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This article is the second in a monthly series to analyze the stocks at the forefront of the monetization of the trend towards mobile data traffic. The original mobile monetization index highlighted the leading public companies. The concept was created as the market continuously lumped the new mobile stocks into the original failures of the relatively old companies such as Facebook (FB) and Google (GOOG). Recently Facebook reported a huge improvement in the monetization of mobile traffic providing hope for the sector

A range of companies benefiting from this shift to mobile traffic continues to grow. The industries range from Advertising to Real Estate to Travel with varying degrees of success and profits.

Mobile Monetization Defined

The concept encapsulates the ability of a company to grow the revenue base via mobile traffic. Included companies need to have a revenue base where mobile revenue is additive or at least the legacy desktop base is low enough that the impact of the switch to mobile is minimal.

The company can obtain revenue from selling ads, subscriptions, products, or services. Doesn't matter as long as the company benefits from the trend towards mobile devices. In that essence, any mobile device makers, chip suppliers, or similar technology companies aren't included. Most of these companies already have substantial revenue bases. The shift to smartphones and tablets is only providing limited growth from previous phones.

As a concept, mobile payments aren't included though limited public investment opportunities exist considering Square isn't public and PayPal is part of the much larger EBay (EBAY).

Market Data

The mobile advertising sector remains strong with forecasts generally in line with previous estimates of the market growing to $12B in the U.S. by 2015 and $20B in the world by 2016.

Tablets

The larger screen smartphones such as the iPhone5 and new tablets such as the iPad Mini will lead the expansion of mobile advertising. The larger screens typically provide a better opportunity for marketers over the previous generations of smartphones.

Stocks

The list of stocks had a very eventful month with stocks such as Glu Mobile (GLUU) plunging over 30% while Millennial Media (MM) jumped over 11%. Interestingly every stock on the list had a price variation for October of over 5%.

In total, the index had a very poor month as the majority of the stocks had very negative months that exceeded the 2% loss of the S&P 500 market. Being extreme beta stocks, it shouldn't be too surprising that these stocks performed at a multiple of the market.

Below are the monthly charts of the mobile monetization stocks broken into two groups due to size limits:

GLUU Total Return Price Chart

GLUU Total Return Price data by YCharts

TRLA Total Return Price Chart

TRLA Total Return Price data by YCharts

Only two of the nine stocks had positive months to the initial monthly results were very negative. The next time the market is positive watch for these stocks to rebound strongly.

Sector: Advertising

The stocks benefiting from the shift towards mobile advertising and marketing still provide some of the best valuations in the sector. The well documented shift from digital dollars to desktop dimes to mobile pennies helped push down these stocks.

The advisors of BIA/Kelsey estimate that mobile advertising will continue shifting to local. The company forecasts the mobile local ad budgets will grow from $664M in 2011 to $5.8B by 2016. The compounded annual growth rate of 54% will place the local portion at 58% of the market by 2016.

The firm sees location data and ad targeting innovation as keys for higher performing mobile local ad growth.

Millennial Media - the company operates the 2nd largest mobile advertising network behind Google. The stock had been depressed due to fears over the IPO lock up sell off. On October 23rd, the company announced the pricing of 10M shares at $14.15. Over 9M shares were sold by selling shareholders. The stock soared after completing this follow on offering.

Velti (VELT) - the company operates a leading mobile advertising firm providing for 100% of revenue from mobile traffic. The stock hit $9 around early October and plunged down to $7 prior to a month end jump.

Analysts remained concerned about European weakness though the company is not dependent on GDP group being in the secular move to mobile marketing. The company reports Q3 earnings on November 14th that should again beat the downbeat estimates leading up to earnings.

Sector: Games

While the wireless gaming sector is benefiting from the movement to 4G wireless networks and tablets, the only pure stock in the sector struggled with weak guidance. In addition, game maker Zynga (ZNGA) is struggling as well, but the company is shifting more investments into mobile from the Facebook platform.

Glu Mobile - the company remains the leading independent, mobile game developer. Unfortunately the company recently warned of weak Q4 revenue due to a lack of hit games and a struggle to monetize existing games. The company recently hired an executive to help improve the monetization process.

The other interesting news was the $10M purchase by an insider. The transaction is very peculiar considering the Q4 warning.

Prior to the bad news, analysts had expected a 36% gain in 2013 revenues. While those estimates remain in question now, the 5 games pushed from Q4 2012 into Q1 2013 could actually help achieve that growth rate.

