Millennial Media priced its IPO at $13, debuted at $25 and popped to $26. Now that some smoke has settled, with the stock currently around $22, it’s worth pondering the company’s prospects and the overall market.
Millennial Media Is A Great Company
As we noted in our earlier explainer on the company’s business, Millennial Media is a pretty good company. You will hear a lot about its lack of profits, but given the magnitude of the opportunity it’s going after, that shouldn’t be a concern. This is especially considering two facts highlighted by the charts below:
- Millennial’s impressions are growing exponentially, and
- The company is gaining operating leverage.
Photo: Business Insider Intelligence
Photo: Business Insider Intelligence
While the company’s stock price is beyond the scope of this note, it’s worth noting that companies that achieve significant leadership in a very fast-growing market with economies of scale rightly receive high relative valuations.
Usage And Spending Probably Won’t Completely Converge
Millennial Media is an ad network and technology company that serves ads, mostly inside smartphone apps. That opportunity is large, because billions of people have or will soon have smartphones (and tablets), and they keep them 16 hours a day and spend a lot of time on apps. Spending on mobile advertising is currently way behind usage, as you can see in the chart at right.
This probably overstates the scale of the mobile display ad opportunity, however. “Ad spend will catch up to time spent” has been a hoary cliché on the fixed web for over 15 years and it hasn’t happened. The reason is that people do a lot more things on the web than they do on TV or in a newspaper: they don’t just consume content, they also communicate (email), work and so forth, environments where advertising makes much less sense than against content.
On mobile, the gap is so large, and usage is going to get so big, that yes, spend will definitely increase rapidly. But the opportunity is not as large as the simple comparison between ad spend/time spent suggests.
Mobile Advertising Goes Way Beyond What Millennial Does
So, Millennial is a good company going after an opportunity that’s not as large as a superficial glance at the data would suggest, but still very large.But it’s worth highlighting that mobile advertising presents an opportunity much broader than the in-app ad serving Millennial does.
Here are some examples of forms of mobile advertising that have big potential:
- Incentivized downloads. This is a big market. Here’s how it works: you’re a game company and you want lots of people to download your game because it means it will get into the top downloads on the App Store, which means a lot more people will download it. You talk to an incentivized download company, which will offer players in other games virtual goods for free if they download your app. Everybody gets a cut, and everybody’s happy. While incentivized downloads have grown extremely quickly because of the quirks of the App Store’s broken distribution model and the mobile gaming virtual goods model, it’s pretty clear that some form of incentivized downloads will always be around and will be a big market.
- Click-to-call ads. On a phone, these are obvious. And they provide businesses directly with actionable leads, which makes them valuable. Add location and it can be very interesting. Google has had lots of success with them.
- Local coupons. While the get-a-Starbucks-coupon-on-your-phone-when-you-walk-past model has become a mocked cliché, the overall concept remains very attractive, providing targeted offers to consumers while allowing local businesses to yield-manage. Groupon is betting that it will be its next big business thanks to its Groupon Now app.
- Immersive ads. While iAds have struggled in the marketplace, the idea of immersive, interactive ads on mobile (particularly tablets, where a lot of content is consumed and people are open to these experiences) have merit. Startup Medialets has had a lot of success with a similar technology that it pioneered.
THE BOTTOM LINE:
- Millennial Media is a good company going after a huge market opportunity (though not quite as huge as a superficial reading of the data would suggest).
- Mobile advertising goes way beyond simple display ads, which also explains the attractiveness of the industry.
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