Michael Avon – Executive Vice President and Chief Financial Officer
Kevin Smyth – Barclays Capital Inc.
Millennial Media, Inc. (MM) Barclays Internet Connect Conference Call March 6, 2013 11:05 AM ET
Kevin Smyth – Barclays Capital Inc.
Good morning everyone. Can you hear me? Yeah, there we go. Thanks again for participating today. It’s my pleasure to introduce Millennial Media, and Michael Avon the CFO. Since we’re running a little bit over time, just want to kick it off.
Good morning everybody. Thanks for coming and joining me thing morning. And well I appreciate the invite to the conference. Thanks Kevin, it’s great to be here. I’d like to take a few minutes this morning to give you an update on our business. I'm going to go through a handful of overview slides. Either anybody who isn't as familiar with the business try to get to this very quickly, spend a little bit of time on an update on financial results in Q4 and some specific initiatives of ours in 2013. Then I will leave plenty of time at the end for questions from the group. So I'll try to go through these background slides fairly quickly.
About a year from since we went public was late March of last year, Barclays was a book runner and in that offering and also our follow on in October of last year and we are excited to be here. So let me jump straight to our background slides.
First of all, our Safe Harbor, we’re going to be talking, making forward-looking statements here and so please read the Safe Harbor, also be talking about non-GAAP numbers, adjusted EBITDA is a key number of ours and we have a reconciliation at the end of this presentation. The presentation will be posted or should be posted now on our website as well.
So, an overview on the company; the company has been around for almost seven years now. We started the company back in 2006. We’re the independent leader in mobile advertising. I'll get into what that means in the next few slides. Again, we went public about a year ago, and did a following offering in October of last year. We’re a technology and data company in our core. We’ve built very rich technology and a deep data asset. I will spend a few minutes talking about and that’s a real differentiator of ours in the market.
We have over 350 employees now with a lot of online advertising and mobile DNA coming from companies like Advertising.com, where lot of our team comes from, Verizon, Yahoo, and a number of other companies. Last year we grew top line revenues 71% year-over-year, 2012 with adjusted EBITDA positive for the year, and adjusted EBITDA positive in Q4, GAAP positive as well in Q4.
We just announced a few weeks ago an acquisition of a company called Metaresolver and Seamus will talk about that a little bit more in a few minutes. And we a global footprint, an expanding global footprint with operations in the U.S., Europe and Asia, and I’ll spend a little bit more time on that later as well.
Today we reached over 400 million unique users on a monthly basis with about 160 million of those in the US. We work with 85 of the top 100 Ad Age advertisers. These are the largest advertisers in the world that is measured by Ad Age, big global advertisers and we think that penetration of 85% of this top 100 is second to none, certainly in mobile and we think across digital.
We reached the 400 million unique users through more than 39,000 apps that are enabled on our platform. These are on more than 7500 distinct device types everything from iPhones to every flavor of Android you can imagine to smartphones running operating systems. There are still some of those other operating systems or there are still some of those, so tablets of all size and shapes and other post PC devices, ad based devices and mobile devices.
I promise I won’t go through a bunch of slides talking about how big mobile is going to be. We’ve taken all those out of the deck that used to be something we had to talk about I think after the past year. That should be self evident. I do just think this is a pretty stunning stat though. It’s a stat saying that according to CISCO, this year in 2013 we’ll have more devices, mobile devices globally that people, so over 700 billion mobile connected devices which is pretty stunning stat. This is a truly global phenomenon, whether you are talking about on the streets of New York City, or Dubai, or London, or Tokyo, or Nairobi consumers are connecting to each other through mobile devices and consuming our contents through mobile devices and that has created an enormous opportunity for advertisers to reach target and engage those consumers.
There are a handful of key components that are driving the growth of mobile advertising. First of all this penetration of connected devices globally whether these are smartphones, old feature phones, increasingly becoming smartphones or tablets or other app based devices. There is also a widespread access to high-speed networks, 3G networks globally, 4G networks in developed countries and moving into developing countries, and WiFi access as well.
And then there is the right of applications or apps which have been the primary way the consumers have interacted with content in a mobile environment. These can be native applications on a device or they can be HTML 5 apps through a web browser on a mobile device.
