Expansion plans in the international market
International revenue contributes 32% of the total revenue for ReachLocal Inc. (NASDAQ:RLOC). International revenue showed growth of 41%, year-over-year, to $38.7 million in the first quarter of 2013. This was achieved by remarkable performances on the part of ReachLocal’s internet marketing consultants, or IMCs. The company’s international IMC sproduced 90% better than their counterparts in the U.S.; it’s no wonder the company is now quickly pivoting to expand their international reach. It plans to increase its international IMCs by 40% by the end of the year. ReachLocal has already launched an Austrian office in the second quarter of 2013 and will launch a Moscow office in the third quarter.
Here’s the cloud in the sunny sky: the company is adding international IMCs, but only to replace the ones that it already fired. In the first quarter, ReachLocal Inc. (NASDAQ:RLOC) reduced its IMC count by 90 in the first quarter compared to the first quarter of last year in the U.S. This will result in an average revenue loss of around $1 million per month. However, growth in the international market will net the company revenue of about $530 million in this year, up from $455.4 million last year.
The company is doing well on its new product ClubLocal, which is its end-to-end consumer website. ClubLocal was initially launched in Dallas as a test from July 2012 to January 2013. The product showed a positive response, with around 2000 transactions at an average price of $270 and an average rating of 4.5 out of five. The company expanded the product to San Francisco in June 2013, and has plans for launches in other major cities. With a margin of around 30% from every transaction, this will become one of ReachLocal’s major platforms in the future.
The bottom line:
All three major players will continue to benefit from the growth in ad spend, as well as from technological changes that will improve future profitability. Lamar looks attracti, given that the market expects the REIT conversion to be approved. Following this anticipated approval, I expect more upside movement in the stock.
Omnicom Group Inc. (NYSE:OMC) remains committed to high-shareholder returns. Omnicom’s deal with salesforce.com, inc. (NYSE:CRM) will improve its social media marketing offerings, which will help it generate higher revenue.
This stock is also a buy as a long-term investment.
ReachLocal is expanding in the international market, with efficient performance of its increasing force of IMCs. Its new product, ClubLocal, will also provide a revenue opportunity. I am optimistic about ReachLocal’s ability to enhance its top-and-bottom line growth via these initiatives, starting toward the end of 2013 and continuing into the future.
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool recommends ReachLocal. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Madison Avenue Meets the Information Superhighway originally appeared on Fool.com and is written by Madhukar Dubey.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
