Is the ReachLocal IPO Imminent?

I recently ran into someone from ReachLocal at a conference and asked whether the company had pulled its IPO. That had been the rumor circulating. I was told no that it was still a go.

This morning someone emailed me and asked if I was going to buy any ReachLocal stock when the IPO happened “later this week.” Beyond the fact that I don’t own any stock in any company I write about I said I hadn’t heard that the IPO was imminent. The person I was emailing said that he was being told by some friends in Wall Street firms that it was coming very soon.

Here’s the original S-1 filing from December 2009 and some interesting data about the company:

At September 30, 2009, we managed 17,600 Active Campaigns across 14,500 Active Advertisers, a substantial majority of which we calculate spend from $500 to $3,000 per month with us. Our clients include SMBs in a number of industry verticals, such as home repair and improvement, automobile sales and repair, medical and health services, legal services and retail and personal services. Since inception, we have delivered to our SMB clients more than 250 million geographically targeted clicks and 20 million phone calls. We employ 525 IMCs in North America, Australia and the United Kingdom and work with over 350 third-party agencies and resellers that use the RL Platform to serve their SMB clients. We intend to expand our IMC sales force both in existing and new markets.

We generate revenue by providing online advertising solutions for our clients through our ReachSearch, ReachDisplay, Remarketing, TotalTrack and other products and services. We reported $146.7 million in revenue in 2008 as compared to $68.4 million in 2007, an increase of 115%, and $143.3 million in revenue in the nine months ended September 30, 2009, a 37.5% increase as compared to the same period in 2008.

It will be great to have a public company as a kind of barometer (beyond the YP companies) for how the local segment is doing. However I think ReachLocal has several challenges:

  • Growing the advertiser base at rates sufficient to satisfy investors (though that’s arguably a formula that the company now has “down”)
  • Retaining advertisers (this is more challenging though Reach says its churn is lower than others)
  • Attracting and retaining quality sales staff at lower commission rates and salaries than they were making in YP positions

Public companies are subject to brutal pressure from the whims of fickle investors. The executives at Reach have worked hard and I wish them well. But I’m glad in a way that I’m not in their shoes.

Update: Joe Tartakoff at PaidContent just pointed me to confirmation that it is happening this week.

8 Responses to “Is the ReachLocal IPO Imminent?”

  1. Joe Tartakoff Says:

    Yes — it’s scheduled for this week — http://www.renaissancecapital.com/IPOHome/Calendars/OnDeck.aspx

  2. Greg Sterling Says:

    Thanks

  3. Former reach Sales Rep Says:

    The retention of clients would double if they would stop taking half the clients budget and keeping it in-house – they only spend 50%. No wonder sales are up!

    • Stephen Says:

      Completely incorrect, no way the margin is not that high, they wouldn’t be exponentially increasing revenue and client base if they took 50%. I personally know 2 large advertisers w/ ReachLocal who both used to manage their own online campaigns, and both are getting way better results with ReachLocal, and their cost-per-click isn’t much higher at all.

  4. paulwicker Says:

    The IPO occured Thursday. They raised about half ($54m) of what they expected ($100m)

    You can get the full doc from the SEC:
    http://www.sec.gov/Archives/edgar/data/1297336/000119312510124685/d424b4.htm#rom85332_6

  5. Greg Sterling Says:

    That’s got to be a major disappointment for investors.

  6. David Mihm Says:

    I’m not a financial guy, but I have to think, until the churn rate diminishes for most of these major companies, that it’s going to be tough to declare anything other than a disappointment. That’s not to single out ReachLocal — it’s just a problem that seems to plague everyone in the industry.

  7. Greg Sterling Says:

    There’s going to be a “churn baseline” for all these guys simply because lots of small businesses go under. But beyond that they need to build in additional services that don’t rely on media buying to help with churn: SEO, reputation management, “presence management.”

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