All this has led to a very large market opportunity, pick your growth chart. I have a Gartner chart up here which has forecasted 65%, up to 65% CAGR in our market, 7 x growths over the period up here, any number of other charts out there have larger growth. Anyway you look at it, mobile advertising is an enormous opportunity, as consumers are spending more and more of their time on their mobile devices, advertisers have not yet moved the dollars into mobile to match the time spent by consumers, but those dollars are moving, like any new medium consumers tend to move first but advertisers always follow and as advertisers are following, we're seeing enormous growth rates in the market.
Why is advertising interesting for advertisers or what mobile advertising is interesting for advertisers? Well, it’s not just where consumers are, that’s an absolutely critical piece of mobile advertising. But mobile advertising creates an opportunity for advertisers that is not available in any other medium, and it really starts with the fact that these are personalized devices that are with you at time and are location enabled devices.
Advertisers are able to access you wherever you are, when you’re making buying decisions out in the world, out in the time and space and are able to learn a lot about what you might be interested based on what you actually do. When you share a location data, when you opt in to share location data on a completely unanimous basis, companies like Millennial are able to build profiles to learn more about your potential demographics or your interests and then allow advertisers to target you based off of the stores that you go to or the types of things that you do with your time.
We are able to target you when you're out making buying decisions and making decisions about where you spend your time and that ultimately creates better results for advertisers particularly for brand advertisers, which is the area that we’re focused.
I'll talk in a few more slides a little bit more about targeting, but it is absolutely incredible even in the relatively early days of mobile advertising, what advertisers have been able to do, the level of targeting that they have been able to engage in mobile advertising, everything from an auto company, sending ads to people who have been in auto dealerships over the past couple of weeks because they believe they really are an end-market auto buyer because that actually show in that real behavior.
So company likes McDonald's targeting a McCafé offering to consumers who are only within several blocks of a specific street corner in New York City to entertainment companies that are trying to target females from 25 to 35 in specific cities with specific interest to drive them into their movie and you see a lot of other examples up here, we have a number of others on our site.
We are able to take data based off a real observed behavior and then learn more about somebody's interests or the specific location at the time, or the demographics, again to put it more relevant out in front of them that they can act on in real-time.
We are also able to deliver these ads in a rich and engaging fashion. Now we deliver banner ads on our platform and that’s an interesting format of ad, but a lot more interesting of rich media ads or ads that takeover the entire screen that a consumer can interact with, can engage with. Think of a ad – a full screen ad for a car that you can flip around in circles, look inside, learn more about, click on different parts of the car and see videos to learn more about the ad.
The ad itself becomes contented and if that content is relevant to the consumer, it becomes very engaging content to the consumer. We’re able to measure the interactions and then show our brand clients and our advertising clients how the consumer ultimately interacted with the ads. We are able to run these ads again on all types of smartphones, every type of Android, iPhones, even BlackBerry’s and Window Phones and whatever else is out there today.
But again also iPad, which has been an incredibly interesting emerging growth area for us, tablets of all sizes and shapes and other post PC devices that are out based running on mobile technologies with all the complexities of mobile technologies for which to deliver ads.
There is also another side of this ecosystem once you are app developers and that’s where it all starts for us. So app developers have created a new economy, as we call the app economy where these app developers are monetizing either by driving transactions to their apps or by advertising. In both cases, they need advertising. They are either making money off of the advertising or they’re advertising to consumers to get them to pay within their app or to buy a premium version of their app.
For many app developers that work with us of the 39,000 plus apps on our platform, many of them in fact, most of them don’t have their own ad sales force. In fact most of them don’t have any business people, it’s a few developers and they’re relying on third parties like us and Google and particularly us and Google to help them run their business, to help them monetize their application.
We delivered tools and services to app developers from analytics to the ability to mediate ads through third party sources, and then we deliver the money. Last year we paid out over $100 million for app developer partners making us a critical source of monetization in the app economy.
These app developers actually download our code, our SDK, our software developing into their application, so our code is deeply embedded into their application which enables us to use the features and functionalities of the device to deliver the rich and engaging ads, I was just talking about, a slide ago and also to help us gather information and data that the developers allow to share with us, or that the consumer opts in to share with us, which enables us to deliver more relevant and ultimately a more relevant ads, ultimately better results and more monetization for developers.
Again we are a cross-platform business, so we work across Android, iOS, Windows phone, Blackberry, Brew, Java, Symbian, everything else you can imagine HTML5 and any new OS that people come up with upscale.
