Tuesday, March 4, 2014

Is Candy Crush Killing Millennial Media?- 03/07/2014



  1. Business Segment
    • Mobile Advertising Services
    • -5.7% in2013; -2.2% in 2012
    Geographic Segment
    • 85% in US
    • 15% international
    • Advertisers & Apps developers or App based web Developers
    • Offering tools and services that help developers maximize advertising revenues, add customers, and conduct behavioral analytics on their users.
    • Customer includes publishers such as CBS Interactive and The New York Times and app developers like Zynga and Pandora.
    Free Cash Flow & Cash Flow from Operation
    • 2011 (6) (3) -7.6%
    • 2012 (8) (3) -4.4%
    • 2013 (26) (21) -10%
    • Revenue growth for 3-year average is 75%/ 2014 over $410 million/90 of the top 100 Ad Age advertisers/ 625 million user profiles
    • More than 625 million monthly unique users worldwide.
    • Strong cash position of over $100 million, with zero debt.
    • Strong executive team.
    • The acquisition of Jumptap helps it to enlarge its market share.
    • New market in Latin America, more than 400 million mobile users
    What could go wrong?
    • Market is full with competitors/ Many small companies with technology advantages
    • The users’ privacy concern may urge the government to regulate the collection and usage of users’ info.

  2. Source: BBG, seeking alpha, 10k (risk, FS, MDA), Wikipedia,

    Millennial Media Inc. provides mobile advertising and data services solutions. The company specializes in mobile advertising that allows publishers, developers, and mobile operators to maximize revenue, monetize networks, and advertisers to reach mobile customers. Millennial Media serves customers worldwide.

    Revenue Breakdown—
    One business segment: Mobile advertising services
    Revenue by Geographic:
    2013 2012 2011
    u.s 76% 58% 36%
    international 24% 10% 4%
    total 100% 69% 40%

    2013 2012
    Revenue 100% 100%
    Cost of Rev. 60% 60%
    Operating Exp. 46% 43%
    Operating Inc. -6% -3%

    2013 2012 2011
    FCF -26.499 -7.797 -6.286
    Revenue 259.171 177.667 103.678
    CFO -21.419 -2.537 -2.758
    FCF/Rev. -10% -4% -6%
    FCF/CFO 124% 307% 228%

    Again, because of FCF are negative, it’s irrelevant to discuss the usage.


    Millennial Media’s customers include 85 of the top 100 Ad Age brands, and their developer base includes large mobile publishers, such as CBS Interactive and The New York Times Co. (NYT), and large app developers, such as Zynga Inc. (ZNGA) and Rovio.

    Concerns of business going forward:

    1, the acquisition of Jumptap can negatively affect the company’s revenue generation. Last year, MM acquired Jumptap. However, problem is that the business partners and third party customers (ex. Software developer) will amend the contract, or even terminate the existing contract. Hence, this is a big hit on the company’s business. Moreover, the acquisition can cause the loss of key personnel, which will affect the revenue generation negatively.

    2, the size of business after acquisition is much larger than before the acquisition. Hence, the cost of operation will increase dramatically. As the company has no prior experience, the sudden bouncing of operating expense will be a big hit to MM’s business.

    3, customer concentration problem:
    A limited number of advertising client account for a large share of MM’s advertising revenue. If any unexpected happen, the change of advertising clients will cause big loss to the company’s business. The customer concentration also increases the concentration of accounts receivable and company’s exposure to payment defaults by key customers.

    Acquisition of Jumptap:

    The acquisition should not only significantly bolster Millennial's presence in the performance programmatic buying arena, but it should also further
    boost the company's technology development efforts. Jumptap brings tons of user profiles that can be reached across smartphone, tablet and PC, enabling targeting across multiple screens. Further, the company adds a rich patent portfolio covering broad aspects of mobile advertising. By this effort, the acquisition will increase millennial’s pricing power dramatically.

