Local.com Example For Inuvo / Vertro Investors
As many of you are probably aware, we narrowed the “new focus stock” recommendations from our community down to two companies before naming Inuvo as the focus stock. We believed that both finalists were significantly undervalued based on their prospects and that each would benefit tremendously from consumer’s and investor’s growing fascination with daily deals and coupons. Local.com was the other company and our decision to choose Inuvo ultimately came down to geography and our focus on community involvement to drive gains in operating results. When the decision was made, Local.com’s Daily Deals business was exclusively offered on the west Coast, Chicago and in Utah. Given the wide geographic distribution of our participants, many would have been unable to participate in the local deal offerings that are among the major reasons the two were chosen. Inuvo through its BargainMatch and Kowabunga Daily Deals properties offer daily deals nationwide, with the latter scheduled to roll out daily deals in many “secondary” markets not addressed by any of the daily deal companies sometime of the next couple of months. Thus, we chose INUV as our focus stock, but it is apparent that quite a few of our participants also have significant positions in Local.com.
Since the Inuvo/Vertro merger was announced, I think many of us have been eagerly awaiting the Local.com Q3 earnings report for reasons beyond our ownership of the shares. Early in Q3, LOCM signed a deal with Google to offer Google’s Pay Per Click ads on its “owned and operated” web properties. Though LOCM only starting using the Google feed on August 1 and the switch from Yahoo/Bing ads to Google ads was on the SERP landing page only, LOCM announced a large increase in revenue per visit. They essentially replaced the one ad unit on the right margin that usually had a Yahoo/Bing feed with a 3 ad Google feed. Live for only 2 of the three months in the quarter, the Google ad unit drove a 30% increase in revenue per thousand visitors for LOCM for Q3.
We believe that this is a great example of the potential of the Vertro/Inuvo merger. Vertro’s “Google Network” contract will allow the Bargain Match, Yellowise and BabytoBee sites to be monetized using the Google Ad feed, which may drive even larger gains for Inuvo’s consumer facing properties (all of whose revenues are driven largely by search). We believe that the disparity between what Inuvo likely earns on its Bing/Yahoo feed and what they would earn with PPC ads provided by a “Google Network” member like Vertro will be even larger than the difference between what LOCM was earning from its Yahoo contract and what they earn now from their Google contract. Investors need to understand what it means to be part of the “Google Network” – these are the highest traffic volume websites that partner with Google – AOL, INSP, IACI and Vertro. An advertiser can typically choose any site to include or exclude in his ad campaigns, but that is not true for the “Google Network”, which is an all or nothing choice for each advertiser. The practical impact of this setup leads there to be more advertisers running ads, bidding on ads, etc. for any given keyword searched for a Network partner, which drives higher RPC for the Google Network partners vs. a standard Google AdWords partner. Thus, we would expect to see each of these web properties go from mildly profitable at the operating level to being wildly profitable and/or experiencing large revenue gains the first quarter that the Google Network feed is introduced to the mix.
Entry filed under: Uncategorized.