So why is this any difference in online advertising and the answer is, mobile is incredibly complex ecosystem. I’ll spend a lot of time talking about this. We've talked about this in prior presentations but overall we have in our case over 7,500 distinct device types, all with different shapes, sizes, screen sizes, capabilities on different networks. Ability on some phones to deliver video on other phones or certainly on other phones in certain situations, you wouldn't want to deliver video. For example, a phone in New York City that's not on Wi-Fi you might not want to deliver a video ad to unless that video ad is pre-cashed. Some phones have access to the accelerometer or to touchscreen some don’t.
We have to solve an incredibly complex math problem behind the scenes each time we are serving an ad to make sure the right ad goes to the device and then to make sure if the right ad is actually going to the right person to be a relevant ad to that person. It is all compounded by the fact that mobile doesn't have the standardized technologies that online has, such as cookies.
Because of that complexity of mobile and it’s a problem that our team saw back when they were at advertising.com, which is one of the leading online advertising ad tech companies, but because of the complexities of mobile that they saw, we build a technology stack from day one that was uniquely mobile. We build the technology that we call MYDAS, which is at its core, a real-time bidding marketplace, it’s making real decisions in real-time on which ad to put with which ad to place with each impression.
That’s based on the device type, the network connection, whether it’s an app or a mobile website or web app and ultimately also based on the person behind the impression. Who is the consumer? Who is the audience member? And what will be the most relevant ad for the person to see at that time?
We do this all in real-time, typically in under 15 milliseconds, and we do it multiple billions of times a day now. It’s a very complex problem that takes a uniquely mobile technology to solve and we built that technology. Part of the technology is to gather data and use data to deliver better results. So today we have over 350 million user profiles on our system. These are profiles that have multiple data points that we can use to specifically target ads to consumers that are more relevant.
Again we see more than 400 million uniques every month as of our last reporting period and we’re only talking about 350 million profiles. That’s because these are real profiles. This isn’t a profile for every person we’ve seen. This is a profile that has multiple data points that allows us to target an ad to that person and roll them into audience and ultimately package those audiences and sell them to advertisers. All these profiles are completely anonymous. We don't know of any person who had a viable information about the people and to the extent that any information like location data is shared with us, it’s not an affirmative opt-in by the consumer.
Taking all of these profiles together and then the insights that we draw from these profiles, we've created something we call the relevance graph. This is a data asset and an insight analytical tool that allows us to put the consumers in middle and ultimately deliver the most relevant results to advertisers. The relevance graph is based off of a location graph or mobile graph, or a database of places that you’ve been when you opt-in to share that information, and what that information tells us about you and your interests.
I've mentioned a couple of examples through the presentation. Again if we see you in the Gulf Coast a couple of times, we might think that you’re gulf enthusiast. If we see you in a car dealership and a couple of times you might think that you’re in market for a car. If we don't see you in a car dealership for a while we’ll know that you probably brought a car already. If we see you in a car dealership every day, we realize you probably work in a car dealership and you probably aren’t a good person to target with the new car.
Those are pretty rudimentary and simple examples. We have a team based predominantly in Washington DC partially through an acquisition that we made that spends all day looking at all of these data points and analyzing, finding the insights and analyzing precisely what do these data points tell us about this consumers and how can we then deliver more relevant audiences to advertisers. The system itself is a self learning system where we are constantly AB testing the ads that we put in front of people and as each time we serve an add getting a little bit smarter about which ad is the right ad to put in front of any given person at any given time.
All this has led to a client list that we believe is second to none in digital, second to none certainly in mobile advertising including 85 of the Ad Age top 100 advertisers. You see some of the loaders up here on the screen. These are again the 100 largest advertisers in the world according to Ad Age and many of these are multi-brand advertisers. I think companies like PNG or GM that has many brands in their portfolio, which gives us a deep set of brands to continue to build into overtime.
We have significantly increased the spend among these Ad Age Top 100 over the history of our company and increased the average spend over the past four years more than 8x.
We are also powering many of the world leading apps, again over 39,000 apps on the platform. These are everything from big traditional media companies like CBS and New York Times, to a very large apps like Pandora and Zynga and Rovio that you know well to many, many, many, many small apps, which are very important in the aggregate to be able to reach consumers whey they are out making buying decisions and also to be able to gather information about where they might be and what their interest might be when they choose to share that information with us.
