A Quick Take on Locafy

In addition to our Locafy primer yesterday

Introduction

• Locafy (LCFY) is a provider of SEO solutions that has developed a highly automated platform producing products (listings and syndication, landing pages, Google Business Profile, local packs, and articles) from information that customers upload on the platform, to improve SEO results.

• See our extensive primer on the mechanics and advantages of this (we don’t send these primers by mail to avoid overloading you with mail from us).

• Locafy also owns a portfolio of online directories including Hotfrog, AussieWeb, PinkPages, and SuperPages, boasting over 60M business listings and a substantial email database.

Reasons to buy

• The company has a platform and digital assets like listing companies with 60M+ company listings and is building specialized and focused websites that can generate products like listings and syndication, landing pages, Google Business Profile, local packs, and articles from content that customers feed into the platform.

• The platform operates highly automated and is very scalable, and therefore it can be offered to big customers like big media companies, industry groups and large marketing agencies, and its own 20+ listing partners which are already plugged into the platform through APIs. Each of these has thousands of customers.

• Locafy proprietary Article Accelerator solutions are benefiting from changes in Google algorithms that penalize third-party advertorials (paid content) for big media companies by offering to host these articles on their SEO-optimized websites that generate comparable site authority rankings, reviving this business for big media companies.

• Locafy has a first-mover advantage for this advertorial business in addition to the automated platform and specialized websites benefiting from the directories it owns to increase the relevance and domain authority ranking, on top of other advantages.

• Once built, these SEO-optimized sites can be leveraged over additional customers shortening PoC (proof of concept) time to 30 days (rather than 90) and amortizing costs.

• The third-party paid advertorial market that was thrown into disarray by Google algorithm changes is large, Locafy’s big media customer employs several dozen specialized salespeople to drum up this business.

• Locafy’s Article Accelerator solutions can be sold as a white-label solution for customers (publishing the articles on a subdomain).

• Locafy already has won a contract with a very big media company worth up to $6.5M (see below) and is in PoC with several others.

• The company is working on an AI application that can generate articles automatically based on the content that customers insert into the platform.

Big media company deal

• The recent deal with a very large US media company is worth up to $6.5M.

• The purpose-built SEO-optimized sites for this media company benefit from the company’s business listing which provides directories that boost Google ranking. In addition, Locafy will employ a few proprietary SEO techniques (the CEO didn’t want to go into details here, but we heard customers are enthusiastic about these).

• The first (and most difficult, but also most lucrative) site is built by early December with the first batch of articles loaded, end of January first results for the first batch of articles. The company will start earning as the articles will generate a fee per article per month.

• Domain authority needs 90-120 days to get recognized after improvements, which happened the second week of December. They also have a few additional SEO tricks up their sleeve.

• They are already building the next two directory components for additional sites (which should be a lot simpler) and should be deployed by the end of Jan. The first 3 categories consist of 80% of the contract. In February they’ll get the articles for the additional two sites.

• There are hundreds of other publishers that got blindsided by the Google algorithm changes (penalties against advertorial articles), and management had conversations with a couple of these.

• Locafy gets paid per article per month (subscription) and many will stay up for months, some of them years.

• Most of this process, once set up, is automated, but articles have to be reviewed (they are responsible and the owner of the article) from a content and SEO perspective.

• Other customers: they’ve got a few other POCs, one has just gone live.

Additional opportunities

• Additional opportunity 1: If successful, the media company's large (several dozen) sales force dedicated to drumming up paid third-party content will be incentivized to produce additional articles as Locafy's alternative rescues this business model after the Google algorithm changes.

• Additional opportunity 2: if successful, they can show the results to other big media companies with a similar Google algorithm change problem.

• Additional opportunity 3: Look at the partners on the slide above, Locafy's citation management partners with 24M+ business listings are already plugged into Locafy's platform through APIs. Management is in quite advanced discussions with several of its partners to deploy this business model, turning their business listings into products (listings, landing pages, map boosters, and articles) as these partners are looking for additional revenue streams that are easy to implement. This can be done almost entirely automatically.

• Additional opportunity 4: Automatically generate articles with AI, which is already in the trial phase.

• Additional opportunity 5: White label this solution, basically a plug-and-play solution for advertorial content published on a subdomain of publishers (to avoid the Google penalties for advertorials published on the main domain).

• The upshot is that if this model is successful, Locafy already has all the customers it needs and can quickly and automatically service them, producing a great business model.

• Additional opportunity 6: They will build and buy more publishing assets and optimize these. Many websites have lost their Google domain authority rankings as a result of the algorithm changes earlier this year. Locafy can fix that with its Article Accelerator solution, restoring the value of the articles on the site and raising ad income, as well as using the website for additional article publishing under its Article Accelerator program.

• One could even argue that the big media company is all Locafy needs in terms of customers, given the large size of this company, the small size of Locafy in comparison, and the automated nature of the process creating a very high margin SaaS business where most of the revenues go straight to the bottom line.

Objectives

• Automation of production of landing pages and articles from the content of existing API partners (the 20+ business listing partners) by the end of Q1.

• Do the same for industry groups and large marketing agencies. Once built, this infrastructure can be endlessly leveraged for additional customers.

• Show the results of the first batch of articles from the big media customer to attract additional large media companies.

Finances

• In revamping its business model, the company has foregone some older, more labor-intensive businesses (like working with resellers and fixing third-party sites).

• However, the company has also greatly reduced expenses:

• So even with diminished revenues, they’re not losing too much cash anymore with an ATM making up the shortfall. The company had AU$409K left at the end of Q1.

• Q1/25 net loss was just AU$55K, helped by an AU$662K assessment of a claim on a Research & Development tax incentive in Australia. Operational cash outflow was AU$291K.

• Given the highly automated nature of the platform, producing high gross margins and great operating leverage, not much has to happen for the financial situation to turn around. Part of the big media customer contract would do the job nicely already.

• The company will need some additional technical people for implementation but no salespeople. They have sufficient opportunities in front of them and it’s important to deliver on these first. Some additional marketing efforts, notably on social media might also ensue.

• 137K options have met the vesting criteria (tranche 1) so the fully diluted share count is 1.52M shares. At $6.5 per share, that’s a market cap of $9.87M. One could argue the shares sell at 4x sales, which is fairly steep, but it would miss the point in our view, given the progress with the new business model and the large US media company client.

• More conservative investors might want to wait until the results of the first batch of articles are known (late January 2025), but we have enough confidence in that and the revamped business model to recommend the shares here already.