Anyone thinking of jumping into the Jumptap IPO when it's finally registered may want to think about this depressing fact about mobile advertising companies: They don't make money.
We're in the middle of an amazing boom in the mobile advertising business. $1.25 billion was spent on mobile ads last year. Yet the companies that in theory ought to be getting rich off that cash flow are not, according to their earnings disclosures.
Of the four major publicly traded mobile ad network companies — Velti, Millennial Media, Augme and Opera — only Opera makes a profit, and that's likely because its browser business forms by far the majority of its revenues. Opera's mobile ad business may also be a money loser, but its operating profit wasn't broken out in its most recent quarterly filing.
This fact — that even in the middle of a gold rush the cost of providing a mobile ad exchange far exceeds the revenues that can be gained from it — is sobering indeed when you consider the next potential phase of the mobile ad business: As more money enters, the best, most popular publishers will withdraw from the exchanges to prevent the price of their ad space from falling.
Publishers have seen what happened to display advertising on the web: As more and more ad space was controlled by auction-based marketplaces, the excess supply drove down prices. It's hard for publishers to make decent money off web ads.
They won't want that to happen again in mobile, and the ones with enough market power will withdraw from exchanges and networks to sell their inventory directly to buyers at a premium as soon as they're able, a source with many connections in the mobile ad business told us recently.
That will leave the networks with only the cheapest, least-demanded inventory available. Which augurs badly for their future revenues, and thus their profitability.
Here's a sampling of how much money they're losing, based on their Q1 2012 disclosures:
Revenues = $51.8 million
Loss = $8.8 million
Revenue = $32.9 million
Loss = $5.3 million*
Revenue = $5 million
Loss = $7.5 million
Hipcricket (pro forma post-acquisition numbers from Augme)
Revenue = $3.4 million
Loss = $5 million
Revenue = $47 million
Profit = $11.4 million
But only $7 million in revenue comes from ads.
*Correction: For Millennial, we accidentally used Q1 2011 numbers instead of Q1 2012 in the original version of this post. Apologies for that.
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