So before I get into the financial performance and a few updates on our focus area for this year, I just want to go through our business model real quickly. It’s very simple, but it’s very powerful and often it’s a little bit more complex than people think.
Certainly, bottom left hand corner with developers, that’s where we start our business. So developers come to us typically through a self service inter-phase. They download our SDK, they embed that SDK in their application and then push that application out through an app store after being certified.
The SDK is free to them. The use of our tools is completely free to them. The developers pay us in impressions or ad space and data, data that they are authorized to share with us or data that the consumer asks them to share with us. We then take the impressions and the data run that through MYDAS us and analyze that data against our relevance graph and build something different for advertisers, we build audiences for advertisers.
Important to note that advertisers don’t come to us to buy renting inventory on a specify site or specific app or even a series of specific sites or apps. They come to us to buy audiences, to buy mom or both enthusiasts, or dad.
The advertisers then pay us, they pay us either when the ad is run. If there are paying us on a cost per impression or CPM basis, which is how most of the brand advertising is purchased or they pay us when an action occurs, when a click occurs, on a CPC or cost per click basis, or when a download incurs on a cost per install or CPI basis.
We then pay the developer a percentage of that money and typically that’s been about, a little under 60% or typical gross margins have been in the 41% range target in a minute. And as we pay developers more than they’re getting from others, they give us more impressions, they give us more data and it creates a virtual cycle that ultimately drives our business. The powerful business models and it’s been a business model that’s been very effective for us for quite sometime.
So let me get through a few of our key financial highlights before we get into questions. I mean here a couple of areas, our revenue growth and in particular 2012 and Q4, little bit about our growing client base. Last year we increased the overall number of advertisers on our platform by more than a 150%, while increasing the number of Ad Age top 100 advertisers from 75% to 85% and increasing the average spent from that group as well as the overall spend. And I will talk a little bit about our attractive long-term model, both gross margin and our operating margin.
As far as revenue growth, last year we grew 71% year-over-year to a $177.7 million. Overall you can see a nice growth rate over the past five year period. Last year just under 15% of our revenue came from international operations, predominantly in Europe, based out of the UK, with sales offices in Paris and Germany, and also out of Asia Pacific based out at Singapore with sales office in Indonesia and we’ve just announced the new sales office in Tokyo.
We are selling across Asia-Pacific today out of – predominantly out of Singapore and countries like Hong Kong, Midland China, Australia, Thailand and a number of other countries and in Europe our operations support not only Western Europe but also the Middle East and Africa.
Our gross margins have increased nicely to just over 41% in Q4, 41.2% in Q4 or 40.5% last year. This is well within our long-term target range of 40% or 42%. Our primary cost to sales is the payment to developers which I talked about a few minutes ago. We do think that we're going to remain in this 40% to 42% target range going forward, not withstanding our outperformance on gross margins in the past couple of quarters.
And our operating margins have improved over time as we’ve shown additional leverage with the business. So we were adjusted EBITDA positive last year, $4.5 million last year positive, about 9.6% adjusted EBITDA margin in Q4 of last year and basic and diluted earnings per share of $0.03. Our Q4 performance on the bottom line was well above any of our expectations or our guidance.
Now, our revenue in Q4 was 68% year-over-year growth, which was extraordinary growth but was below our expectations for the quarter. We had a small number of brand deals right around the holidays, particularly concentrated in the retail space that came in significantly smaller than expected. Well that was disappointing in December. We saw very strong growth both in the quarter and for the year, very strong bottom-line growth and again ahead of expectations on the earnings front in Q4.
We saw our overall prices up or the overall effective CPM's in our platform up more than 10.3% from Q3 to Q4 last year. That was the first time we've actually called out a specific percentage increase quarter-to-quarter. And probably the reason we did that was because any time prices are going up more than 10% on a sequential basis is a pretty extraordinary situation in any business and certainly in our business.
We have multiple vectors for growth. We’re going to continue to bring additional advertisers on to the platform. Again, we increased the number of advertisers last year by more than 150%. We want to continue to bring more developers on to the platform and we want to continue to make those developers more active, get a larger share of their impressions.
