RLOC-coverage-free-version-6-13-11

Brian Bolan Research
Equity Research
13 June 2011
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE REPORT. Investors should consider Brian Bolan
Research as only a single factor in making their investment decision.
Initiating Coverage
Company Overview and Key Data
ReachLocal
(Nasdaq: RLOC)
Hold
Share Price: $16.30
Price Target: $18
52-Week Range: $12.00 - $28.39
Shares Outstanding: 28.8 million
Market Capitalization: $507 million
Dividend Yield: NA
ReachLocal, Inc. is an online marketing company that
helps small and medium sized businesses, or SMBs,
acquire, maintain and retain customers via the Internet.
The Company offers a comprehensive suite of online
marketing and reporting solutions, including search engine
marketing, display advertising, remarketing and online
marketing analytics, each targeted to the SMB market.
Brian Bolan Twitter: @BBolan1
1 773 413 0285 BBolan1@Gmail.com
13 June 2011
ReachLocal
(Nasdaq: RLOC)
Investment Concept
ReachLocal has found a sweet spot by aggressively growing its Internet
Marketing Consultants despite the recent recession. These feet on the street
drive the company’s growth by acquiring small and medium sized business
(SMB) clients and aiding them in advertising the client company via search and
display advertising.
Approximately one year ago, I initiated coverage on ReachLocal just a few days
following the IPO. The published report contained my estimates for 2010 &
2011. This report looks back over the last year and how my estimates were able
to hold up. Then we take a look at the future
This report is only a preview of the complete report. Full edition reports are
available for $79.95. Follow up reports following the earnings release will be
priced at $29.99 and can be purchased in bulk. Email for payment options.
.
.
 The full price version has over 20 graphs.
 Includes earnings estimates for 2011, 2012.
 Includes one free hour of consultation with author

Brian Bolan Research ReachLocal (Nasdaq Global Markets: RLOC)
13 June 2011 Brian Bolan Research | 1 773 413 0285 | www.scribd.com 2
Inside
Investment Thesis 3
Company Background 3
ReachSearch 4
ReachDisplay 5
TotalTrack 6
TotalChat 6
ReachCast 6
ReachDeals 7
Acquisitions 8
Where the Growth Comes From 8
Segment Breakdown 9
Comparable Companies 9
Industry Discussion 11
Management 11
Headcount 11
Stock Trading 12
Traffic Analysis 13
Income Statement 14
Active Advertisers 14
Active Campaigns 15
Sales Staff Grows 15
Campaign ASP 16
Advertiser ASP 16
Revenue per IMC 17
Direct Local vs NBAR 18
Analysis of Key Metrics 18
Cost of Sales to Decrease 19
Balance Sheet 19
Investment Risks 20
Recomendation 20
Appendices 22

13 June 2010 Brian Bolan Research | 773 413 0285 | www.scribd.com 3
Investment Thesis
ReachLocal has demonstrated a clear path to profitability, good growth history and good
growth potential. A tight float and little selling from Venture Capital has played a role in the
stock moving to its recent highs. The recent partnership with Google has cleared the way for
future investment in eight foreign countries over the next three years.
Over the last year, the company has added a key product, ReachCast, to its search and
display offerings. ReachCast is the social media marketing tool that includes Facebook,
Twitter, and SEO services for the site. Through 1Q11 the company has sold approximately
1,100 ReachCast’s to new and existing clients. Having launched in November, the retention
rates for ReachCast will be a primary concern.
Growth is predicated on the continued hiring of Internet Marketing Consultants (IMC’s) As
the company adds more IMC’s the distance to profitability is likely to be shortened. We have
used some conservative hiring estimates for 20112 and relied on company guidance for
2011.
Company Background
Search remains the backbone of the internet and small businesses realize that they need to
be on the internet. Most small businesses recognize that they can be on the internet with
little effort directly through Google AdWords, but add in the complexity of Yahoo!, Bing,
Ask.com and AOL and the task becomes too large for many small businesses.
The company generates revenue from four segments. We have provided a brief summary of
each below:
ReachSearch is the company’s search engine marketing product places clients’
advertisements among the search results on leading search engines such as Google,
Yahoo! and Bing, as well as an extensive network of local search and directory sites, called
the ReachLocal Search Network.
ReachDisplay is the company’s display advertising product which broadcasts an SMB’s
message to a specific target online audience. ReachLocal offers more than 20 different
display advertising products across a wide variety of publishing partners, including
Yahoo!/Right Media, Google, Collective Media, Facebook, Fox Interactive Media, and Kelley
Blue Book. In 1Q11 RLOC added Remarketing to all ReachDisplay campaigns.
Remarketing a remarketing product allows the company to target consumers who have
previously visited a specific SMB’s website through a ReachSearch or ReachDisplay
campaign.
TotalTrack. Powered by a reverse proxy technology TotalTrack allows clients to see exactly
how much online and offline activity, including phone calls, is generated by their online
advertising campaigns.
ReachCast. As the Social Media Marketing tool for small businesses, ReachCast posts
content to Facebook & Twitter and allows for an RSS feed to post to other blogs or sites.
Through SEO back linking, the ReachCast site will often climb the organic listings for three
or five desired keywords.
ReachDeals The result of the $10M purchase of DealOn on 2/15/11, ReachDeals has yet
to be launched and is still in beta. It is expected to fully launch in 2H11. As part of the Bizzy
platform, ReachDeals will compete with Groupon, LivingSocial and others in the daily deal
space.
A detailed breakdown of each product is available via the full report.

