Unlocking Value at Millennial Media

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After the announcement of the acquisition of Jumptap back in early August, Millennial Media (UNKNOWN: MM.DL  ) plunged. The independent leader in mobile advertising was unable to satisfy analysts concerned about organic growth, but should that matter to an investor?

The primary reason for the purchase of Jumptap is that the company supposedly spent the last few years building a mobile platform the exact opposite of Millennial Media. In fact, Jumptap focused on a programmatic buying network that recently fueled the strong IPO of Rocket Fuel (NASDAQ: FUEL  ) . With programmatic buying seeing such strong growth, should investors care whether the growth was bought or built?

Jumptap benefits
Millennial agreed to pay approximately 24.6 million shares and up to $12 million in cash or roughly $230 million for Jumptap to create an equal rival with Google for third party mobile display advertising . Jumptap provides a revenue base of $53 million that grew 49% in 2012. The interesting part of the deal is that the hedge funds invested in Jumptap were willing to take mostly stock for the deal. Clearly the Jumptap insiders see value in Millennial Media's stock not seen by the market.

Though both focus on mobile advertising, each company took a different path in building their platform. Millennial built one focused on premium brands that advertise with strategically positioned mobile developers. The company utilizes first party data to serve the world. Jumptap built a platform focused on performance advertisers and real-time bidding via exchange buying. The company utilizes third party data partnerships with a focus on only the US. The combination promises a one-stop solution for industry participants that clearly must be proven out to attract investors.

Confusing guidance
Millennial provided confusing guidance for its third quarter that caused major headaches for analysts now unwilling to back the deal. The company guided to between $80 million and $85 million in third quarter 2013 for the combined entity, yet it was unwilling to break out the Millennial only portion. This raised concerns among analysts that the company was struggling to reach growth targets, yet should it matter if the combined entity will shine?

The reason it might not matter is the company guided for between $340 million to $350 million for the full year. Considering the combined companies generated $230 million in revenue for 2012, the growth forecast of at least 48% should appease investors. Either the Millennial part will continue strong growth or the new Jumptap programmatic platform will boost the growth rate. Either way does it matter to investors? Not to mention, one has to wonder if all these expected growth gains were coming from Jumptap why it would agree to a stock based buyout at a low revenue multiple.

If an investor buys the stock today, the concern should be whether you're obtaining a fair price for a revenue base of up to $350 million growing at roughly 50%.

Rocketing programmatic buying
Programmatic buying and real-time bidding, or RTB, is the real-time purchase and sale of advertising inventory on an impression-by-impression basis on advertising exchanges. The segment is exploding as represented by the 150% growth reported by Rocket Fuel. The company focuses on data scientist to develop an algorithm that improves the results of billions of ad impressions every day. In all likelihood, the huge success of Rocket Fuel caused the Millennial Media move. After all, Rocket Fuel grew revenue from $16.5 million in 2010 to expectations for $250 million in 2013.

For its part, Millennial already unveiled a programmatic offering in mobile in partnership with AppNexus that will provide the customizable technology. The Millennial Media Exchange, or MMX, is being labeled as the world's largest premium mobile advertising exchange. The company lists the MMX as focused on programmatic selling of mobile inventory across the MMX, while Jumptap plans to add one of the largest programmatic buyers of mobile impressions.

Bottom line
Ultimately investors need to focus on the value of Millennial Media based on the combined entity including Jumptap. Whether or not the numbers come from organic growth shouldn't really matter. The dramatic shift to a programmatic focus should help address some of the revenue left on the table in the last few quarters. If the results can finally appease investors, the stock might finally unlock value.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 25, 2013, at 6:31 PM, maholder wrote:

    As written, the statement in the second paragraph implies that Jumptap fueled the growth of Rocket Fuel. The intention was to imply that the growth of Rocket Fuel is from a similar programmatic buying platform that Jumptap focuses on for mobile ads.

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