Knobias ClipReport (7-3-2007)

Submitted from Knobias ClipReport

Monday’s action was the start of the third quarter which also is the beginning of the second half of the year. With second quarter window dressing and losers liquidated, investors were greeted with unexpected strength in the nation’s manufacturing sector and another Monday merger with the $49 billion takeover of Canadian telecom, BCE.

Even though volume was light ahead of the July 4th holiday, the Dow surged to triple digit gains quelling fears that the merger and acquisition activity might be slowing.

In the small cap space, momentum was with 3 names for much of the day.

Local.com Corporation (LOCM) shares added to their extraordinary gains with an additional day of 70% gains before selling off in the closing hour. On Friday, the Company announced that they had been awarded patent number 7,231,405 by the U.S. Patent and Trademark Office for the process of indexing and retrieving web-related information by geographical location.

The patent covers local search technology related to identifying location information from web documents, indexing that information and making it searchable geographically. In Local.com's commercial implementation of the technology, the search results are ranked by search term, LocalRank score, location prominence, among other factors. The system then extracts, matches, and indexes web pages from the Internet and generates web references where applicable on more than 16 million local businesses listed nationwide on Local.com.

On Monday, the Company announced that they had been awarded an additional patent number 7,200,413 by the U.S. Patent and Trademark Office for the method of responding to enhanced directory assistance inquiries using various protocols including voice-enabled and SMS systems. The patent also covers an associated referral advertising model, which is designed to monetize those local searches.

The patent covers a system and method for providing businesses with referral advertising opportunities (such as pay-per-click or pay-per-call) utilizing directory assistance and wireless messaging systems. The model enables businesses to receive search leads on a pay-per-referral basis when their listings are included in a set of search results provided to consumers as a result of an enhanced directory assistance inquiry. The results are delivered to consumers via operator assisted calls, messaging systems such as SMS, WAP, automated voice-enabled systems, or any combination of these. Advertiser listings in this model can be organized by location, referral amount paid, and keyword association.

The patents have given rise to many different theories of the next step for the Company. Some have noted a Qualcomm type model, capitalizing from licensing fees if the Company can raise sufficient capital to defend the patents in court. Others have suggested the patents make the Company an acquisition candidate by other behemoths in the search industry.

On Monday, LOCM’s CEO, Heath Clarke was interviewed by a Reuters and noted that he believed the Company was an acquisition candidate and had been approached by many firms including Yellow Page and newspaper publishers. Later on in the afternoon, the CEO said that the comments were misconstrued and that his remarks were general about takeovers and that the Company was not an acquisition candidate.

Either way, investors became very weary about the name following the reports. The comments are almost certainly to draw the ire of those in the SEC with the amount of impact the rhetoric had. Shares were up over 70% before selling off in the last hour with the name only gaining 35%.

Another name which had many riding its momentum was Handheld Entertainment Inc. (ZVUE). The mobile entertainment device Company had many speculating the Company would soon announce a handset with phone capabilities which would rival the recently released iPhone. The rumors were substantiated but the shares had momentum during the day which could parlay in a multi day move.

The other name that seemed to hold many traders’ attention was Think Partnership Inc. (THK). The Company is focused on interactive performance-based marketing and related Internet technologies. They provide a comprehensive and integrated set of scalable and cost-effective marketing solutions for both advertisers and publishers. These solutions increase customer retention and revenues through a diverse set of related marketing channels, including affiliate marketing, click-fraud-protected pay-per-click advertising, lead generation, interactive direct marketing, integrated offline advertising, campaign management, public relations, and branding.

The name was suggested as a value buyout candidate for Microsoft and other larger names because of the recent buyouts of aQuantive by Microsoft, Yahoo’s buyout of Right Media, and Google’s bid for DoubleClick. The deals, which were all under investigation by the FTC for antitrust, leave ValueClick (a $3B market cap company) and Think Partnership (a $200M market cap company) in the industry.

With Think Partnership being the cheaper candidate that also possesses a click fraud prevention technology, the name has been closely associated with the behemoths as possible complementary additions to their recent acquisitions in the space.

In any event, the slow, summer trading sessions leave only a handful of investors trading an even fewer number of names. The culmination is a momentum trading which has been evident in past weeks in Dendreon, Hoku, and many others on negligible news. With ‘momo’ trading in full effect, investors would be wise to follow these names over the coming days.


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