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  3. Sources:2013 10K, Seeking alpha, Thomson One

    Business Overview: Millennial Media, Inc. is the leading independent mobile advertising platform company delivering market-leading products and services to advertisers and developers.

    It has 100% revenue in mobile advertising service, in 2013 revenue increased by 46% compared to 2012.
    - Geographically, 24% total rev in 2013 from international operations, rest from U.S.
    - Historically, 60% revenue from brand advertisers and 40% from performance advisers. 50% for each in Q4 2013 because of the acquisition of Jumptap
    - 27% of total Revenue in 2013 from existing advertiser customer, rest from new customer

    Customers: compose of developers and advertisers of all sizes.
    - The developer base includes large mobile web publishers, large app developers and other developers.
    - The advertiser clients include leading advertising agencies and brands, as well as smaller advertisers and the developers

    Financial Overview:
    - FCF: -26.5 million. Remained negative in the last four years.
    • FCF as % of Rev: -10% in 2013,-4% in 2012 and -6% in 2011
    • FCF as % of OCF: 124% in 2013, 307% in 2012 and 228% in 2011
    • Use of FCF: negative FCF, not applicable here
    - Margins: gross margin almost doubled compared to 2008, still lower than industry average and its competitor google of 57%
    - Financial position: Cash and equivalent $100 million by year-end 2013. No debt, reducing its risk of bankruptcy

    Guidance: For Q1 2014 total revenue is expected to be in the range of $72 million to $76 million & adjusted EBITDA to be a loss between $(5) and $(6) million. Revenue growth rate for 2014 is expected to be 20% compared to 44% YOY growth for 2013. This guidance its much weaker than expected and disappointed investors after announced

    What is going right?
    - Two new board members including CEO Mr. Barrett who has already taken a small company and sold it to a larger acquirer gives investors’ confidence
    - Solid customer list that includes 90 of the top 100 Ad Age advertisers and large user profiles
    - Promising growth in mobile advertising industry, expected to generate $36 billion by 2017
    - The company is expanding its operations to Asia and Latin America to get more customer base

    What can go wrong?
    - Revenue:
    • Low pricing power considering small market share
    • lower than industry long-term growth rate of 20% compared to 34% of industry indicating slowdown in revenue growth in following years
    • Intense competition and new comers in this rapid growing industry
    • Concerns from acquisition of Jumptap
    o Loss of key employees from Jumptap
    o Loss of pre-existing customer contracts and other business relationships after acquisition
    - Expenses:
    • Substantial costs associated with the transition, and other unexpected costs in connection with integration of the two businesses after the acquisition
    • Continuing increasing operating expenses in the foreseeable future
    • New acquisitions may increase its overall expenses


    Mobile advertising platform companies that offers tools and services that help developers maximize advertising revenues, add customers, and conduct behavioral analytics on their users.

    Mobile Advertising Services: (100% Revenue 46% growth)
    - Five Years YoY Revenue CAGR is around 40%
    - This growth was primarily attributable to an increase in spending from existing advertiser clients as well as an increase in the number of advertiser clients using platform.

    Geographical Revenue
    U.S. 76%
    International 24%

    CORE BUSINESS - Mobile Advertising Service

    - MM provides an easy-to-use, turn-key advertising solution, data analysis service for developers.
    - MM offers advertisers the opportunity to reach and engage with their target audiences across mobile devices and screens.
    - The market cap is $0.62 billion with no debt
    - Cash and cash equivalents 100 million
    - Technology and development expense was $19.0 million, or 7.3% of revenue
    Free Cash Flow:
    - FCF in FY 2013 - $26 million
    - FCF/CFO 124% in 2012
    - FCF/Revenue -10% in 2012

