Experts: Millennial Media going through ‘textbook’ growing pains

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Millennial Media’s recent market tumult — which included a 38 percent dip in its stock price last week — shouldn’t present much worry for investors, according to those familiar with the mobile advertising industry.

The Baltimore-based business reported $58 million in fourth-quarter revenue, compared to $34 million for the fourth quarter of 2011. For all of 2012, Millennial’s net loss was $6.8 million, an increase from 2011’s loss of $5.3 million.

Still, the company has a strong enough place in the industry to be somewhat bullish, said Amna Kirmani, professor of marketing at the University of Maryland‘s Robert H. Smith School of Business who specializes in consumer behavior in advertising.

“Mobile is the big growth area in advertising because there are so many cell phones around,” Kirmani said. “They’re a small company but they have lots of clients. They have built their own presence within this industry.”

Kirmani said Wednesday’s stock drop, to $8.95 at market closing, was little more than a “hiccup.”

That day, Millennial announced the acquisition of the San Francisco-based firm Metaresolver, which analyzes data for mobile device advertisers. The acquisition is an all-cash transaction with no price announced.

Kirmani believes the announcement of the acquisition was a way to cushion the negative news in the company’s earnings report.

“They’ve already announced that with this acquisition they are going to be aggressive,” she said.

Millennial Media was unable to comment for this story as of Monday. Last week, Millennial CEO Paul Palmieri told Bloomberg News that the company’s weak revenue was due to a decision to not chase smaller customers in the final quarter of 2012.

In an appearance on CNBC’s “Mad Money” with Jim Cramer last Thursday, Palmieri presented a rosy view. Millennial is working well with Google and Apple and the big names are happy to have the independent company in the “ecosystem,” he said.

As of December, the company reached 400 million monthly unique users (160 million of whom are based in the United States) and works with more than 39,000 apps to show ads.

“Frankly, we’re focused on the long-term in building out our products and services,” Palmieri said on the CNBC show. “We’re in a great position in the marketplace and continue to grow and really that’s what we’ve got to focus on.”

The mobile advertising industry has yet to figure out what really works, said Roland T. Rust, the David Bruce Smith Chair in Marketing at the University of Maryland.

“What’s happened so far is that mobile advertising has been disappointing,” Rust said. “There hasn’t been a Google that has jumped in and taken advantage of it yet.”

But, with younger generations becoming increasingly mobile-oriented, there is “tremendous potential” in the industry, Rust said.

Millennial has projected revenue of between $270 million and $280 million for 2013, numbers that are below expectations.

Kirmani believes Millennial’s uneven revenue is completely normal for an industry that is immature yet holds high-growth potential.

The future of the mobile advertising industry is uncertain, and Millennial’s drop in stock price is “textbook” for high-growth industries, Kirmani said. There is always room for new players and the industry is growing in huge amounts.

“It’s ever-present, we always have our phones with us,” Kirmani said.