Mobile Ad IPO to Challenge Google, Apple

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The third largest mobile advertising company is taking its IPO to the NYSE. According to an amended S-1 filing, Millennial Media will go public under the symbol “MM” in hopes of earning $75 million.  The Baltimore-based advertising company has established itself as a frontrunner of a market headed by Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL).

On the financial side, the filing showed revenue increase from 2010’s $47.83 million to $103.68 million last year. Gross margins improved from 33.9% to 38.7%. Net losses dropped from $7.12 million in 2010 to $287,000 in 2011. Adjusted EBITDA improved from a loss of $6.4 million to a gain of $1.8 million.

The Millennial ad platform reached approximately 100 million unique users in the United States in December of last year and the global audience was double the domestic. There are 30,000 mobile apps enabled to work with the ads. Big name clients have included mobile app superstars Zynga and Rovio, of Angry Birds fame, and traditional media outlets including The New York Times and Warner Brothers. Seventy-three of the top 100 Ad Age advertisers were using this platform by the end of 2011.

What’s more impressive is that Millennial has managed to keep up with well-backed mobile ad initiatives from Google and Apple, nearly tying Apple in market share. The mobile ad market is only going to increase in the future, which has every company and its brother trying to get into the act. But the established history of Millennial should keep it in the top trio.  

The Mobile Ad Market

The general mobile ad market includes video, search, SMS, and banners and rich media advertising. Research firm eMarketer reports that U.S. spending on general mobile ads in 2011 was $1.45 billion, up 89% from 2010, and will reach $2.61 billion by the end of 2012, an increase of 80%.  

Google dominates the general mobile market with 51.7% ($750 million) of 2011 revenues. Apple had 6.4% ($92.4) of the market and Millennial closely followed at 6.3% ($90.9). The reason for the large gap is the fact that Google is the only one of the companies to offer search advertising. If search advertising is removed from the equation, the 2011 market shares break down to 24.8% ($127.5 million) for Google, 18.0% ($92.4 million) for Apple, and 17.7% ($90.9) for Millennial.

Sizing the Competition

Google has the popular AdSense search advertising program and acquired mobile advertiser AdMob in 2009 for $750 million. The fragmentation caused by the two divisions seems to have even Google confused as to what clients belong where. Search advertising is the company’s mobile ad bread and butter as up to 95% of all U.S. mobile browser searches are controlled by Google. If projections from eMarketer hold true, that won’t mean much in the long run. Search ad spending growth is predicted to fall faster and further than the other two primary methods of advertising.

Apple has the display advertising iAd program, built from the ashes of its 2009 acquisition of Quattro Wireless, which is at a decided disadvantage since it only functions with Apple devices. The programs from Google and Millennial are cross-platform. Apple has been forced to drastically cut advertising contract minimums to remain competitive, dropping from $1 million in 2010 to $500,000 in February 2011 and down to $100,000 in February 2012. Developer cuts were simultaneously increased from 60% to 70%. Those aren’t signs of a plan that’s going swimmingly.

Move on Millennial?

The initial listing price of Millennial shares is still under negotiation but it will be a drop in the bucket compared to the prices of Google and Apple. Getting in early could result in the Yelp effect, where a first day rush gives prices nowhere to go but down. But Millennial has maintained a much lower profile amongst consumers and shouldn’t be subject to as much pre-IPO hype.

There are risks involved and a degree of volatility is to be expected with any tech stock. The company’s success rides on its ability to adapt and continue to woo clients in a notoriously unsteady market.  But Millennial seems to recognize the odds it’s up against and has a strong portfolio of client relationships.  Its singular focus may prove to be more adaptable than the tech goliaths it runs against.

 


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