    PRO (what is going right now)
    - According to eMarketer, mobile search and display advertising is up 220% in North America since 2012, with projections for growth in 2014 at 50%.
    - Asia & Latin American Expansion: Recently, Millennial entered into a partnership with Latin American mobile ad network, Adsmovil. Through the partnership, Millennial will be able to let Adsmovil’s mobile user base access the more than 45,000 sites and apps available on its platform.
    - The new MM/Jumptap combined market share is now almost equal to Google's total share, Strong presence in the U.S., 28.9% market share vs. Google's 30.5%
    - Intensive competition: The mobile advertising market is highly competitive, with numerous companies providing mobile advertising services. We compete primarily with Google and Apple, both of which are significantly larger than us and have more capital to invest in their mobile advertising businesses.
    - Compatibility of our mobile advertising platform: Our business model depends upon the continued compatibility of our mobile advertising platform with most mobile connected devices, as well as the major operating systems that run on them and the thousands of apps that are downloaded onto them.
    - Rapid technological change: The market for mobile advertising services is characterized by rapid technological change. MM’s revenue depends on whether their technology can keep pace with technological developments, satisfy increasing advertiser and developer requirements, maintain the attractiveness and competitiveness of our mobile advertising
    - Operating expenses will continue to increase in the foreseeable future to the extent that MM revenue grows and as they increase headcount,
    - MM experience negative free cash flow for the past years and still in the process of raising fund. There are fair possibility that MM cannot maintain sufficient cash flow for operation and development.

  5. Source: company 10K, Bloomberg, research report from Needham, seeking alpha.
    --MM: the leading independent mobile advertising platform company and one of the largest mobile display advertising platforms in the United States.

    --Mobile advertising services: 100%
    Geographic:Domestic: 85%, international: 15%

    --Business model: how they generate revenue
    For app developers, they can access to MM’s tools and services that allow their apps to display different ads. In return, developers supply MM with space on their apps to deliver ads for our advertiser clients and also provide us with user profile.
    MM analyses users data to build user database, which enable MM to deliver highly targeted advertising for clients. Advertisers pay MM to deliver ads, and MM pays developers a fee for the use of their ad space.

    Gross margin: 40.3% in 2013
    Operating margin: -5.8%
    --Growth rate:
    Rev growth: 5-year growth rate: 110%, but declining, 117% in 2011, 71% in 2012, 46% in 2013
    Operating income: declining: 90% in 2011 -240% in 2013
    Free cash flow is -26.5 in 2013
    FCF/Rev: -10% in 2013
    FCF/CFO: 124% in 2013
    (Millennial has a strong cash position of over $100 million, with zero debt.

    2014 Revenue: 72-76M, below consensus of 86M
    Mobile advertising increase much more rapidly than PC advertising.

    90 of the top 100 Ad Age advertisers. For consumers, MM has the following advantages. MM can reach more than 600 million monthly unique users, including approximately 170 million monthly unique users in the United States alone.
    More than 50,000 apps are enabled to receive ads through MM platform, and can deliver ads on over 9,000 different mobile device types and models. Also they can target different consumers based on their user database. Their platform is compatible with all major mobile operating systems, including Apple iOS, Android Windows Phone and BlackBerry.

    --What could go wrong:
    Rev: The management indicates the long-term growth rate will be about 20%, which is lower than the industry average forecast. The industry growth rate may decline.
    (Many advertisers still have limited experience with mobile advertising and may continue to devote larger portions of their advertising budgets to more traditional offline or online personal computer-based advertising, instead of shifting additional advertising resources to mobile advertising. In addition, our current and potential advertiser clients may ultimately find mobile advertising to be less effective than traditional advertising media or marketing methods or other technologies for promoting their products and services, and they may even reduce their spending on mobile advertising from current levels as a result.)
    The mobile advertising spending should increase from 13.1B in 2013 to 41.9B in 2017, 34% of 4-year CAGR. MM will be slower than industry due to advertisers allocating the vast majority of their mobile advertising budgets to market segments the company does not participate in, such as search and social.
    Expense: the acquisition cost may increase


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