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Local Businesses Move to Online Advertising: A Trend You Can’t Ignore

|Includes: Local Corporation (LOCM)

Are the Yellow Pages going the way of the 8-track tape and the floppy disk? Quite possibly. With the advent of the Internet, more and more consumers are abandoning the bulky yellow books for Google, Yahoo and other search engines. A 2010 study from BIA/Kelsey found that 97% of consumers use online media to shop locally. Steve Marshall, director of research at BIA/Kelsey, stated, “The data suggest we’re at an inflection point where the balance of power in local shopping is shifting to online.”

What are the implications of this shift? For one, expect to see more consumers recycling their Yellow Pages into stepstools, booster seats and funky living room furniture. Second, local businesses are adjusting their advertising strategies accordingly. Over the next five years, 39% ($5.1 billion) of the ad spending on print yellow pages will vanish as small businesses shift their marketing budgets online.

Since its founding in 1999, Local.com Corp. (NasdaqCM: LOCM) has been a major beneficiary of the trend toward online advertising. The Company started out as a hyperlocal search engine, growing revenues at a 40% CAGR by connecting local businesses with online consumers. While this growth was briefly interrupted in the first half of 2011 due to issues related to the Yahoo/Bing integration, LOCM appears to be back on track to achieve strong revenue growth and profitability. In recent months, the Company has signed a deal with Google and also diversified its revenue stream with the introduction of several new product offerings:

  • Spreebird, a daily deals website we’ve discussed previously
  • Exact Match, a recently expanded suite of advertising solutions for small- to medium-size businesses
  • Krillion, which provides real-time information on where specific products are sold, which local retailer has them in stock, and at what price
  • Rovion, which enables businesses to quickly build their own rich-media ads without the use of Web code
LOCM’s third-quarter results, highlighted by 34% sequential revenue growth, demonstrated that the Company’s new initiatives are working. “The new relationship with Google has set revenues back on an upward trajectory,” RedChip analyst Paul Resnik wrote in his recent initial report on LOCM. “A return to profitability is expected by mid-2012 while new initiatives are projected to enable rapid growth with more revenue diversification in coming years.”
The Company’s stock currently trades around $2.30, an absolute bargain compared to its brokerage firm Morgan Joseph’s $4.95 price target. The shift toward online ad spending is only going to continue, and as a national leader in the local advertising space, LOCM provides an excellent profit opportunity for the fast-acting investor. To learn more about LOCM, view the Company’s presentation from our virtual conference, held November 30 and December 1.

Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may maintain positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.