We are going to continue to pursue strategic acquisitions. We are very disciplined in our acquisitions. Well, we have done three in the history of the company. The two of them that have been completed and integrated have been extraordinary successes for us. We just announced the Metaresolver acquisition and we have high hopes for that one as well. And we’re going to continue to expand globally. We have plans to open additional sales offices both in EMEA and Asia Pacific. And we’ll continue to invest in technology and data, particularly the relevance graph, while we deepen our strategic position with developers.
Before we get into Q&A, I want to touch on a couple of key areas of focus for 2013 which are tied very closely to our growth factors that I just talked about. We talked about these on our earnings call a little bit. I will try to give a little bit more color here.
First area is extending our platform with additional self service inter-phases and programmatic buying capabilities. Starting last year, we began to offer self-service buying capabilities to smaller advertisers on our platform through a product that we call mMedia. So it allows small advertisers particularly app developers to bypass our sales or manage services team and buy directly. This will allow them to access the core real-time embedded platform that we have in a limited way and we want to expand and extend that capability moving forward through programmatic tools and other self service tools for both performance advertisers and ultimately brand advertisers.
We made an acquisition again of a company called Metaresolver that we announced last month. We expect that acquisition to close later this month, later in March. That’s a company that has a mobile ad buying platform and data platform that allows advertisers to buy in a real-time. basis. We are going to combine that with our platform and we have high expectations of where we will be able to take that moving forward. Stay tuned for some product announcements that will come out over the coming quarters following the closing of that acquisition.
We’re going to continue to invest in our relevance graph in our mobile audience solutions, which are data capabilities. We recently rolled out our mobile audience solutions in the UK, and we will continue to roll this out globally. And we are very excited about the continual investments we make in our ability to find audiences and target audiences with the right ad.
We are focused on continuing to innovate on devices beyond the smartphone. So tablets and iPads make up about 20% of our business today. We think that that will growth overtime and we think we’re just scratching the surface with possible on these devices and other connected devices – app based connected devices, and we are planning to extend our international footprint.
We’ve just announced a new office in Tokyo. We saw a lot of success in Japan last year, serving that market remotely. We’ve hired a Managing Director and setup a subsidiary in Tokyo. We will be formally launching that office in the coming months and we’re very excited about the opportunity there. We are looking at other markets as well and expect to open additional offices later this year.
The opportunity in front of us is very exciting. I am very happy to be here today and before we run out of time, I will take some of your questions. I’d love to answer any questions you have.
Just could you clarify what it means powering apps and how much revenue you get from that?
Yeah. So when we say powering apps, we’re talking about generating money for those app developers. So ultimately app developers have two primary sources of income; either transactional income through the app stores, either for premium download or an in-app purchase or through advertising. That’s how they stay in business, that’s how they make money. We power the advertising for many of the app developers out there, over 39,000 apps. Again they download our software into their applications and we run ads for them. That’s 100% of our business.
Now, some of those app developers also advertise through us. That’s a smaller percentage of our business, though an exciting percentage of our business. It’s a little less than 20% of our overall business coming from app developers advertising through us.
And could you just give us a little run down on what free cash flow looks like versus EBITDA for you in the last quarter or two and going forward?
Yeah. So last year, our CapEx was a little over $5 million. Obviously we need to take that out from the adjusted EBITDA. And then we do have a working capital gap, the typical payment cycle for app developers is a bit shorter than the typical receivable cycle or DSOs or in the 90 to 95 day range, which is pretty typical of a business like ours. We tend to pay our developers a little bit sooner. So there is a bit of working capital gap there and you can dig into our financials and see that in more detail, but it tracks fairly closely.
Couple for you, Mike. I guess, the Metaresolver acquisition, you’re obviously increasing your focus there on programmatic. So I am curious, what portion I think or what’s portion of this do you think programmatic could potentially capture over the next 12 months or maybe longer term?
Yeah. It’s a good question. And I think it’s important to look at programmatic as ultimately just another way that advertisers want to buy. So programmatic involves the access to a real-time embedded exchange or real-time embedded marketplace. Well, all of our business is through MYDAS, which is a real-time embedded marketplace.
We and the vast majority of our business operate that on behalf of our clients. Big brand clients tend to want to buy access to that through a managed service and we expect that will continue for big brand clients.
We have begun to offer self service inter-phases going back over a year to allow some performance advertisers to access the platform without a sales team and an operating team standing between them and the platform. Overtime, we’re going to increase the ability of those self-service advertisers to access all of the functionality of the platforms. So it’s much more of an evolution, then one day we put the switch and there is something called programmatic on our platform for us.
