Millennial Media, which bills itself as “the leading independent mobile advertising platform company,” second only to Google, had an amazing Q1 2012: Revenue increased 53.2 per cent to $32.9 million.Yet it made another loss; this time of $4 million. The loss last year was just $23,000.
This is counterintuitive: The company sits at the centre of the biggest digital advertising gold rush since the dot-com bubble of the late 1990s, and yet somehow it is failing to make money. Its boat sits on a tide that rises more than 50 per cent a quarter, and it ain’t floating.
What’s going wrong?
The 10-Q gives this obvious clue:
“The number of full-time sales and marketing employees increased from 48 at March 31, 2011 to 84 at March 31, 2012.”
Put another way, while revenues went up about 50 per cent, ad sales staff went up roughly 100 per cent.
The technology and the medium may be cutting edge, but the revenue model is decidedly old school: Millennial makes its money by employing a lot of guys to drum up business through sales calls.
These charts show how those sales staff costs are currently in lockstep with its revenues:
(“Gross profit” is the revenue Millennial keeps after it has paid its pass-through media costs.)
The obvious problem here is that Millennial’s real revenue took a seasonal dive in Q1. Sequentially, its business actually went down in the post-holiday lull. Its costs, however, only went up.
Moreover, Millennial is keeping less and less, proportionately, of its billings over time:
CEO Paul Palmieri told Wall Street he was happy with the performance:
“Our first quarter performance exceeded expectations with strong year-over-year revenue growth, as well as expansion in the numbers of unique users and apps on the Millennial Media platform.”
He’s right: The growth in the underlying business is certainly there. It’s a shame his business model can’t yet take advantage of it.
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