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Why ReachLocal Inc. Shares Dropped

By Jeremy Bowman - Feb 12, 2014 at 5:01PM

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What: Shares of ReachLocal (RLOC) were getting left behind today, falling as much as 18% and finishing down 15% after its earnings report missed the mark.

So what: The online marketing specialist said sales increased 13% to $132.9 million, but that was short of analyst estimates at $134.5 million. The bottom line wasn't any better, as the company lost $0.02 a share against estimates of a $0.03 per-share profit. Interim CEO David Carlick said the disappointing performance was due to a realignment of sales force in North America and additional hiring, saying those changes "negatively affected fourth quarter revenue results." Still, he expected that move to ultimately accelerate growth at home. International sales were up 35% showing growth would've otherwise been strong without those changes.

Now what: Carlick also said those initiatives will "require increased investment in 2014" so, not surprisingly, ReachLocal's forward guidance also disappointed as it now sees revenue of $124 to $126 million in the first quarter, short of estimates at $137 million. Still, full year revenue guidance was within range at $580 to $600 million. Considering the company's realignment and investment in its employees, today's reaction looks like typical Wall Street short-sightedness. I'd expect shares to bounce back by the end of the year. 

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