Millennial Media (NYSE:MM) is set to go public where it will trade on the NYSE under the symbol MM. It's higher repricing of its IPO is an excellent indication of the demand for shares of prominent players in the mobile space. The company now plans to raise $129M, up from the original $75M of a few weeks back. They plan to sell slightly over 10M shares. Morgan Stanley, Goldman Sachs and Barclays Capital are acting as lead underwriters for the offering.
Millennial has built a network of advertising space on smartphone mobile websites and applications and develops technology to create and serve those ads. Millennial's ad network reaches 85 percent of mobile web users, according to the company, and its ads are viewed 40 billion times every month. Millennial revenue for the first 9 months of this year increased to $69M, up from $29 million the year before, all from the ads it sells on networks it operates on mobile devices. As noted by Jim Edwards:
That's terrific growth but not so fast, it's important to note that of that $69 million, $42.5 million is counted as "cost of revenue," which Millennial defines as:
"… the agreed-upon payments we make to developers for their advertising space on which we deliver mobile ads. These payments are typically determined in advance as either a fixed percentage of the advertising revenue we earn from mobile ads placed on the developer's app or as a fixed fee for the ad space."
If this type of arrangement sounds familiar, that's because it is: In the old, analog world of Madison Avenue such pass-through costs for media placement are referred to as "billings," not revenue, because that money was never destined for the agency's top or bottom lines. Online ad servers tend to keep more of the billings they handle (Google keeps about 65 percent of its revenues; traditional ad agencies keep about 10 percent). Millennial keeps roughly 40 percent of its billings.
Millennial Media will join the Mobile Market Index which already has returned an impressive 48% year to date, led by Velti PLC (VELT), Mitek (NASDAQ:MITK) and Augme Technologies (AUGT.OB). As some readers may note a recent article I published indicated that Velti was recently sued by fellow Mobile Index participant Augme Technologies.
Dec. 30 2011 Close
As I've written before, mobile advertising and marketing has tremendous upside due to the ability to customize and target content to a specific end user anywhere, anytime and while they are any place. While mobile advertising is still small compared to display advertising, I look for the gap to narrow significantly as the world increasingly goes mobile. The CEO of Singtel, on the heels of announcing their intent to purchase Amobee for $321 million, termed the space as being in the embryonic stage. He indicated they were buying the company not for its current value, but what they believe it could be going forward when placed in their larger scale. Investors would be well served to consider the same as they look to position their portfolio's in some of the smaller names to make sure they participate in this once in a lifetime investment opportunity.
Disclosure: I am long MITK, AUGT.OB.