AOL’s acquisition of Millennial Media for $238 million was a coup for its purchaser, if not for its investors. The mobile ad platform went from an opening-day share price of $23.50 to $1.75 when AOL announced its intent to purchase Thursday.
But Elgin Thompson, managing director at investment firm Digital Capital Advisors, cautioned not to be blind to the value Millennial brings to AOL’s tech stack just because its market standing has tumbled.
“Millennial is a logical complement to AOL’s Adap.tv and Vidible acquisitions,” said Thompson, pointing out that the programmatic intersection of mobile and video is a valuable place to be.
Ray Wang, principal analyst at Constellation Research, said that the waning of Millennial’s market value gave AOL a chance to snap up “a good supply-side platform as they grow out their mobile business.”
Both Wang and Thompson characterized Millennial as one of the “early stars” in mobile and ad tech, a group that has largely imploded. Thompson, for instance, said that “Millennial’s share price has followed the trajectory of Tremor, YuMe, Rocket Fuel, etc.,” but Millennial now has “a safe landing” while competitors are looking for a ripcord.
By that thinking, a sale for Millennial was a success in and of itself, regardless of its decreasing market value. Wang echoed that thought as well; “It’s a good exit and win-win for Millennial’s investors, who have never seen the gains they expected.”
AOL was also likely attracted to Millennial’s managed media service, which accounts for almost 90% of company revenue. Its services model aligns with AOL’s well-hyped push to become a full-service stack to rival a platform like Google. To do so, AOL will have to provide more services instead of just technology. (AOL’s purchase of Convertro a year ago was a step toward a more consultative relationship with advertisers.)
And as observed by Brian Wieser, senior analyst at Pivotal Research, part of what Millennial brings to AOL isn’t tech or engineering talent, it’s “the publisher relationships that Millennial established over the years.”
Ironically, Millennial’s reliance on managed services and its failed efforts to build out a platform business demonstrate how difficult it is compete with tech stack players like Facebook, Twitter and Google.
It may be that an independent, standalone mobile ad network isn’t a viable space as tech platforms consolidate. Which is why many observers see Millennial’s choice to be a cog in another platform as a wise one.
As Thompson put it, “The dirty little secret in M&A is not all exits are returns on capital.”