ReachSearch (Detailed Breakout) Paragraph1. Paragraph1 Paragraph1 Paragraph1
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Pros
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Cons

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Analysis
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Analysis

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TotalTrack Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Analysis
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TotalChat - the chat Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Analysis
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ReachCast Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Contract lengths are 6 and 12 months.
Pros
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Cons
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Analysis
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ReachDeals Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Pros
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Analysis
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Acquisitions
Where the growth will come from
Ad dollars shifting from other sources to Online

Segment Breakout
Comparable Companies
Local.com (NASDAQ: LCOM) - Local.com Corporation operates an Internet search
engine. The Company assists users in finding local businesses and services.
Marchex (NASDAQ: MCHX) - Marchex, Inc. provides technology-based services to
merchants engaged in online transactions. The company's Internet marketing services,
including paid inclusion, pay-per-click listings, conversion tracking and search marketing,
help merchant customers sell their products and services online.
Verto (NASDAQ: VTRO) – Vertro, Inc. owns a portfolio of products that allow users to
search the Internet and display the results as they wish. The products allow users to search
and then display the results in customizable toolbars, homepages, and desktop products.
Constant Contact (NASDAQ: CTCT) – Constant Contact, Inc. provides web-based e-mail
marketing tools and services to businesses, associations, and organizations to help them
connect with their customers and members.
Limelight Networks (NASDAQ: LLNW) Limelight Networks Inc. is a content delivery
network for internet distribution of video, music, games and downloads. The company's
advanced content delivery network provides the world's top media companies high
performance delivery of digital media and software via the Internet.

ValueClick (NASDAQ: VCLK) ValueClick, Inc. provides Internet advertising solutions for
publishers of Web sites and online advertisers. The Company offers performance-based
Internet advertising solutions in which an advertiser only pays when an Internet user clicks
on its banner advertisement.
QuinStreet (NASDAQ: QNST) QuinStreet, Inc. provides Internet advertising solutions for
publishers of Web sites and online advertisers. The company focuses on building lead
aggregation websites for specific industry verticals.

Industry Discussion
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Management
Zorik Gordon Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Michael Kline Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
Ross G. Landsbaum Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Head Count / Underclassmen and Upperclassmen.

Stock Trading
IPO
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Major Shareholders

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Traffic Analysis
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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Chart OMITTED in FREE Version
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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Chart OMITTED in
FREE Version

Income Statement
Without having had a significant discussion with management on how to think about
modelling the company out, we adopted a use everything approach to come to our estimates
Our estimates are based on a number of moveable parts in the ReachLocal model, including
but not limited to: 1) number of campaigns 2) number of advertisers 3) number of sales
people 4) campaign ASP’s 5) advertiser ASP’s and 6) revenue per sales person 7) Direct
Local sales 8) National Brands, Agencies and Resellers.
A detailed breakdown of all the metrics is available in the full report.
Active Advertisers
portion of international expansion.

Active Campaigns
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far less likely to result in churn.
Sales Staff Grows

Campaign ASP’s
Over Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
In Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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increases.

Advertiser ASP
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ASP’s.
The Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
experiencing.
When Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Revenue per IMC

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numbers.
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picture.
areas.
Direct Local vs NBAR
resellers.

Analysis of key metrics for ReachLocal
clients.
On Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
international office expansions since that time.
Cost of Sales to Decrease as a percentage of Sales
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Costs Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Balance Sheet
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Short Interest
At the end of 1Q11 short interest stood at more than 2.1M shares, or about 7.6% of the
shares outstanding. Since that time, short interest has increased to 2.5M shares
outstanding or about 9.1% of the total. Paragraph1 Paragraph1 Paragraph1 Paragraph1

Investment Risks
If the company experiences any or all of the following risk factors, as well as others, the
company’s stock price may be affected.
 Advertisers Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
 A better Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
 Competition Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
 Future Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
 Loss Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1 Paragraph1
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Implications of higher employee turnover / increases in commissions.
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Recommendation and Valuation

Appendix
2Q10 Earnings Review

ReachLocal Income Statement Forecast

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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Chart OMITTED in FREE Version

Balance Sheet

Statement of Cash Flow

ReachLocal (Nasdaq GM: RLOC)
Historical Price Chart
Source Google

Brian Bolan Research ReachLocal (Nasdaq Global Markets RLOC)
13 June 2011 Brian Bolan | 773 413 0285 | www.scribd.com 30
Important disclosures:
Analyst Certification:
The following analysts hereby certify that their views about the companies and securities discussed in this report are accurately expressed and that they
have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Brian
Bolan.
As of the date of this report, the analyst has no financial interest in any companies mentioned in this report.
Ratings:
Buy: The stock’s total return is expected to exceed 15% over the next 6-12 months.
Hold: The stock is expected to have a positive return of less than 15% over the next 6-12 months.
Sell: The stock is expected to have a negative return over the next 6-12 months.
Disclosures:
None

RLOC-coverage-free-version-6-13-11

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