Mobile Advertising is expected to jump six-fold from $3.3B last year to $20.6B in 2015, according to Gartner. The proliferation of smart phones, with Internet browsing and a multitude of applications, have created fertile ground for mobile media to spawn. Prior to the smart phone era, mobile advertising was limited to more rudimentary text messaging. Mobile ad networks have the advantages of targeting consumers at the point of purchase, and of getting more time access to the consumer via the smart phone. Furthermore, the immense amount of data provided by smart phone users enables highly targeted ad campaigns.
|Mobile Advertising Revenue by Region, Worldwide, 2010-2015 (Millions of Dollars)|
|Asia/Pacific and Japan||868.8||1,628.5||6,925.0|
|Rest of the World||196.9||410.4||2,761.7|
Most mobile ad vendors have synergistic mobile technology businesses as well to improve the robustness and reach of their ad networks.
Mobile advertising, however, needs to go through some growing pains. The ability to track customers using mobile apps is complex. The current limits to purchase items via smart phones, small screen size issues, etc. have led to lower pricing for mobile ads versus their desktop peers. Despite these temporary inconveniences, mobile advertising demand is exploding.
This opportunity has not escaped professional investors. In 2011, venture capital investments in mobile marketing and advertising were $592M, almost a five-fold increase from $128M in 2010. InMobi alone secured $200M in financing last year. It is a real land-grab right now. Venture capital firms are pouring money into these companies to expand market share, even at a loss.
There are hundreds of companies entering the mobile advertising space, and most will die trying. A few will win big, and a few more will be acquired. But there will be a lot of losers. Below are a sample of pure-play and larger diversified players that participate in this mobile advertising space. A more extensive list is available here.
|Name||Ticker/Price||Mkt Cap||Revs||EV/Revs||Net Inc|
|Millennial Media||MM / $10.69||$814M||$132M||5.2x||-$6.3M|
|Velti||VELT / $6.71||$435M||$236M||1.7x||-$0.9M|
|Yoc||YOC-Germany/ €7.71 ($9.64)||$21M||$45M||0.5x||-$11.6M|
|Augme Technologies||AUGT.OB / $1.47||$144M||$16M||8.9x||-$36.1M|
|Name||Ticker/ Price||Mkt Cap||Revs||EV/Revs||Net Inc|
|Google/AdMob||GOOG / $676.80||$221.3B||$43.2B||4.3x||$11.1B|
|Apple/Quattro Wireless||AAPL / $662.63||$621.2B||$148.8B||4.0x||$40.1B|
|Microsoft||MSFT / $30.26||$253.6B||$73.7B||2.8x||$17.0B|
|FB / $19.44||$41.6B||$4.3B||7.4x||$0.6B|
|ValueClick/Greystripe||VCLK / $15.73||$1.2B||$0.6B||2.0x||$0.1B|
The big three in the U.S. mobile ad network market are Google/AdMob with 42% share, Millennial Media (17%), and Apple/Quattro -- iAd (15%) -- but only available on Apple's iOS platform. InMobi and Jumptap are the leading second-tier players. After Japan, the U.S. is the most advanced mobile advertising market. Less progressive emerging markets and certain European markets, however, have the most untapped potential.
Most investors who want exposure to this mobile advertising theme must choose among the narrow list of publicly-quoted pure-play ad network stocks. Millennial Media is the leading pure-play without any legacy SMS messaging business. Millennial's mobile advertising network has the robustness and scale to compete in the U.S. market. At the end of the day, Millennial (or any other ad network) is an intermediary between advertisers and publishers. In the brick-and-mortar world, intermediaries have single-digit P/Es. The stock price and valuation have compressed substantially since its IPO in March, despite the 76% Q2 revenue spike. For Millennial to break the low-margin distributor business model and become a shining star in the stock market, it will have to 1) become the independent mobile ad network of choice and 2) maximize data aggregation opportunities.
Yoc has the most upside potential, providing the double-whammy of a large multiple step-up and having revenues/profits ride the mobile media and technology wave. I attended Yoc's annual shareholder meeting last week, and am positive about Yoc's prospects. I welcomed the decision to hold off on the sale of its profitable mobile technology division, as well as the automation of the advertising network to improve end-user conversions and Yoc's margins.
Velti is transitioning, and now less than half of revenues come from the old SMS messaging business. Velti also acquired a leading Chinese mobile advertising network. Augme Technologies is the most overvalued of the bunch and is losing the most money. Please see here and here for some past articles addressing mobile media.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long YOC.