Better yet, would you sell it if it jumped 100% on this news?
Shares of LookSmart, Ltd. (LOOK) spiked from $0.73 to as high as $1.35 in the last hour today, ultimately settling at $1.00, up over 35%. It trades in the after-hours at $1.45. A press release issued by Newtek Business Services Corp (NASDAQ:NEWT) coincided with the aggressive move in the stock price of LOOK. The headline read, "Newtek Technology Services enters into 39-month contract with LookSmart". Buyers jumped into LOOK presumably without reading the actual press release making the assumption that LOOK was the beneficiary of the contract. The press release states:
Newtek Business Services Corp. ("The Company"), (NEWT), an internally managed business development company ("BDC"), today announced that Newtek Technology Services ("NTS"), one of The Company's wholly owned portfolio companies, has entered into a 39-month contract with LookSmart (LOOK), a premier online and technology advertising company that operates LookSmart.com, Clickable.com and ShopWiki.com. Pursuant to this contact, NTS will manage, on an outsourced basis, LookSmart's information technology ("IT") operation through its fully integrated, around-the-clock managed technology solution in its data center in Scottsdale, Arizona. NTS has migrated all of LookSmart's IT hardware and software to its cloud, and physically migrated LookSmart's servers to its data center in Phoenix, Arizona. NTS will provide around-the-clock management and customer service to this new IT client, offering a premier outsourced solution for LookSmart and all of its stakeholders.
In other words, LOOK will be paying NEWT for handling LOOK's outsourcing. NEWT issued the press release. There was no reason for the price of LOOK stock to go up other than irrational or presumptive buyers. Over the last year, the price of LOOK has spiked a few times on actual company news only to sell off to it's original levels. Today's news was not specific to benefitting LOOK. Once investors actually take the time to read today's press release from NEWT, bids in the stock will be hard to come by as it returns to ~$0.75 or lower.