Millennial Media Competing in High-Growth but Tough Segment

A Gartner report released earlier this year estimates worldwide mobile advertising market to grow 18.8% this year from $9.6 billion in 2012 to $11.4 billion. The report also projects the market to grow to $24.5 billion by 2016. Growth in mobile advertising is attributed to the increased and fast paced adoption of smartphones and tablets. Another report by Gartner forecasts downloads from mobile app stores worldwide to grow 57% annually over the period 2011 through 2015 to 108.8 billion.

Millennial Media’s Financials
Last year, driven by strong growth in the segment, mobile advertising and data platform provider, Millennial Media (NYSE:MM) went public on the NYSE. Baltimore, Maryland–based Millennial Media was founded in 2006 by co-founders Paul Palmieri and Chris Brandenburg. Today, it is among the leading independent mobile advertising platform companies that offers tools and services that help developers maximize advertising revenues, add customers, and conduct behavioral analytics on their users.

Millennial’s proprietary technology and data platform, MYDAS, enables dynamic mobile advertising which helps determine in real-time which ad to deliver, to what audience and when to help ensure higher return on investment. Through its solutions, developers and advertisers can enable their apps to display banner ads and deliver interactive rich media ads from their platform. In exchange, Millennial gets access to space on apps for delivery of ads and access to data pertaining to apps and users. Millennial uses this data to build complex demographic data on its audience by combining information on user profiles, audience groups, decision making abilities, and targeting capabilities of its technology platform. Millennial earns revenues by charging a fee from advertisers to deliver their ads.

The company has reported strong growth over the past few years and now have developer base which includes publishers such as CBS Interactive and The New York Times and app developers like Zynga and Pandora.

For the year 2012, Millennial saw revenues grow 71% over the year to $177.7 million with a net loss of $0.11 per share. In the recently reported quarter, Millenial saw revenues grow 45% over the year to $57 million. Basic and diluted GAAP EPS for the quarter came in at a loss of $0.04 per share compared with a loss of $0.03 per share a year ago.

Among other business metrics, the company now reaches more than 450 million monthly unique users worldwide with more than 160 million monthly unique users in the country alone. At the end of the quarter, there were over 45,000 mobile app operating on Millennial Media’s platform.

Millennial’s Market Expansion
Millennial recently announced the acquisition of Boston-based mobile advertising platform, Jumptap, for an estimated $225 million. Jumptap has access to more than 218 million mobile users in the country and 439 mobile users worldwide. It has information on over 124 million unique profiles, of which nearly 44 million can be accessed both through mobile and other online platforms. Jumptap’s strength lies in the real-time bidding segment and in their business partnerships that help provide third-party data, both of which will be successful complements to Millennial’s offerings.

According to IDC, last year, Jumptap had 10.7% of the US third-party mobile display ad market and Millennial accounted for 18.7% of the market share. The acquisition will help Millennial expand their leadership in the market. The merger will help Millennial compete with Google, which is the largest mobile advertising platform, with a 29% market share.

In addition, Millennial is also looking to expand in Latin America, which has more than 400 million mobile users and where smartphone penetration is projected to grow to 40% by 2016. Recently, Millennial entered into a partnership with Latin American mobile ad network, Adsmovil. Through the partnership, Millennial will be able to let Adsmovil’s mobile user base access the more than 45,000 sites and apps available on its platform.

Millennial’s stock is trading at $7.56 with market capitalization of $615.06 million. It touched a 52-week high of $16.86 in November 2012. I think Millennial has high growth potential, but also strong competition. We recently did a story on Airpush, one of its top competitors, and a company that is a very likely acquisition target for Yahoo. Airpush is generating revenues of more than $120 million annually and is running a profitable shop. CEO Asher Delug agrees that the mobile advertising platform is right for consolidation. Millennial has already taken the first step in the direction by acquiring Jumptap. I would like to see tech giants like Yahoo spend their money on acquiring assets like Millennial that have a clear and defined monetization path.