ReachLocal IPO Raises $54.2 Million

ReachLocal went public today, raising $54.6 million on the Nasdaq from the sale of 4.167 million shares at $13 each. The share price had been sharply cut from earlier hopes of $17 to $19 given pessimistic market conditions. But the offering closed at $14.98 a share, up 15 percent in a sharply down day for the Street.

Whether prices hold up and lead to IPOs from similar SMB ad resellers/engagement companies such as WebVisible, Yodle and Orange Soda remains to be seen.

One complaint about all of them is that they’re low margin, high cost players, especially given their needs for large sales forces. In recent comments to the IAB, Jordan, Edmiston Group Co-President Tolman Geffs characterized ReachLocal as a vertically integrated play that only leaves 7 percent of its revenues to support its product and platform, after spending 55 percent on consumer traffic and 38 percent on sales and marketing.

But Yodle CEO Court Cunningham says that comments like Geffs’ totally miss the point of the business. “It isn’t about percentage. It is about dollars and cash flow,” he says. The margins are not dissimilar to major companies like Amazon. Amazon’s margins are 3.5 percent, but it brings in $1 billion a year. Cunningham cautions, however, that Yodle has no immediate plans to go public.

Leave a Reply

Your email address will not be published. Required fields are marked *

nineteen + 18 =