Should We Have a Bullish Stance on the Internet Sector?

Zain is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One of my earlier posts contains key takeaways from internet companies that presented in the Technology, Media and Telecom conference held in Houston a couple of days back. However, that post contained mostly well-recognized names in the market like Pandora and Netflix. The post stated how the market is bullish on these companies

However,  a relatively smaller name also presented in the conference, which I will discuss in this post. What needs to be seen is: Is the whole internet sector bullish right now? Let’s have a look:

A company with only $345 million market cap

ReachLocal (NASDAQ: RLOC) has been an interesting company for the tech lovers. The online marketing company helps small and medium sized businesses, or SMBs, acquire, maintain and retain customers via the Internet through its internet marketing consultants (also known as IMCs). The company’s CEO and CFO presented at the TMT conference.

The management was optimistic regarding the increased international sales force and higher productivity levels from international IMCs, as well as the progress of multiple new products in various stages of testing and usage including ClubLocal, ReachEdge, and ReachCommerce. These must be new terms for those who don’t follow this company. ReachCommerce enables local businesses to take their entire booking and buying process online. ClubLocal is the consumer-facing flip side of ReachCommerce, which is the back-end platform for the service. However, ReachCommerce is being positioned and sold as a stand-alone product as well.

ReachLocal also highlighted expectations for steeper growth in the third quarter, higher margins in the fourth quarter, but overall full year numbers to come in potentially below the mid-point of guidance, where they typically achieve.

Another confident company

CaféPress distributes online products customization and personalization platforms. The company has been one of very few internet companies that have received less attention from the market. However, this can be attributed to the fact that the company only recently made its share public through an Initial Public Offering in March last year. However, since then the share performance has been horrible and the stock is down almost 70% since its IPO.

Social opportunities are strong for CaféPress and progress towards increasing the company’s focus on this initiative was encouraging. CaféPress has put social handles on all of their content, recently introduced a social login, and has started partnering with Facebook (NASDAQ: FB) on Facebook gifts. CaféPress highlighted a recent successful Mother’s Day promotion with Facebook gifts.

Facebook has another experience that it shares with CaféPress – it also has seen its share price plummet since its IPO back in mid 2012. For whatever reason, the stock has got a beating from the market; it definitely is a solid buy now. It is still very early in Facebook’s mobile advertising trajectory, and marketer feedback on mobile and News Feed ads is now more positive. The Street expects continued ad growth acceleration through the second and third quarters. The Facebook Exchange and Custom Audiences should also drive improvements in desktop yield in 2013. JP Morgan believes that Facebook shares are not well-owned, and S&P 500 inclusion could come in late 2013 or the first half of 2014.

It is interesting to note that falling below the IPO share price is not a norm in the tech sector. Perhaps, LinkedIn (NYSE: LNKD) has been the best display of this concept as the stock of social networking website has soared more than 100% since its IPO back in 2011.

Interestingly, LinkedIn also presented at TMT conference. The management was upbeat towards their ongoing focus on the user experience as they develop new features, redesign products, and introduce content. Also, the company seemed to be positive on progress with sponsored content, including quality of content. The company remains focused on keeping the balance for a positive user experience in terms of quantity and frequency .

LinkedIn views mobile trends as a positive for their business as they can adapt to provide the most relevant information to users on different channels at different times of day. This channel has been vastly studied, experimented and embraced by the tech sector after increased usage of mobile internet.

Final word

Right now, under the light of the presentations made by internet companies at TMT Conference, the internet companies seem poised to pick up from here. Almost every company, irrespective of its market cap, has a secular growth story attached to it which is expected be helped by improving fundamentals (increasing use of e-commerce etc) in the overall industry.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Facebook, LinkedIn, and ReachLocal. The Motley Fool owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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