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Millennial Media Loses Third of Value as Growth Slows

02/20/2013 | 08:09pm US/Eastern

--Some big brand ads 'didn't materialize'

--Management says it avoided some business from payments for app downloads

--Mobile ad market still seen reaching $11.4 billion this year

(Update adds executive comment on big-brand deal shortfall, Gartner projections for mobile ad market.)

 
   By Drew FitzGerald 
 

Millennial Media Inc. (>> Millennial Media, Inc.) lost more than a third of its market value Wednesday after the mobile-ad network operator provided a less-spectacular view of past and future revenue in an increasingly competitive market.

Millennial competes with tech giants such as Google Inc. (>> Google Inc) and Apple Inc. (>> Apple Inc.) to serve advertising on smartphones and tablet computers. It also battles smaller companies that provide targeted ads at the margins of popular applications like online radio service Pandora Media Inc. (P)

The Baltimore company's fourth-quarter revenue jumped 68% to $58 million, but that was below the company's projection for growth of up to 82%, and it marked a severe slowdown from the previous quarter's 88% surge. The disappointing result prompted some analysts to warn a more-crowded market could stunt further the company's growth in the long run.

"Because there [are] now dozens of mobile ad networks, the piece of the pie that each of them is getting is shrinking," Stifel Nicolaus analyst Nat Brogadir said.

Also contributing to Millennial's underwhelming revenue was weaker business from well-known companies that provide roughly 60% of the company's top line. Chief Executive Paul Palmieri said visible ads from some big brands simply "didn't materialize" in the latest quarter, either because they took budgets elsewhere or moved some business away from mobile ads entirely.

Mobile ads are still generally considered a growth area. Research firm Gartner Inc. expects spending on mobile ads to reach $11.4 billion this year, up 17% from 2012. Facebook Inc. (>> Facebook Inc) has illustrated the market's explosive growth as its mobile ad revenue surged from practically nothing to $150 million by the end of last year.

Much of the revenue growth in mobile ads is expected to come from search and display advertising, though Gartner has warned a sizable share of app developers, eager to promote their product, are fueling a surge of payments for downloads that could "ultimately prove a bubble."

Millennial Media does make money persuading users to click on app developers' own ads, charging publishers a fee based on how many downloads they deliver. However, executives on Tuesday blamed some of their slower revenue-growth estimates on the decision to avoid parts of that business that pay out regardless of whether consumers end up using an app, a model they characterized as unsustainable.

"Ultimately, the receiver of that download, of that incremental download, isn't really getting anything," Mr. Palmieri said Tuesday during a conference call with analysts. "This is fool's gold, and there are a few companies that are pursuing this strategy, mostly smaller companies."

Millennial's overall ad business faces stiff competition from a deep-pocketed counterpart in Google, International Data Corp. analyst Karsten Weide said, though it still commands a top spot in its market.

"Growth is slowing, but I don't see any fundamental change in Millennial's situation," he said. "If anything, there's a lot of brand money going into mobile that wasn't there before."

The company's outlook for 2013 was still viewed as disappointing. Millennial Media projected revenue between $48 million and $50 million for the current quarter and between $270 million to $280 million for the year, below the forecasts of $56 million and $286 million from analysts polled by Thomson Reuters.

Millennial Media fell 38% Wednesday to $8.95, erasing about $420 million of market value. The stock hit an all-time low earlier in the session at $8.79. The drop dragged shares back below their $13 initial public offering price less than a year ago, when Millennial's stock popped 92% on its first day of public trading. The stock's all-time high is $27.90.

Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : Millennial Media, Inc., Apple Inc., Facebook Inc, Google Inc
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