Last week, two ad tech companies got rocked when they reported results.
First, Millennial Media (MM) came out on Wednesday with light revenues for Q1 and Q2. Then, it also pulled its full-year guidance, which it had previously reduced on the prior earnings call. The stock dropped by 40%.
It wasn't supposed to be like this. Millennial is the largest mobile ad network company out there today. It went public in 2012 and closed its first day of trading at $25. On Thursday morning, it opened up below $3.
Millennial has a new CEO, Mike Barrett. He built and sold an ad network company to Google (GOOG) called AdMeld a few years back. He then stayed on at Google working in mobile ad sales. But Ross Levinsohn, the interim CEO at Yahoo! (YHOO) at the time, lured Mike to come over and be the new head of sales for Yahoo. He was only on the job for a few weeks before Yahoo's board hired Marissa Mayer as CEO. Ross was soon gone and Marissa decided to tap an old Google buddy (who Mike had reported to at Google), Henrique De Castro. That was the writing on the wall and Barrett soon left Sunnyvale.
When Millennial hired Barrett at the start of the year, the company was going through its own tumult. Its stock had withered considerably and it acquired another big mobile ad network, Jumptap, in November last year. The former CEO of Millennial decided to step down and the company was handed to Barrett.
The idea behind the Millennial and Jumptap merger was to build the company's scale in mobile ad dollars. Together, the two companies did a combined $250 million in revenue last year. That's way ahead of their competitors that have been founded in the last few years.
But the big competitors to Millennial going forward aren't going to be the startups, but Google and Facebook (FB). How can Millennial compete? They believed scale would allow them to survive.
But the Jumptap merger has had some issues in integration and last week's earnings showed some real problems the company is having with performance-based ads. Apparently, several just pulled their ads in the quarter. These were for games and other ads like Progressive insurance.
Rocket Fuel (FUEL) then came out a day later with disappointing guidance. The stock dropped 30% overnight to the low $20s. It was a high-flying IPO last year, getting up to $70 after its debut, which led to a big secondary offering. Rocket Fuel has tried to differentiate itself as an ad broker by its artificial intelligence and rocket scientists who work for it.
What's next? Watch out for the Rubicon Project (RUBI) reporting tomorrow. It's holding its first earnings call after its IPO. If it also has tepid guidance, it should drop, even though it's already down considerably in the past two weeks.