Millennial Media: When 68% Growth Isn't Enough

| About: Millennial Media, (MM)
This article is now exclusive for PRO subscribers.

After the close on Tuesday, Millennial Media (NYSE:MM) reported Q4 2012 earnings that greatly disappointed the market due to substantially lower revenue than expected. While the company reported earnings in line with expectations based on solid margins, it failed to predict the shortfall in several large brand deals sending the stock down over 25% in after-hours.

The company is the leading independent mobile ad network provider. Its technology, tools, and services help developers maximize their advertising revenue, acquire users for their apps, and gain insight about their users. The company has a platform that enables advertisers powerful Mobile Audience Solutions (MAS) that use the significant scale, sophisticated targeting and uniquely engaging creative capabilities to deliver meaningful results.

The article (see Buy Millennial Media Prior To Q4 Earnings) had suggested buying the stock prior to this earnings release as all data pointed towards huge numbers. Even with the missed revenue numbers, the company still reported nearly 68% growth. The results are similarly disappointing as those of fellow mobile advertising firm Velti (VELT) that continuously disappoints even in the midst of a surging market.

Q4 2012 Earnings

The company reported the following highlights for Q4:

  • Revenue: For the fourth quarter of 2012, revenue increased to $58.0 million from $34.5 million for the fourth quarter of 2011, a year over year increase of 67.8%.
  • Gross Margin: For the fourth quarter of 2012, gross margin improved to 41.2% from gross margin of 39.0% for the fourth quarter of 2011.
  • Net Income (Loss): For the fourth quarter of 2012, net income attributable to common stockholders, on a GAAP basis, was $2.6 million, compared to net loss attributable to common stockholders of $(1.2) million for the fourth quarter of 2011.
  • Adjusted EBITDA: For the fourth quarter of 2012, adjusted EBITDA, a non-GAAP financial measure that we define as net income (loss) before interest, taxes, depreciation and amortization, and non-cash stock-based compensation, was $5.6 million compared to adjusted EBITDA of $1.2 million for the fourth quarter of 2011.
  • Net Income (Loss) per Share: For the fourth quarter of 2012, on a GAAP basis, basic and diluted net income per common share was $0.03, compared to basic and diluted net loss per common share of $(0.07) for the fourth quarter of 2011.

The good news was that the gross margins and adjusted EBITDA were both solid numbers. The 41% gross margin is right in line with the long-term goals. The $5.6M adjusted EBITDA number was up significantly from last year. Clearly the news wasn't all bad.

Business Outlook

More important to the huge loss after hours is the fact that the company lowered revenue estimates for 2013. The updated business outlook is as follows:

  • Q113: total revenue for to be in the range of $48 million to $50 million.
  • Q113: adjusted EBITDA to be between ($1.0) million and ($1.5) million.
  • 2013: revenue to be in the range of $270 million to $280 million.
  • 2013: adjusted EBITDA to be between $17.0 million and $18.0 million.

These numbers compare to previous estimates of $56M for Q1 and $286M for the full year. From these updated estimates, one can surmise the issue is expected to be primarily a Q1 and first half of the year problem. Regardless, investors will be extremely disappointed that the company hasn't been able to capitalize on a market showing signs of no seasonal decline.

Metaresolver Buyout

The company let it be known that the Metaresolver deal should be announced on Wednesday morning. That purchase allows Millennial to move quicker into programmatic buying for advertisers.

As previously mentioned, analysts had thought Millennial would be a great buyout by Yahoo (YHOO) or several other companies. If anything, the big plunge and continued frustration in the public markets could lead to the company being more willing to accept a significant premium. At some point, major shareholders get frustrated with waiting for huge gains that aren't materializing.

Taking A Cue From Zillow

Back in early November, Zillow (NASDAQ:Z) reported solid Q3 earnings. The operator of the largest real estate website warned that Q4 numbers would be below expectations. The stock quickly plunged from $37 to below $24 in a few weeks based on that warning. Since then, the stock has soared back to all-time highs.

The company is similar to Millennial in that it's encountering fast growth and constant issues with accurately forecasting that growth. Slight shifts in transitioning to mobile or chasing different types of traffic and advertisers can throw off the short-term results while not impacting the grander goals of the organization.

Whether Millennial eventually rebounds to Tuesday levels will all depend on its ability to beat these newly established targets? Zillow went on to beat Q4 estimates sending the stock soaring.


Now that Millennial has significantly disappointed, the stock is likely to fall further off the investor radar and the contributor coverage on Seeking Alpha. The ironic part is that the company has forecast 55% revenue growth this year. Most companies would die for that type of growth.

Whether 2013 is the year of mobile advertising doesn't appear to be in doubt. The only real question is whether Millennial Media and Velti stockholders will participate in those gains. Both companies provide attractive valuations in this fast growing sector. Until either company can exceed the established financial targets, the stocks won't gain any momentum. Remember that any investor that wrote off Zillow in November has already missed a double from the lows.

Disclosure: I am long VELT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.