There are two new media companies with recent IPOs that are leaders in their respective niches. One of them managed to break even recently, and the other didn't quite break even. They are both priced as growth companies, but one of them is getting a much bigger premium, simply because it has earned a few million bucks and is in a more popular space. For this reason, Millennial (MM) shares are overpriced relative to Digital Domain (DDMG).
Millennial solves advertising in mobile and social spaces. Pandora (P) and Zynga (ZNGA) speak highly of its service. As an advertiser Millennial faces competition from Google (GOOG) Apple (AAPL) and Amazon (AMZN), all of which can lower prices.
Digital Domain develops visuals digitally. You saw its work in Avatar but it also has practical applications such as military and surgical simulations. With a history of losses, the market wonders how much of a growth valuation is warranted.
Revenues for 2011 were both around $100MM. But Millennial has been growing much faster, basically doubling revenue compared to 2010. Still, Digital Domain sees acceleration ahead:
The third quarter represents an anticipated gap and we are comforted by our knowledge that we have an extremely high reported backlog of future revenue projects for 2012 and 2013.
Velti (VELT) is a safer, more direct play on Millennial pricing, but remember that Digital Domain also does ads, and has long been the leader in digital visual effects. If Microsoft (MSFT) is right, tech will continue to move in Digital Domain's direction. And as Digital Domain CEO John Textor points out, in the volatile Internet economy, one should focus on humans driving value, not the details of technological mediums. Millennial has a great team, but so does Digital Domain, and it's at a relative discount.
Disclosure: I am long P.