So to give you a specific percentage, really what I would have to do is, give you a percentage of what’s going to be self serviced versus what it’s going to be sold through managed service. And the answer to that is whatever is easiest for the advertiser, whatever the advertiser – whatever path the advertiser wants to take to buy. We do think that there is a vast majority of brand business for the foreseeable future what we brought through a managed services offering. So for a full service offering, brand is about 60% of our business.
We do think some of the performance business will be purchased on more of a self service and programmatic basis and we are excited about the opportunities there.
And just a follow up then, can you give us a sense of sort of what the economics would sort of be like for a typical programmatic buy, will it be, I am assuming it would be more similar to sort of a self served by currently and I am assuming since you effectively be opening your platform up to an incremental demand, so potentially a positive to some of the key metrics or a drag, what are your thoughts there?
Yeah. Let me answer that in another way. Looking backwards, last year somebody then asked the question around the outperformance on earnings in Q4 and one of the reasons for that was increased adoption of self service tools by advertisers or by our team itself. So whether that’s somebody coming through a pure self service offering, where there aren’t sales people or operating people involved or not as many people involved or even in a managed services environment where an advertisers wants to do some of the work through self service or our team or our managed services team can leverage some of the self service tools, that certainly has created a net positive for us on operating margin and certainly could be the case going forward.
Got you. And then lastly before I give it up again, I guess you’ve got a couple of strategic acquisitions obviously programmatic targeting analytics etcetera, do you think you now have sort of all the key pieces in place to really continue to be really sort of competitive and sort of a continued leader in the industry, especially as the ecosystem continues to sort of evolve pretty rapidly?
Yeah. Your are right, we have got three acquisitions, interestingly they will all have data as a part of them and all are about creating better experiences for – particularly for brand advertisers to buy and thus to typically entertain. We do think we have all the parts, we've build a full ad text stack ourselves, we did that from day one, but we're going to continue to innovate and we are a company that is does it have buyers that we have to go out and acquire, but we also don't have that not immediate buyers, so we're always constantly looking at other technologies, other teams, if they have solved their piece of the puzzle better than us and we can buy that company for reasonable price, we'll absolutely go out and buy them, but we're not going to go buy just to buy.
We have been very disciplined in our acquisitions and we don't feel a need to buy any specific area, we are going to continue to follow our road map and if we see outside pieces that would speed us to market or somebody has done something better than us, we'll certainly look to acquire.
Great, thank you.
Thanks. Just a question about opting in, looking at the apps that you power or you take care of the advertising for it. I used a lot of them and I guess its early innings because the targeting seems not even rudimentary, just off and then it occurs to me that – I don't really recall ever being asked to opt in…
To share location information?
Well, I mean my signing up with Millennial Media or would it be at the individual app level, how does that work?
Certainly, much of our business and most of our competitive advantage with brands is around getting the right ad in front of the right person at the right time and these top brands, these Ad Age Top 100 brands spend with us, they see the ROI, our ability to get more relevant ads in front of people and ultimately see better engagement and then they spend more with us over time.
So we have seen great results there. We are continuously improving our targeting capabilities and our abilities to build profiles to make sure that everyone see more relevant ads, but it is still the relatively early days in mobile advertising. So I would hope you see continued improvement as you keep using your applications on your devices.
Well, I’ll enable location based services for the apps and see if that makes the difference.
I appreciate it.
You mentioned seeing competitors ad, can you talk in a little more detail about the competitive landscape and how it’s changed over the last year?
Yeah. Our primary competitors in the market are Google and Apple. We think the best market share data out there is from IDC. Unfortunately, they haven’t yet put out 2012 data. I think that’s coming out in the coming weeks. Last year, the 2011 data that came about this time last year had Google as the largest player in the market at about 23% of the market, us in the number two position at 17% and Apple just behind us, the relative market here being mobile display and third-party platform. So this takes out the first parties that are running ads themselves, which is still a relatively small percentage of the market and then obviously search, which is completely dominated by Google. We are not in the search business and we have no expectations of us being in the search business.
We think that our market share has stayed fairly steady year-over-year, the numbers haven’t come out yet and we think Google has been steady as well. We do think that iAd had continued to pay, they paid it over the past couple of years that's been less of a focus of theirs. Those are the primary competitors we see day in and day out.
