Millennial Media, the first mobile ad network to IPO; and thus to reveal revenues and the long road to profitability – analysis

The announcement of the planned floatation of six-year-old Millennial Media – believed to be one of the largest mobile ad networks in the US – on the stock exchange is interesting for two reasons.

1) This is the first mobile ad network – a company that enables advertisers to buy space on mobile sites and within mobile apps without having to deal directly with each publisher – to go for an initial public offering (IPO). According to the S-1 statement filed last week with the US Securities and Exchange Commission (SEC), the floatation hopes to raise US $75 million for Millennial and, if successful, will symbolize a coming of age for the mobile ad business. Previously all other mobile ad networks have chosen to exit by acquisition, e.g. Greystripe sold out to ValueClick in April 2011; Quattro sold out to Apple in Jan 2010; AdMob sold out to Google in November 2009.
Venture capitalists and other investors have invested vast sums in mobile ad networks over the last few years – most recently SoftBank invested $200m in InMobi. Investors in mobile ad networks – and those that have invested in other mobile technology businesses, no doubt – will be watching the Millennial IPO closely to gauge the stock market’s readiness to invest in this industry.

2) This is our first proper insight into the revenues and profit/loss made by mobile ad networks in what has become a cut-throat business. Hitherto our only insight into revenues has been from analyst estimates, led by IDC. In the S-1 statement, Millennial reveals that in the first nine months of 2011, its revenue was US $69,129,000 (90 percent of revenue comes from the US). It has shown strong year-on-year growth in revenues, except for 2010 where revenues dipped sharply as the recession bit.
If Millennial’s costs/revenues remain unchanged in Q4, then it’s possible to estimate an annual revenue of $92,172,000 for 2011. This figure makes IDC’s estimates (to which mobiThinking has been privy) for Millennial’s revenue look a little high, but not too far off the mark. IDC believes Millennial is the number two mobile ad network in the US behind Google.
While substantial, this $92 million isn’t as impressive as it sounds, as the majority of this sum will be passed directly to mobile Web and app publishers – currently this is 61.5 percent of revenues. From the remainder comes the cost of running the business, building out the network of publishers and advertisers and expanding overseas – Millennial recently opened operations in the UK and Singapore.
The S-1 statement reveals that Millennial made a loss for the first nine months of 2011 of $417,000 (considerable improvement on previous years) and a loss of $44 million since the company was founded in 2006. This underscores both the level of investment necessary to establish a mobile ad network in the US and globally and the level of competition that exists in the mobile ad market.
If other ad networks were weighed down by similar levels of debt, it would explain the eagerness of the founders/investors in Greystripe, Quattro, AdMob etc to sell out.

Millennial hopes to raise $75 million from the share offering to help it compete with the deep pockets of Google and Apple, which the company says are its main competitors, and fund overseas expansion (only 10 percent of revenues come from outside the US). The incomplete S-1 statement does not declare what proportion of the company’s share capital is available, so it is unclear what valuation this would put on Millennial. Bloomberg estimates that the IPO might value Millennial at $700 million to $1 billion. This is feasible considering Google paid a staggering $750 million for AdMob two years ago. However Bloomberg’s estimate would be considerably higher than the value placed on the company by Millennial’s own estimates in June 30, 2011, of $305.3 million (as declared in the S-1)

Millennial’s S-1 statement is an interesting insight into Millennial’s business and the mobile ad business as a whole. As expected it is peppered with jargon and legalize. The document is further confused by the bizaar decision to merge mobile Web and mobile apps into what is called the “mobile app economy”, calling both mobile sites and mobile apps “apps” and calling both mobile Web publishers and app developers “developers”. But if you are interested in mobile advertising and mobile ad networks it is definitely worth a read

• For an in-depth guide to the leading mobile ad networks, see: The mobiThinking Guide to mobile ad networks. The guide includes an in-depth profile of Millennial Media.

• Be the first to know about mobiThinking guides, competitions etc… follow mobiThinking on Twitter: @mobithinking.

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