Ad Tech IPOs

Last week, Millenial Media filed for an IPO. There has been a lot of waiting in the market for an ad-tech IPO, with rumors around App Nexus, Tremor Video and others. With so many companies operating in the advertising technology world (Seems the LUMAscapes are updated on a daily basis), it's critical that the market opens up for some ad-tech IPOs. Since Google is dominating the M&A market in this segment, it will be great to have the IPO route as an alternative, in addition to the fact that such new public companies will create liquidity options for some of the smaller players in the space.

Business Insider published an interesting analysis on the financials of Millenial Media. In this article, Jim Edwards looks at the 40% gross margin of the business, claiming the company is much smaller than perceived.

"Once the cost of revenue is axed from Millennial's income statement its "gross profit" for the same period is just $26.5 million -- less than half its reported "revenues." It would probably be more accurate to call Millennial's "gross profits" its net revenues, because that's what they really are -- the sales dollars the company keeps."

I am not sure this is the right analysis. There are many companies with similar gross margin structure (Think of companies like Broadcom) that are traded around 3x TTM revenues. If you apply that simple multiple, Millenial should already be valued above $300M. If they continue to grow fast, that valuation will be much higher. It will be interesting to see how the market accepts Millenial Media. A successful IPO for them will be fantastic news for the industry.

In summary, here is a comic strip from AdExchanger, published back in May 2011. Hopefully the IPO sun will be shining on all buildings…

Comments

[Gordonbowman]

I think you're right. This does seem to be the year of the ad tech IPOs.

Here was my write up on the 5 big takeaways from Millenial's IPO filing: http://www.gordonbowman.com/millenial-medias-ipo-filing-5-big-takeaways

[Daniel Cohen]

Gordon, Thanks for the comment. I agree with your analysis.