For the last several months I've been watching sagas from Dex One Corporation (NYSE:DEXO) and SuperMedia Inc. (NASDAQ:SPMD) unfold, as the two directory (print and online) companies do battle with each other, and in many regards, do battle with themselves. In retrospect though, the name I should have been watching is Local.com Corp. (NASDAQ:LOCM) - the company in the directory space that's actually, you know, growing.
Kudos to both SuperMedia Inc. and Dex One Corporation for recognizing that the printed directory business (the 'White Pages' and the 'Yellow Pages') is a dying business, and working on transitioning to a web-oriented model. And to their credit, both outfits have already embraced mobile (smartphone) web as the brewing replacement for PC or laptop- based web searches. Yet, there's a nagging fact with both DEXO and SPMD that makes it tough for investors to really get behind either stock... revenue is once again waning for both after we saw a glimmer of hope for growth in the first quarter of last year.
Though the details of the revenue flow (print versus online versus mobile) aren't available anywhere that I could find - not even in a 10-Q or 10-K filing - I think it's relatively safe to say it's not the business plan itself that's a struggle - it's the transition from one type of business (print) to another (digital) that's likely to be the impasse; corporate overhauls are tough.
My supporting evidence is simply that Local.com Corp. has managed to successfully do what Dex One and SuperMedia have basically failed to do despite their best efforts. What's that? Grow revenue by selling digital advertising.
That's not to say it's always been easy or great for Local.com. Things got a little hairy in the second quarter of last year when the top line slumped to $15.6 million versus $22.4 million in sales in the third quarter of 2010. Take a step back though; LOCM has grown its top line every year between 2006 and 2010. Though 2011 was 'off' with sales of $78.8 million, 2012 is expected to be much better, with a top line of $110 million and - better still - an anticipated move to at least a non-GAAP profit.
Those projected numbers came out today, along with last quarter's results. Year-over-year revenue results were higher by 27.5%. A year-over-year profit comparison means little, as the company continues to work through one-times (both good and bad). However, on an operating basis, Local.com Corp. did post a $0.02/share profit for Q4, and is looking for earnings (operating) of $0.05/share ($1.1 million total) this year.
That's not bad for a young $61 million company that has been profitable on a GAAP basis before (2010), trades at a P/S ratio of 0.92 (versus the norm of 2.4), and just confirmed it's back in growth mode.
So how does the market respond to the good news? By sending the stock lower by 15%. Figures.
Though today's drubbing isn't fun, my ultimate expectation here is still a bullish one, meaning today's dip is also an opportunity for the bold. Local.com has proven itself far more effective at selling itself (and digital) than throwbacks Dex One Corporation and SuperMedia Inc. have. And, LOCM didn't have to bury itself in debt just to stay afloat while it was gaining sales momentum. Indeed, both DEXO and SPMD both had to declare bankruptcy to get out from under their excessive debt load.... though it seems like little has changed since then. I can't help but wonder if the differentiating factor was simply that Local.com Corp. was built from the ground up as a digital company, while Dex One and SuperMedia are struggling with getting out of their legacy print business. Yes, Dex One and SuperMedia seem to be the favored names among the three right now, but that's a speculative dance (based on working their way out of fiscal challenges) rather than a value-oriented strategy.
Given that mobile web and the interest aren't going away while print is, and given that Local.com Corp. has proven it's figured out how to make money in the business (while Dex One and SuperMedia remain question marks), my hypothetical money is still on LOCM despite today's setback. I've got a feeling the market was going to sell Local.com shares today no matter what after such a strong January/February runup. Profit takers have had their fun. Now it's time for growth-seekers to start hunting.
That said, just for kicks, tune into Dex One on March 1st and SuperMedia on February 22nd. That's when the report last quarter's numbers, which will either confirm or deny my theory.