It was just over a week ago that the Millennial Media (MM) IPO opened nearly double the IPO price. The stock soared to $28 on high hopes of new investors hoping to capture a part of the fast growing mobile ad market. Now after the first full week of trading, the stock has plunged all the way down to $18.42. What happened? What caused a hot IPO to plunge 26% from the opening day closing price in just a week?
Velti Remains More Attractive
To be fair, my recent assessment was that Millennial Media was vastly overpriced and that Velti (VELT) was a much better deal. The recent drop has brought Millennial's valuation more in line with reality, but the impact has also been felt by Velti making it that much cheaper as well. Not to mention, the impact of the Samsung mobile exchange will directly impact Millennial more than a mobile ad agency like Velti.
Samsung announced plans to add a mobile advertising exchange on its devices. The new exchange will be provided by OpenX and will be called Adhub. The exchange is expected to open in the second half of the year.
While this shouldn't be a major surprise, since Samsung had previously announced plans that AdHub would be available on internet-connected TVs, it probably caught a lot of new IPO investors off guard. Samsung is a major player in the market, with a 19% share of mobile devices, and sold more smartphones than Apple (AAPL) in 2011. Will it be more successful than iAds from Apple?
Apparently Apple and Samsung haven't learned that businesses hate dealing with monopolies. An independent mobile ad exchange like Millennial has to be more appealing with every move like this by the big device makers. As CNET reports, Apple recently reduced the minimum buy-in for campaigns to $100,000 from $1M when iAd launched back in 2010. The worst part though was the need to sweeten the deal for developers by giving them another 10% of the revenue. This only leaves 30% for iAd and Apple now. Apparently, this wasn't enough to persuade Samsung to remain focused on building the best devices.
Outside maybe some loyal Asian companies, why would anybody want to deal with Samsung on this exchange? A comprehensive solution that can target all operating systems and devices will ultimately win out. Not to mention, I'd almost bet the house that Millennial will be a tad more focused on the market than the others.
Only Google (GOOG) with a primary business focus on advertising appears a legitimate threat. Then again, the decision to build an operating system might hinder them in the long run. At least though, Google doesn't build devices anymore.
Stick With The Independents
In the end, advertisers and app developers will inevitably want to deal with a mobile agency and exchanges that cater to all devices and operating systems. Unless Samsung, Apple, and Google provide that solution, it doesn't seem likely that the independent operators will fade away.
Look to buy Millennial Media on further weakness and load up on Velti and current levels.
Disclaimer: Please consult your financial advisor before making any investment decisions.