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Groupon's Halo Effect

Stocks in this article: GOOG AMZN EBAY DEXO SPMD TZOO




By Julia Boorstin, CNBC Correspondent

With last week's ongoing rumors of Google's (GOOG) hopes to buy Groupon for $6 billion, there's been a rash of interest in local companies; this could be the beginning of a a mini local bubble.

On the heels of the announcement that Amazon (AMZN) is investing $175 million in Groupon's #2, LivingSocial.com, and that eBay (EBAY) is buying Milo.com, local advertising stocks were red hot Friday. Google, Amazon and eBay are stoking the interest in companies that focus on marketing small businesses.

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Three small-cap companies soared on Friday. Dex One Corporation (DEXO) ended nearly 49 percent higher, boosting its market cap to $335 million. It owns Yellow Pages and White pages directories. Meanwhile Supermedia (SPMD), which pushes Superyellowpages.com and other local ads, soared 20 percent on a huge spike in volume. Its market cap is still just around $105 million. And Local.com (LOCM), a business search engine and ad network, added 8.3 percent with a $90 million market cap.

Potential takeover interest is one factor driving these companies higher, but that's not all. Investors are starting to realize what Google, Amazon and eBay have clearly been thinking about: It's been very hard for small businesses to market themselves online.

While clunky Yellow Pages and classified newspaper ads are old news, nothing has really taken local merchant ads to the next level. Small businesses can advertise on Google, but it's much harder to proactively reach new customers than in the day and age when everyone subscribed to a local paper. Companies like these three small-caps, along with Groupon and Livingsocial, allow small businesses to better represent themselves in the digital landscape.

These small-caps aren't the only companies that will benefit from the spotlight on local deal companies. Travelzoo (TZOO) continues to thrive -- adding nearly 12 percent over the course of last week. Though it sells travel deals, it derives part of its revenue from one-a-day deals like Groupon's.

And don't be surprised if we see more investment or even acquisitions of private companies in this space: Tippr.com and Buywithme.com are the next group buying deal companies, in terms of size. We can bet they're engaged in talks with deep-pocketed investors. And think about a company like Zagat.com, which has flown beneath the radar -- could that be a valuable brand for the local restaurant biz?

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