Eileen Segall of Tildenrow Partners: Long on ReachLocal

Eileen Segall of Tildenrow Partners, InvestPitch presentation produced by sumzero and Institutional Investor on the long case for ReachLocal Inc. (NASDAQ:RLOC).

Also see: Scott Miller of Greenhaven Road Capital: Long on Zix Corporation

Eileen Segall of Tildenrow Partners: Long on ReachLocal

Investment Thesis

Long. ReachLocal Inc. (NASDAQ:RLOC) is a good business undervalued and misunderstood by the buy side, with 17% of the stock’s float short. At first glance, RLOC can appear to be only a low-barrier search engine optimization (SEO) technology company. In reality, RLOC has ~1000 marketing executives who work closely with local businesses, helping them to maximize their online marketing and commerce strategy. As a result, RLOC has above-average ROIC and strong free cash flow, understated by U.S. GAAP net income. Furthermore, the company has a healthy balance sheet, active share repurchase program, and is in an industry with strong secular tailwinds. In 2-3 years, RLOC could be worth $33.50, almost 3x its current stock price of $12.17, based on EBITDA margin expansion from current depressed levels and reversion to higher valuation multiples.

Description

ReachLocal Inc. (NASDAQ:RLOC) manages online lead generation, conversion, and transaction solutions for 24,600 local small and medium sized businesses (SMBs) and national brands with local presence. The company’s typical customer offers a needs-based service such as plumbing, auto repair, or dentistry in their metro area and spends an average of $22,000 per year with ReachLocal. Products include ReachSearch (search engine optimization platform), ReachCast (display advertising), ReachRetargeting (re-marketing), TotalTrack (marketing analytics), TotalLiveChat (click-to-chat), ReachEdge (SaaS analytics and lead conversion), ReachCommerce (website, mobile, booking and back office management), and ClubLocal (consumer portal.) The company employs roughly 1000 full-time marketing executives, called Internet Marketing Consultants “IMCs”, in addition to resellers and partners, and is in 16 countries with headquarters in Woodland Hills, CA.

ReachLocal is a buy at $12.17 because:

Stock is cheap with low investor sentiment –  Trades at 0.5x EV/Revenue and 10x EV/FCF on 2012 financials. The stock’s float is 17% short, with 24 days to cover, and is below its IPO price of $13.00. The stock has lagged the run in the S&P 500 by more than 70% the past 3+ years.

H/T Curry Goat

Eileen Segall of Tildenrow Partners: Long on ReachLocal

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