6 Companies Ready To Ride The Mobile Ad Express

Includes: AAPL, FB, GOOG, MM, P, VELTF
by: Daniel Todd

Mobile advertising is booming. A recent report released by the Interactive Advertising Bureau shows that mobile ad revenues have increased 92 percent in the last year. As the number of smartphones in the market continues to increase, these ad revenues numbers will of course continue to grow as well. According to another study, by the Pew Internet & American Life Project, 85 percent of U.S. adults own a mobile phone (46 percent of which are smartphones) and 56 percent of them use it to get online. These numbers just go to show the size of the opportunity for the various companies that enable mobile advertising. Let's take a look at some of the leading and most influential public companies in this field and how they are positioned to benefit from the explosion in mobile advertising.


Google's share of U.S. mobile ad revenue in 2011 was 51.7 percent according to eMarketer. Google doesn't regularly break out mobile revenues so estimates are often the best we can go on here. Although Google CEO Larry Page disclosed in October 2011 that the company's annualized mobile ad revenue was $2.5 billion. Estimates vary on how much Google will earn from mobile ads over the new few years. Cowen analyst Jim Friedland estimates that Google's mobile ad revenues will more than double from $2.5 billion last year to $5.8 billion in 2012. Friedland also estimates that as a percentage of Google's total revenues, mobile grew from 3 percent in 2010 to 7 percent last year and will almost double again to 13 percent in 2012. By 2016, Friedland estimates mobile to be a $20 billion business for Google, representing 26 percent of its total revenues. By any measure, Google is the giant of this young industry and is likely to stay so for the foreseeable future.

Pandora Media (NYSE:P)

With more than 150 million registered users, of which 100 million of them listen primarily on their smartphone, Pandora is a natural for mobile advertising. In fact, according to eMarketer Pandora is second only to Google in mobile ad revenue, which estimates it will bring in $229 million in mobile ad revenue this year from both audio and on-screen ads. Pandora is expected to jump to nearly $500M in mobile revenue by 2014. However Pandora's stock dropped 18% after the company released its Q3 fiscal 2013 earnings and increased its loss forecast for the whole fiscal year. But looking at the longer term, if it can manage to get its content costs under control, mobile ad revenues (which were up 61% this quarter) should ensure that Pandora is a winning play. However rumors that Apple has been negotiating with record labels and intends to bring out its own streaming music service continue to be a worry.

Facebook (NASDAQ:FB)

Facebook is currently in negotiations with Microsoft (NASDAQ:MSFT) to buy Atlas Solutions, the ad-serving product Microsoft acquired when it bought aQuantive for $6 billion in 2007. This acquisition could have a huge impact on the manner in which Facebook presents mobile advertising, by enabling it to launch an ad network that might someday rival Google's in size. Google paid $3 billion in 2007 to buy DoubleClick, its own ad-serving product. Facebook already has a wealth of data on its purported 600 million mobile users - phone numbers, email addresses etc - and this acquisition would allow it to utilize this data to much greater effect by enabling it to inform marketers exactly how much their sales increased thanks to ads on Facebook and third party partner mobile apps. Mobile ad sales virtually saved Facebook's last quarter by generating 14 percent of its Q3 2012 advertising revenue - or roughly $152.6 million and its future seems bright, especially if Facebook acquires Atlas Solutions. Facebook has pushed hard to make mobile monetization a major priority. The company enhanced the speed and experience of its iOS application, launched mobile app install ads to allow developers to pay to promote their apps and has started to show more sponsored stories in the mobile News Feed.


Despite the fact that Apple's mobile advertising platform, iAd is clearly experiencing growing pains, it is growing and will continue to do so. Apple is expected to make only $75 million in iAd sales this year, according to eMarketer. Although Apple recently lowered the minimum fee and simplified its CPM and performance based pricing, it is still too costly for most advertisers. But it can only really be a question of when and not if iAd begins to take a larger share of the mobile ad marketplace. The recently released Adfonic Global AdMetrics Report showed that, while Apple and Samsung both increased their share of ad impressions globally, Apple widened its lead over Samsung in Q3. Apple's share of ad impressions increased from 34% in Q2 to 37%, while Samsung's increased from 23% in Q2 to 24%. These numbers don't take the iPhone 5 into account, so it will be interesting to see how things shape up in Q4. The large screen size of the iPhone 5 in and of itself might very well increase ad revenues for iAd. Longer term, you can be confident that Apple will make the necessary investments and corrections to ensure the success of the platform.

Millennial Media (NYSE:MM)

Millennial Media holds great promise in this exploding sector and operates the 2nd largest mobile advertising network behind Google. It delivers a wide array of solutions and has helped bring more than 45 billion ads to mobile users. It offers a mobile advertising technology platform for developers and advertisers called MYDAS. It provides tools and services that enable app developers to display banner ads and interactive rich media ads through its platform. The company's developer solutions include software development kits that allow apps to receive rich media, banner displays and video, tools which allow developers to allocate ad requests among various advertising campaign sources and data and analytics that detail ad revenue generation reports for their apps across various mobile platforms. Millennial features ads on more than 38,000 apps and works with 75 of the top 100 advertisers ranked by Ad Age. Yahoo's (YHOO) CEO Marissa Mayer's recent announcement that she would transform the company into a mobile-first enterprise drove speculation that it might acquire Millennial. For the third quarter of 2012, revenue was $47.4 million, an 88.0% year-over-year increase from revenue of $25.2 million for the third quarter of 2011. For the third quarter of 2012, on a GAAP basis, basic and diluted net loss per share was $(0.02), compared to basic and diluted net loss per share of $(0.09) for the third quarter of 2011 and $(0.03) for the second quarter of 2012. Millennial Media expects revenue for the fourth quarter of 2012 to be in the range of $61.5 million to $63.0 million. For the full year 2012, Millennial Media expects revenue to be in the range of $181.0 million to $182.5 million.

Velti (VELT)

Velti is a leading global provider of mobile marketing and advertising technology and solutions that enable brands, advertising agencies, mobile operators and media to implement highly targeted, interactive and measurable campaigns by communicating with and engaging consumers via their mobile devices. The Velti platform, called Velti mGageTM, allows customers to use mobile and traditional media to reach targeted consumers, engage the consumer through the mobile internet and apps, convert them into customers and continue to actively manage the relationship through the mobile channel. In Q3 2012 Velti reported a loss of $0.03, $0.06 worse than expected, in spite of a 63% increase in revenue to $62.4 million. Research and development cost increases accounted for much of this loss. With the mobile ad market growing so rapidly these investments are surely prudent and will lead to increased market share going forward.

With the mobile advertising sector expanding at its rapid rate, it would be wise to invest in one of these leading companies. Remember the penetration of smartphones is still under 50 percent, so there is still ample room for growth here. As Michael Moritz, an investor at Sequoia Captial who financed companies like Google and LinkedIn told The New York Times, "It's reminiscent of the Web in 1996, '97. People weren't interested in ads, and prices were low. But advertisers don't have a choice. They've got to go where audiences are."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.