Sector: Real Estate

The real estate sector remains a strong mobile grower as mobile allows consumers to access data when on the go. Via Trulia (TRLA) and Zillow (Z) apps, consumers can review house data while driving around a city. No longer do they need to write down the address to review the house stats later or call an agent.

Both companies had relatively uneventful Octobers though each company reported weak earnings reports that crushed the stocks in early November. These reports will be reviewed in the next monthly report.

Sector: Social Media

While social media provides some of the best ways to grow mobile traffic whether via Facebook or Pandora (P) and Yelp (YELP), the question remains whether the sector can be profitably ad supported. All of these companies still struggle with attracting enough revenue to pay for the costs of supporting users.

Pandora - the company is a leader in customer-radio internet services though Apple (AAPL) amongst others continues to be rumored as competitors.

The stock has absolutely been crushed with the fears of Apple in the sector. The stock was down 19% in October though the fears appear very misplaced. Apple doesn't have a strong history of out innovating on services.

Analysts expect 43% revenue growth in 2014 with slim profits of $0.08 a share after strong 57% growth in 2013. The company should report Q3 earnings on November 21st, but investors should not expect any fireworks from the report. The issue still remains whether the company can reduce royalty rates to profitable levels and that all depends on the Internet Radio Fairness act. See more details via the New York Times.

Yelp - the company connects people with great local businesses via more than 33M local reviews up from 30M sequentially. The stock had a minor decline in October that led to a plunge in early November after guidance for Q4 disappointed investors. The forecast for Q4 display ads were disappointing as the company mentioned execution challenges.

The company reported huge 63% revenue growth for the quarter. The mobile apps were used on 8M unique mobile devices leading to 45% of all searches being on mobile.

The company guided to Q4 revenue of just over $40M or 62% growth. Analysts now expect over 50% revenue growth in 2013 with slim profits of only $0.04 a share.

Sector: Travel

Travel remains a top internet ad generating sector. Apparently mobile has become so popular that Priceline.com (PCLN) announced the purchase of Kayak Software (KYAK). Considering Kayak has become one of the more popular travel mobile apps downloaded maybe it shouldn't be a surprise that a leading travel provider bought them.

Kayak Software - the company proclaims itself as the best place to plan and book travel. It has one of the leading mobile apps, as customers are more likely to use its service to compare travel options as opposed to viewing multiple websites on a desktop. Kayak also sees the mobile traffic as additive with customers typically going online to book the trip after researching on a mobile device.

The $1.8B deal values Kayak at $40 though Priceline.com expects to fund over 70% of the transaction price via stock. The deal will slightly impact earnings in 2013 after closing during Q1.

While Kayak Q3 earnings easily beat analyst estimates, the main reason for purchasing the company might be the 87% year-over-year increase in mobile queries. Mobile queries now account for 19% of total queries. The mobile revenue base in Q3 was only $3.5M, but the rates and usage are growing extremely fast.

Analysts forecast nearly 25% revenue growth in 2013 with earnings exceeding $1 per share prior to the Q3 surge in earnings.

TripAdvisor (TRIP) - the company provides a travel research platform that aggregates reviews and opinions of members about destinations and accommodations. The stock had a weak October along with most of the stocks in this index.

Analysts expect 19% revenue growth in 2013 with earnings estimates increasing from $1.78 last month to $1.81 currently.

Conclusion

As mentioned in the original report back in October, the index was not created as a forecast of top stocks. Rather it was created to track the progress of stocks at the forefront of monetizing the huge amount of traffic moving to mobile and the large amount of data created.

The stocks in this index had a very volatile October followed by some disappointing earnings reports in early November that led to further losses for select stocks. The deal for Kayak Software after the close on Thursday highlights the ability for quick gains in these stocks.

While October might have been weak, the average stock in the sector might provide some great entry points after these sell-offs. The general question remains one of profitability and not revenue growth. Not surprising then would be the purchase of a stock in the travel sector where profits are already strong.

Investors should research the sell-off in stocks such as Velti or Glu Mobile that have been hit hard though the future remains positive. Other stocks like Pandora and Yelp face a future of questionable profits.

The December report will cover the majority of earnings reports that have been recently released or will be released by the end of November.

Source: Mobile Monetization Index - November

Additional disclosure: Please consult your financial advisor before making any investment decisions.