Millennial Media Inc.'s shares sank Wednesday after the mobile advertising company announced an acquisition, reported disappointing quarterly revenue and issued a weak revenue forecast.
THE SPARK: Millennial said it will buy San Francisco-based Metaresolver in an all-cash deal for an undisclosed price. Metaresolver is a privately held media buying business that analyses data to help companies target their campaigns.
On Tuesday Millennial reported a profit of $2.6 million, or 3 cents per share, for its fourth quarter versus a loss of $1.2 million, or 7 cents per share, in the fourth quarter of the prior year. Revenue jumped nearly 68 percent to $58 million.
Analysts polled by FactSet forecast earnings of 3 cents per share on revenue of $62.9 million.
Millennial said expects revenue for the first quarter to be in the range of $48 million to $50 million. Analysts had forecast revenue of $56.7 million. The company also forecast full-year revenue between $270 million and $280 million. Analysts expected $290.1 million.
THE BIG PICTURE: Mobile advertising is still in its early stages of development, Paul Palmieri, co-founder, president and CEO of the company, said Wednesday. The company has delivered major revenue gains and thinks it has tremendous growth potential.
THE ANALYSIS: Janney Capital Markets analyst Richard Fetyko said the fourth-quarter snag does not change his bullish long-term view of the company. He said the revenue miss was due to a handful of brand advertiser campaigns not coming through to the extent expected and a shift in campaigns to advertising types that the company chooses not to handle. He also believes the company may be offering conservative guidance.
"Millennial remains well positioned to capture a major share of the rise in mobile ad budgets, and we think that 2013 will be an inflection point in the industry," the analyst said in a research note.
Fetyko has a "Buy" rating on the shares.
SHARE ACTION: Shares fell $5.10, nearly 36 percent, to $9.23 in midday trading. The stock is close to the bottom of its 52-week trading range of $9 to $27.90.
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