The mobile revolution continues to grow at a torrid pace, but that doesn’t mean the space is a can’t-miss proposition for investors.
Enter Millennial Media (NYSE:MM) the mobile-ad platform operator whose shares are off by a grueling 35% today — down to the mid-$9 range after coming public a year ago at $13 — after it offered up some disappointing news in its earnings report.
Fourth-quarter numbers weren’t bad, but still not up to snuff on the expectation front. MM’s revenues rose by 68%, but the final tally of $58 million was well short of consensus estimates for $62.9 million. Earnings of 3 cents per share merely met expectations.
Full forecasts were particularly disappointing, with MM’s targets of $270 million to $280 million in revenues and adjusted EBITDA of $17 million to $18 million both falling shy of respective estimates for $286.4 million and $18.2 million.
CEO Paul Palmieri provided a couple reasons for the shortfall. One was that the company did not chase smaller deals because the margins were too low. Palmieri also noted that some larger transactions did not close at the end of the quarter.
These particular worries are mostly short-term noise. Mobile advertising still is a young business that no one has truly figured out, and advertisers are being justifiably cautious.
The bigger worry is the pressure Millennial Media might be feeling from two of its primary rivals, Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL). Their platforms account for much of the smartphone market, and they have huge advantages, including control over their operating systems, tremendous engineering resources and trusted brands. It also should be noted that Facebook (NASDAQ:FB) is becoming a factor, as it has been investing heavily in its own mobile-ad systems to leverage its massive user base.
Despite all that, MM is hardly doomed for extinction.
If anything, Millennial Media is an attractive option for customers because of its laser-like focus and growing ecosystem. It counts 85 of the Ad Age top 100 advertisers as clients, its platform reaches more than 400 million users per month, and the system has a thriving ecosystem of more than 39,000 apps.
And, from a stock standpoint, MM is awfully attractively valued right now at 2.7 times forward sales.
Yes, there’s still risk in Millennial Media, but the worst of the news seems out. I think MM still is an attractive way to play the long-term growth in the mobile space.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.