Why ReachLocal Inc. Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of ReachLocal 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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The article Why ReachLocal Inc. Shares Dropped originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends ReachLocal. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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