The other set of companies in this space and that sometimes talk about as competitors are the sites and apps that are to some extent monetizing themselves. There is a small number of applications that also have their ads sales forces, we work with most of those as well and those are great partners of ours, in some cases they are going to sell their own inventory and in some cases, they are going to rely on us. The vast majority of apps out there solely rely on third parties like us and Google and typically work with both of us and Google and Apple, all three of us typically.
So the 45% that is in the top three is people selling their own display ads mostly?
Some other distant small players, single-digit
To get to that 45%
Yeah, something like that I suppose, (inaudible) to get the specifics from them, there are also other companies like Yahoo and Microsoft and AOL that have a relatively small percentage in mobile, but are there in mobile. I am not allowed to point what she has to.
(inaudible) teaming up with one of them, considering they have most of your clients already hooked up?
Yeah. There are very limiting level of DSPs that are really operating in mobile today, a lot of them are talking about moving into mobile, that's a good space and DSPs are doing some interesting things in online. Mobile is very different than online, so they – and talked about that a little bit before, but there are a lot of complexities that make buying on programmatic basis much more different, much for difficult and just different in mobile and the online DSPs understand as it is part of it may taken allowed to get into the space.
With Metaresolver specifically, we were buying a really good team and a really interesting technology that will be a piece of the puzzle for us, but making that acquisition by no means precludes us from working with anybody else in the ecosystem. The team there are spectacular, the technology they build is early, but really interesting, that we think we’ll be able to do some real cool things with it, but don’t read too much into that, that’s our only partner that we’ll be playing within the space.
Can you talk a little bit about your guidance for the first quarter and how we should think about the risk to that guidance?
I will do my best to answer that question within all rules and legality. So the guidance in the first quarter, our revenue guidance is $48 million to $50 million. Obviously guidance as of our reporting date, I can’t reiterate it or give you any more color on the guidance at all other than that, other than the guidance for us.
The one thing I would talk about with Q1 guidance that has been a bit of a confusion in the market, our Q1 guidance was a bit below where the street was, while our annual guidance was fairly close to where the street was, it’s about the same percentage year-over-year, slightly lower on an absolute basis given the slightly lower Q4.
Q1 guidance is almost precisely the same percentage of our annual guidance, as last year’s Q1 was at the actual year in Q1 last year and that isn’t a mistake. So Q1 tends to be our slowest growth quarter year-over-year, still very good growth, it tends to be our slowest growth quarter as it’s a performance dominated quarter and we are a brand specialist. Brands don’t spend a lot in the beginning of Q1 historically.
And so our guidance is very consistent with the historical patterns that we’ve seen and we think the seasonality that we saw last year with revenue was very illustrative of what we typically see in this business moving forward.
So that was I think a key point around the guidance that hasn’t been completely clear. So I am glad that you get cleared that up. It’s a good question. Our guidance factors and all data that we have on the data, we gave in the guidance and we certainly refine our models based on past experience and beyond that I can’t really comment further on Q1.
Maybe you can talk about your market share in Q4, I guess it would – because of the revenue it seems like your market share maybe – might have shrunk a little bit or is it shrinking?
No, we don’t think it is. Again there aren’t great third-party measurements out there. They are not on a quarterly basis. There is the IDC numbers that come out on an annual basis. We specifically saw a handful of deals again particularly in the retail space right around the holidays that just came in smaller than expected. Most of these advertisers still spend, well they still spend a lot more with us than they had a quarter before or a year before, retail and packers are number one category for the year last year and moved from number two to number one.
As a category, all of our retail advertisers that we talk to are still very bullish about mobile. They just spend a little bit less than they told us and that they expected. We think most of that just wasn’t spend in mobile and based on our visibility of the market, that seems to be the case, that’s also reflected in gross margins and pricing. If it had moved to a competitor, we certainly would have done what we could to hold on to that business.
And is it safe to assume the first quarter has a lot less lumpy deals than the fourth quarter might given the need for promotion and…
Q4 is unique and the amount is spend around two periods, around the week basically around Thanksgiving and then the two weeks around Christmas is very, very heavily dominated by retail and it’s just, the quarter is very heavily dominated by those two periods and that’s unique during the year.
Kevin Smyth - Barclays Capital Inc.
Thank you everybody. I appreciate your time.
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