Facebook's (META -0.52%) recent earnings release confirmed one thing that investors have suspected all along: mobile is the future. More precisely, monetized mobile is the future, which usually means serving quality ads to mobile devices. Facebook isn't the only company to be interested in tackling this monumental task, with competitors ranging from tech giants Google (GOOGL 0.55%) all the way to smaller niche competitors like Yelp (YELP 0.60%) and Millennial Media (NYSE: MM).
The global smartphone market is growing rapidly, which means every company in the mobile ad space stands to gain significantly. The question is which company will benefit the most. In fact, though some dispute when this happened, smartphone sales recently surpassed those of their “dumber” counterpart, the feature phone. According to Gartner worldwide smartphone sales were up 46.5 percent this year from the comparable quarter in 2012. That's a lot of extra eyes to reach in the mobile space, even if the growth won't continue indefinitely.
The purest play
Millennial Media offers the purest play on the mobile ad space: mobile advertising is its sole focus. The company has being growing rapidly; recently reporting a 45 percent growth in sales for the most recently reported quarter. They did fall short of analysts’ expectations for revenue growth, but the company is still moving at a fast pace.
Fast growth isn't the only thing Millennial has going for it, the company also announced a deal with Jumptap While Millennial is paying quite a bit for Jumptap, around $225 million, the combination should have significant market share. According to IDC Millennial was the number two display network in 2012 behind Google. Jumptap was the fourth largest at the time. The combination could move ahead of Google in market share, though the search giant won't just roll over and let it happen.
The "safest" option
Speaking of Google, it might be the safest bet overall. The search titan has unrivaled history in ad serving and a multitude of properties that extend its reach. Chief among them is their Android platform which dominates the mobile space, both on smartphones and on tablets. Android is the leading OS by a wide margin accounting for 79 percent of all smartphones shipped this quarter. Apple, their nearest competitor, only accounted for 14 percent.
Don't forget, Android isn't Google's only advantage in the mobile space. Their mapping platform, Google Maps, is a big hit with smartphone users with over one billion monthly users, according to the company. It was just a matter of time until the company starting pushing ads through the service and on August 8 they announced they now are. Google has also had success with monetizing YouTube on mobile, another service that gets an impressive number of hits. Couple their strong mobile presence with their other ventures and you have what may be the clearest recipe for success in the long-term.
Social's position is shakier, but offers two candidates
Facebook on the other hand is on shakier ground. It's true, the company seems to have a handle on mobile which now accounts for 41 percent of the company's total revenue but it's totally reliant on being a premier destination on the Internet. This is compounded by the fact that monetizing the site can negatively impact user experience. Consumers are notoriously fickle and other social giants have fallen to the wayside. Admittedly that hasn't happened to one as dominant as Facebook but it remains a threat.
It is also hard to ignore the fact that Facebook is the leading mobile publisher selling display ads. The company is also making changes designed to improve their traction, adopting successful bits of competitors and aggressively courting celebrities. Instagram also offers potential growth in the mobile space since it is now ad free but could easily deliver display ads in the future.
Yelp occupies a smaller niche and has recently experienced a run up on the back of better than expected earnings. Unfortunately the run up may be a bit premature, earnings were better than expected but the company still posted a loss. Similar to Facebook, Yelp depends on user-generated content to thrive and is facing pressure from multiple competitors. From an operations standpoint the company is lackluster with revenue growth just recently managing to significantly outpace operating expense growth.
YELP Total Operating Expenses and Revenue Quarterly data by YCharts
While the company is making positive headway, it's in a weaker position than the other stocks mentioned above largely because of them. Pressure from Google and Facebook could ultimately push Yelp completely out of the equation as both have direct competitors. In Google's case not only does it have a direct competitor in Zagat, it also has many ways to scale the service and drive traffic to it. Yelp is the best regarded review site and benefits from incumbency, but it's still in a precarious position.
The bottom line
Ultimately it boils down to execution. Mobile advertising will continue to grow at a breakneck pace for the foreseeable future and the companies that position themselves to ride the wave stand to gain tremendously. For my money I think Google offers the safest play on the mobile ad market, but the others do have their own merit.
