Why Is Millennial Media Selling MORE Stock When It Has $123 Million In The Bank?

Paul PalmieriCEO Paul Palmieri

Photo: Millennial Media

Mobile advertising platform Millennial Media added a new question about its business model this week with a plan to sell about one million new shares of common stock (worth about $14.5 million) coupled with 9 million more shares being released by other stockholders.The sales seem destined to dilute — and reduce in price — Millennial’s already challenged shares, which slipped from $25 when it launched to just under $15 today. (Until now, Millennial had 77 million shares of common stock outstanding; a lockup period expired in September and allowing management to sell much of its stock.)

It is not as if Millennial needs the money.

It has $123 million in cash, mostly proceeds from its IPO earlier this year, sitting in its checking account. In Q3, the company estimates it will bring in revenues of up to $47 million and lose only ~$2 million on the bottom line. Financially, it’s sound.

I’ve noted before that Millennial’s business model is conspicuously failing to scale into profitability, but that’s not a problem as long as Millennial has a cushion of cash it can use while it figures out how to get there.

Millennial’s new S-1 filing notes that the company is authorised to sell up to 250 million shares in total (see page F-12), so what’s going on?

Here’s one theory: At Millennial, there’s only one kind of expense that requires hundreds rather than tens of millions of dollars, and that’s M&A.

Could it be that Millennial wants to acquire its way up to profitability?

I asked both CEO Paul Palmieri and his spokesperson to explain the sudden need for cash, and both declined to comment citing an SEC-imposed quiet period. In the meantime, the smart money seems to be exiting the stock.


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