More than 1 billion people access the web on their mobile devices today. This is the reality that advertisers have to deal with. Tablet use is growing faster than smartphones. By 2015, more people will access the Internet on mobile devices than on PCs.
In this environment, advertisers try to get as much as they can from mobile. Companies like Millennial Media, Inc. (NYSE:MM) help advertisers succeed in mobile. The company offers solutions for targeting the right audience as well as an integrated platform for mobile advertising called mMedia.
Market is growing fast
According to eMarketer, global mobile-ad sales will grow 79% in 2013 to $15.8 billion. Google Inc (NASDAQ:GOOG) is estimated to take the lion’s share of the market. The tech giant will account for 56% of market share, getting $8.8 billion of revenue. Facebook Inc (NASDAQ:FB) has seen a significant rise in mobile-ad sales. The company is projected to make $2.0 billion of revenue from mobile ads, taking a 12.9% share of the market. Millennial Media, Inc. (NYSE:MM)’s revenue from mobile ads is projected to grow 71% and reach $120 million, getting a 0.8% market share.
Google Inc (NASDAQ:GOOG), of course, has the best position to dominate the market. The search giant has long ago integrated mobile options into its AdWords platform. The same clients that once targeted PC users were able to target mobile users as well. Mobile-ad rates still tend to be lower than PC ones, but the gap is closing fast as there is more competition on the mobile front. This fact in combination with the growing number of mobile users makes this field extremely interesting.
Facebook Inc (NASDAQ:FB)’s mobile segment is, perhaps, the brightest point of the company’s business. Mobile-ad revenue accounted for 30% of the revenue in the first quarter, up from 24% in the last quarter of 2012. Facebook Inc (NASDAQ:FB) is interesting for mobile advertisers because users often check their Facebook Inc (NASDAQ:FB) pages from smartphones and tablets. The company states that users spend an increasing amount of time on mobile.
Millennial Media, Inc. (NYSE:MM) cannot fight these giants in terms of quantity, but it surely can in terms of quality. The company believes that its advantages are behavioral targeting, audience segment targeting and local targeting. Locally targeted ads are increasing faster than the overall growth rate of the market. Millennial Media, Inc. (NYSE:MM) offers developers the ability to monetize their apps, and this is the key selling point for the company.
Valuation
Millennial Media, Inc. (NYSE:MM) was not an investors’ favorite this year. The stock is down 35% year-to-date. The company is trading at a 19.4 forward P/E. The company has zero debt and a solid cash position. In fact, at the end of the first quarter cash accounted for 67% of company’s total assets. Earnings estimates for this year have grown 7.7% during the last 90 days, while earnings estimates for the next year have grown 16.7%. The changes in estimates reflect the trend of huge growth in the usage of mobile devices.
Google Inc (NASDAQ:GOOG) remains dominant in the online ad space. As Google Inc (NASDAQ:GOOG) has the ability to determine search results, it has the ability to drive ad rates up through competition. The stock is up 24% year-to-date and is trading at a 16.4 forward P/E. Analysts’ mean target price for Google Inc (NASDAQ:GOOG) is $935, but once it is reached everyone will be talking about breaking $1,000.
Facebook Inc (NASDAQ:FB) is down 11% so far this year. The stock is struggling to get back to its IPO price, but it looks unlikely in the short term. Mobile ads are the brightest point of Facebook Inc (NASDAQ:FB)’s monetization, but, in general, the company fails to extract the expected value from its huge user base. The stock is trading at a 30.8 forward P/E, but these estimates have yet to be met. The current P/E is 2,373, which indicates that at present Facebook is barely profitable. This is disappointing for investors.
Bottom line
Mobile usage is growing every month. Even people who have PCs in their homes are using mobile because it’s more convenient to relax on your armchair with a tablet than to sit behind your table where PC is usually situated. The growth of mobile usage is met by the growth of mobile apps. Those apps need monetization, and Millennial Media, Inc. (NYSE:MM) offers a platform that addresses this need. Competition is not sleeping, but the company can manage to settle in an appealing market niche. The stock has been beaten this year, but it’s surely worthy of your look.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How This Tech Stock Will Profit From Mobile-Ad Growth originally appeared on Fool.com is written by Vladimir Zernov.
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