April 30 (Bloomberg) -- Millennial Media Inc., the seller of advertising space on smartphones that went public last year, is now 47 percent cheaper for companies such as Yahoo! Inc. and Microsoft Corp. that want to expand their share of the market.
The $550 million company’s shares fell this month to their lowest level since going public after forecasting sales growth of about 55 percent this year, slower than analysts had projected. With Baltimore-based Millennial Media still the biggest independent U.S. mobile-ad services provider, it could draw interest from technology companies that want to secure a bigger foothold in one of the fastest-growing segments in digital advertising, said Telsey Advisory Group LLC.
Spending in the U.S. for ads on mobile devices may reach $7.3 billion this year, up from $4.1 billion in 2012, according to research firm EMarketer Inc. Given Millennial Media’s market position and expertise, Needham & Co. said its stock has fallen more than is justified and that might attract companies such as Yahoo or Amazon.com Inc. IPOPlaybook.com said Microsoft also may be among potential suitors, while Falcon Point Capital LLC said even No. 2 mobile-ad seller Facebook Inc. could pursue the company to strengthen its offerings to advertisers.
Millennial Media is “at a depressed level, so now would be the right time to buy,” Kerry Rice, a San Francisco-based analyst at Needham, said in a telephone interview. “Mobile is, and is going to be, a very important space for advertising. It would have to be someone interested in furthering their mobile-advertising strategy.”
Max Nelson, a spokesman at Millennial Media, said the company doesn’t comment on speculation.
Millennial Media helps website owners and application developers sell mobile advertising to companies. Its competition includes Google Inc., the market leader according to EMarketer, and Apple Inc.
The company’s stock almost doubled on its first day of trading following its March 2012 initial public offering before declining as sales growth slowed and companies such as Facebook and Twitter Inc. expanded their mobile-ad efforts.
On Feb. 20, the stock dropped a record 38 percent after Millennial Media forecast 2013 sales of $270 million to $280 million, below the $288.75 million projected by analysts, according to data compiled by Bloomberg. The company’s estimate puts it on track for revenue growth of about 55 percent this year, trailing its annual gains of 71 percent or more since 2008.
“The growth fantasies for Millennial are diminished,” Karsten Weide, program vice president of digital media and entertainment at IDC in San Mateo, California, said in a phone interview.
The stock, which touched a low of $6.05 on April 1, closed yesterday at $6.94, down almost half from its $13 IPO price. Today, Millennial Media shares fell 0.1 percent to $6.93.
Even with its growth slowing, Millennial Media is still the biggest independent mobile-ad provider in the U.S. and is projected to keep growing in an industry that’s booming. That could appeal to a buyer, said Michael Mahoney, senior managing director at Falcon Point in San Francisco.
“Everybody wants a slice of this business,” Mahoney said in a phone interview. “These guys have a workable way to address mobile ads, and in the next five years that’s going to be a big deal. I definitely think they are a potential target.”
Yahoo, the largest U.S. Web portal, could be drawn to Millennial Media as a way to speed up its growth in mobile ads, said Needham’s Rice. The $27 billion company has been focused on growing its mobile revenue, partly through acquisitions of companies such as app makers Summly and Jybe Inc.
Yahoo’s Chief Executive Officer Marissa Mayer said on the company’s April 16 earnings call that the company would continue to look for acquisition targets “that we can integrate quickly and easily into our business.” She said she expects that by 2015, more people will access the Internet on mobile devices than on personal computers, presenting “a tremendous opportunity for us.”
“If Yahoo doesn’t ramp up their mobile business, that’ll make their future very difficult,” said IDC’s Weide. “I’d imagine they’d be looking at Millennial to grow this business more quickly and save time to market. They have a lot of cash; they could afford Millennial.”
Yahoo, based in Sunnyvale, California, had more than $5 billion in cash and equivalents at the end of the first quarter.
Amazon could also seek to acquire Millennial Media to round off its offerings in mobile-ad services, Needham’s Rice said.
“They’ve got some good mobile products, and this would be an intriguing add-on,” Rice said.
The Seattle-based company already sells tablets, and lets developers serve ads into apps for the Kindle Fire, Kindle Fire HD and Android phones and tablets. The world’s largest Internet retailer, with a market value of $114 billion and cash and equivalents of almost $8 billion at the end of the first quarter, also was working on a smartphone last year, two people with knowledge of the matter said at the time.
Microsoft, the Redmond, Washington-based software developer with a market value of $272 billion, may wish to acquire Millennial Media to shore up its position in mobile advertising, where it lags behind rivals such as Google.
“Microsoft has been desperately trying to figure out how to move into the mobile space, and it has tremendous resources,” Tom Taulli, who analyzes acquisitions for Los Angeles-based IPOPlaybook.com, said in a phone interview. Microsoft had more than $74 billion in cash and equivalents at the end of March.
Even Facebook, operator of the largest social-networking service, could pursue Millennial Media so that it can offer more options to advertisers interested in reaching mobile users, Falcon Point’s Mahoney said.
The Menlo Park, California-based company, with a market value of $65 billion, began selling mobile-ad services last year and is now the No. 2 provider, according to EMarketer. At the end of last year, Facebook had nearly $10 billion in cash and equivalents.
Representatives for Yahoo, Amazon, Microsoft and Facebook said they couldn’t comment on speculation.
While Millennial Media may attract buyers, management may be reluctant to consider a sale at the company’s diminished stock price, Needham’s Rice said.
“If they continue to perform well and meet expectations, the stock will ultimately bounce back,” Rice said.
Still, even as Millennial Media is projected to keep growing, its share of mobile-ad services is poised to shrink amid increased competition, IDC’s Weide said.
With larger rivals looming, Millennial Media might do well to consider a takeover offer, said Taulli at IPOPlaybook.com. He estimates the company could command its IPO price of $13 a share in a deal, which would represent an 87 percent premium to yesterday’s close.
“They are going up against some big players,” Taulli said. “If I had an opportunity, I’d probably sell out to one of the big players. I don’t think there’s a lack of buyers.”
To contact the reporter on this story: Olga Kharif in Portland at firstname.lastname@example.org