Is Candy Crush Killing Millennial Media?

The online advertiser stumbles on weak guidance.

Feb 20, 2014 at 3:12PM

Today has been another bad day for Millennial Media (NYSE:MM) investors. Shares are closing in on November's all-time low after the mobile display advertising specialist posted uninspiring financial results. 

Adjusted fourth-quarter revenue grew 44% year over year to $109.5 million, and Millennial clocked in with a smaller loss than analysts were targeting. Unfortunately, the current quarter is going to get worse. Millennial Media is forecasting a steep sequential dip to between $72 million and $76 million in revenue, well short of the $83.3 million that analysts projected. A sequential decline between the seasonally potent holiday quarter and the first quarter is natural, but a 32% quarter over quarter drop is brutal. The implied year-over-year pro forma growth is closer to 15%, and that's far less octane than what Millennial Media investors are used to.

Millennial Media went public two years ago as the leading mobile marketer that wasn't owned by the tech giants behind Android and iOS. Being operating system-agnostic had its benefits, and when it went public it had Zynga (NASDAQ:ZNGA) and Pandora (NYSE:P) as its biggest clients.

A lot has changed for both of those companies, particularly as Zynga saw gross bookings peak at $1.15 billion that year before plunging to $716 million in 2013. Pandora's still growing at a healthy clip, but its biggest growing segment is premium subscriptions. These are the accounts that pay up so they don't have to see any ads.

Millennial Media isn't framing its disappointing guidance in the context of folks paying for premium access the way that they do with Pandora. However, the upcoming King Digital Entertainment IPO could serve to illustrate the popularity of app developers choosing in-game purchases over bombarding gamers with ignored ads. The next time you fire up King's Candy Crush Saga you won't see any third-party ads. As King explained in this week's prospectus, it generated just 1% of its revenue from selling third-party advertising in 2013, so it discontinued the practice.

"We do not expect to derive any significant portion of our revenue from the sale of advertising space in the foreseeable future," reads King's SEC filing.

This is a pretty big deal. King scored nearly $2 billion in gross bookings last year, a lot more than Zynga had at its peak.

Millennial Media can make things up in volume. It's serving up ads on 50,000 apps now, far more than the 30,000 apps it was servicing when it went public two years ago. However, if more developers follow King's lead and decide to use its popular titles merely to sell virtual extras or promote other games in their portfolios, it would be bad news for mobile marketers.

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Rick Munarriz owns shares of Millennial Media. The Motley Fool recommends Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

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The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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