IPO Preview: Millennial Media

Mar.28.12 | About: Millennial Media, (MM)

Based in Baltimore, Maryland, Millennial Media (NYSE:MM) scheduled a $102 million IPO with a market capitalization of $750 million at a price range mid-point of $10 for Thursday, March 29, 2012. Managers: Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS) and Barclays Capital (NYSE:BCS).

MM is one of nine new IPOs scheduled for the week of March 26.

SUMMARY
MM is the leading independent mobile advertising platform company, and competes with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG).

AAPL and GOOG are probably not running their mobile advertising businesses strictly as profit-making units, which puts MM at a pricing policy disadvantage. In other words, AAPL and GOOG may cut mobile advertising rates in order to give their own ad space offerings a competitive advantage.

Millennial Media had with a 16.7% market share, according to IDC. It's second only to GOOG which has a 23.8% share, while AAPL is third with a 15.1% share.

Gartner estimates that worldwide mobile advertising revenue, excluding advertising delivered in connection with search requests and maps, will grow from $1.8 billion in 2011 to approximately $13.5 billion in 2015, reflecting a compounded annual growth rate of 65%.

FINANCIAL SUMMARY
Revenue for 2011 was up 110% over 2010 to $104 million. Revenue for the December 2011 quarter was $35 million, up 37% compared to the September quarter

MM has a relatively low gross margin of 39%, and is not quite at breakeven in terms of income statement profits. EBITDA was only 2% for the year ended December, 2011.

CONCLUSION
Based on the 'hotness' of the mobile advertising space, and based on MM 37% sales increase in the December over the September quarter, MM should go up on its IPO

However, a $750 million valuation (price range mid-point) for a company that is just breaking even and doesn't show much profit leverage on its income statement seems high - unless MM can become profitable fairly soon.

BUSINESS
MM is the leading independent mobile advertising platform company. MM's technology, tools and services help developers maximize their advertising revenue, acquire users for their apps and gain insight about their users. MM was founded in 2006.

To advertisers, MM offers significant audience reach, sophisticated targeting capabilities and the opportunity to deliver interactive and engaging ad experiences to consumers on their mobile connected devices. MM has built relationships with leading advertising agencies and brands, including 23 of the top 25 Ad Age advertisers.

In February 2012, MM;s platform reached approximately 140 million unique mobile users in the United States and over 300 million users worldwide.

According to IDC, MM is the second largest mobile display advertising platform in the United States, with a 16.7% market share. MM is the only one of the three principal mobile advertising platform companies that is not affiliated with a particular mobile operating system or set of devices.

MM technology and tools have been integrated into many of the most popular apps available through major distribution channels, such as the Android Market and the Apple App Store.

MARKET GROWTH
Given the benefits of mobile advertising as compared to traditional offline advertising and PC-based online advertising, MM expects that marketers will continue to shift their advertising budgets to mobile.

Gartner estimates that worldwide mobile advertising revenue, excluding advertising delivered in connection with search requests and maps, will grow from $1.8 billion in 2011 to approximately $13.5 billion in 2015, reflecting a compounded annual growth rate of 65%.

MM's PLATFORM
MM's proprietary technology and data platform, known as MYDAS®, determines in real-time which ad to deliver, as well as to whom and when, with the goal of optimizing the effectiveness of advertising campaigns regardless of device type or operating system.

In February 2012, MM's platform reached over 300 million unique users worldwide, including approximately 140 million unique users in the United States alone. More than 30,000 apps are enabled by their developers to receive ads delivered through MM's platform, and MM can deliver ads on over 7,000 different mobile device types and models.

MM's platform is compatible with all major mobile operating systems, including Apple iOS, Android, Windows Phone, Blackberry and Symbian.

In February 2012, MM processed over 45 billion ad impressions. According to a December 2011 report by International Data Corporation, a market research firm, MM is the second largest mobile display advertising platform in the United States with a 16.7% market share.

MM is the only one of the three principal mobile advertising platform companies that is not affiliated with a particular mobile operating system or set of devices.

INTERNATIONAL
MM established an office in the United Kingdom in the first half of 2010 and recently launched operations in Singapore in the fourth quarter of 2011, MM's first presence in the Asia-Pacific region.

MM plans to expand its presence in Europe, the Middle East, Africa and the Asia-Pacific region.

TECHNOLOGY & DEVELOPMENT
MM's technology and development efforts are focused on enhancing the architecture of the MYDAS technology platform and creating additional functionality for developer customers.

MM is also developing additional self-service products to be available through its mmDev and mMedia portals.

As of December 31, 2011, MM had a total of 44 employees engaged in technology and development functions. For the years ended December 31, 2009, 2010 and 2011, total technology and development expenses were $1.1 million, $2.2 million and $5.2 million, respectively.

INTELLECTUAL PROPERTY
MM has two non-provisional patent applications pending, and three additional provisional patent applications pending, in the United States. MM expects to apply for additional patents to protect its intellectual property.

COMPETITION
In the mobile advertising solutions space primary competitors are the large advertising platforms offered by Google and Apple, both of which focus on advertising solutions built for their proprietary mobile operating systems, Android and iOS, respectively.

MM also competes with in-house solutions used by companies who choose to coordinate mobile advertising across their own properties, such as ESPN, The Weather Channel and Yahoo!, as well as new, smaller entrants into the mobile advertising market.

EMPLOYEES
MM grew from 66 employees at December 31, 2009 to 222 employees at December 31, 2011

USE OF PROCEEDS
MM expects to net $81 million from its IPO at the price range mid-point of $10 from the sale of 9 million shares. Selling stockholders intend to sell 1 million shares.

MM is allocating its net IPO proceeds to working capital and for general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Millennial Media (MM) is scheduled to price Wed for trading Thurs.