News broke this week that Millennial Media (MM) entered a definitive agreement to acquire Nexage for nearly $108 million.
As a result, Millennial’s stock jumped by more than 16.9% to close at $2.07 on Tuesday.
Of course, purchasing Nexage could be seen as a “Hail Mary” for Millennial, as the company is likely desperate to end its 90% freefall since its IPO in 2012.
So is this the beginning of a reversal for the stock, or just a temporary blip?
No Amount of Lipstick Will Help…
Millennial Media is a Baltimore, Maryland-based company. It operates advertising and development platforms that access and analyze volumes of data to provide multi-dimensional views of individual consumer profiles for its customers.
Nexage is a privately held Boston company that has received more than $19.5 million in CrunchBase funding since its inception in 2006, and provides real-time bidding for advertisers who desire to automate the process of mobile advertising. The company counts the NFL and Reuters as customers.
Now, the deal for Nexage is worth $107.5 million in cash and stock, with Nexage shareholders receiving Millennial Media stock valued at $2.21 per share – a premium of 24% from Monday’s closing price.
Unfortunately, though, there’s nothing in this deal that portends a turnaround for Millennial Media.
The acquisition of Nexage comes on the heels of back-to-back quarterly reports that have proven disastrous for the company.
In its Q1 2014 announcement, Millennial reported $72.6 million in revenue against analyst expectations of $75.5 million – a miss on revenue of 3.84%.
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In Q2 2014, analysts expected revenue to meet or exceed $96.4 million, but Millennial was able to deliver only $67.3 million for the quarter – which translated to a revenue miss by a whopping $29.1 million.
Worse yet, Q2 2014 revenue of $67.3 million represented a decline from the $81.3 million reported in Q2 2013 – a year-over-year decrease of 17.2%.
But perhaps the most telling line in Millennial’s financial reports is its growing losses…
For Q2 2014, the company’s net loss soared to $15.1 million, compared to a net loss of $3.1 million in the second quarter of 2013 – a breathtaking decline of 393% year over year.
What did the company have to say about its poor performance?
It lowered its full-year guidance yet again…
Sadly, there doesn’t seem to be any significant improvement on the horizon for the company anytime soon.
Through guidance supplied with its second-quarter results, Millennial Media announced that it expects total revenue for the third quarter to be at the low end of $65 million to $70 million. And adjusted EBITDA is expected to show another loss of between $7 million and $8 million.
As the company has shown near-continuous weakness since its IPO, the acquisition of Nexage will do little, if anything, to stem the bleeding.
The company has significantly underperformed the S&P 500, as well as the internet software and services industry. That, coupled with the company’s declining ROE, indicates that the stock isn’t worth the risk of owning – even at these levels.
In a nutshell, no amount of lipstick will make this pig pretty. The decline in shares today is just further proof.