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Millennial Media (MM) remains the leading independent mobile advertising network with a market share behind Google (GOOG). The company had one of the hottest IPOs in 2012 yet the stock fizzled from day one. As the mobile advertising market heats up should this stock trade near the lows?

The company is the leading independent mobile ad network provider. Its technology, tools, and services help developers maximize their advertising revenue, acquire users for their apps, and gain insight about their users. The company has a platform that enables advertisers powerful Mobile Audience Solutions (MAS) that utilize the significant scale, sophisticated targeting and uniquely engaging creative capabilities to deliver meaningful results.

The company reports earnings on the 19th and investors should consider entering the stock prior to the release as mobile advertising heats up.

Q4 2012 Estimates

The key to a successful post earnings stock movement will naturally be the company forecasting a strong market in 2013. Companies from Facebook (FB) to Trulia (TRLA) have already reported strong mobile results suggesting the sector should be roaring for Millennial. All the company needs to do is execute on the independent strategy.

Analyst Forecasts:

  • Q4 revenue expectations are $62.9M with a high end of $63.6M
  • Q4 earnings expectations of $0.03 with a high end of $0.04.
  • 2013 revenue expectations of 57% growth to $286.4M with a high end of $294.7M
  • 2013 earnings expectations of $0.15 with a high end of $0.19

The ultimate key with the mobile advertising sector is the ability to turn that revenue growth approaching 60% into solid profits. The stock will soar if the company can at least hint at exceeding the 2013 estimates with the growth leading to huge earnings in out years. Remember that the stock only trades at 3.5x 2013 revenue estimates.

Mobile marketing firm Velti (VELT) has internal problems, but the company hinted in the Analyst Day presentation of a slightly sequential improvement in the mobile advertising sector.

In a recent interview, Janey Montgomery Scott analyst Richard Fetyko made the following statement:

mobile-ad prices grew by "double-digit" percentages in the fourth quarter and that demand hasn't slackened this quarter, as it usually does. The feedback in terms of mobile ad budgets and spend trends in the fourth quarter was that it was extremely robust.

Currently analysts expect Millennial to report a normal seasonal decline. Any hint that the typical seasonal decline won't occur could also shoot the stock higher.

Potential Buyout Candidate

As the company continues to hit targets while the stock sinks the pressure will mount to sell the company if an attractive offer comes about. As a Canaccord Genuity analyst pointed out, Yahoo (YHOO) doesn't have a mobile ad network. For an easy $1.5B, it could probably own Millennial.

As the medium moves from more than 10% of the time consumers spend with media, the amount of ad spending will quickly catch up to the time spent. The current 1% of ad budgets will grow quickly and the likes of Yahoo could look to join the mobile ad networks with a solid purchase of Millennial.

Investors shouldn't own the stock hoping for a buyout, as that's fools gold. Any buyout would be a quick bonus, the bigger key will be the company hitting financial targets and forecasting a huge 2013.

Stock Performance

The stock performance since the IPO has been utterly dismal. The stock peaked at $27.90 on the first day of trading on March 29th last year and hit the elevator down button from that point. In fact, the stock traded all the way down to $16.71 by the 7th trading day.

As the 1-year chart shows, Millennial investors haven't had many reasons to cheer since the IPO. The recent price action suggests a turn could be occurring.

1-Year Chart - Millennial Media

(click to enlarge)

Conclusion

A good sign that Millennial has fallen off the investor radar has been the lack of contributor coverage on Seeking Alpha. The stock has had only 1 focus article since my last article on May 15th. The stock provides too much growth potential to be that ignored by investors and contributors alike.

The original analysis of the IPO was that the stock was too expensive. Amazing how times have changed. While fellow mobile advertising firm Velti has one of the cheapest valuations in the market, Millennial appears a more investable company at this point. The company has easily beat estimates the last 2 quarters and a 3rd could be what the market needs to move the stock considerably higher.

While Yahoo may indeed come knocking, at these valuations investors appear set to prosper either way. Both Millennial Media and Velti provide nice values in this fast growing sector.

Source: Buy Millennial Media Prior To Q4 Earnings

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.