Verizon's AOL buys Millennial Media for $250M to gain mobile ad platform

Verizon's (NYSE: VZ) AOL subsidiary is buying mobile advertising company and rival Millennial Media, giving it another leg up in the mobile ad market ahead of Verizon's imminent launch of its over-the-top mobile video service. The service, rumored to called "Go90," is expected to be free of charge initially to wireless customers of all carriers and advertising-based, and Verizon is betting that AOL's programmatic ad technology will help it deliver more targeted and relevant ads to customers by accessing their location and interests.

AOL is buying Millennial Media for $1.75 per share, a 31 percent premium to Millennial Media's closing price on Wednesday of $1.34 a share. The deal values Millennial Media at around $250 million. The transaction is expected to close this fall. Reports first emerged in July that AOL was interested in buying Millennial.

In an interesting twist, Millennial co-founder Paul Palmieri worked at Verizon Wireless from 2001 to 2005 and served as executive director of business development and programming. Millennial was founded in 2006. The company went public in 2012 at $13 a share, but its stock price has plunged since then amid financial losses.

Millennial says it has the potential to deliver ads to more than 65,000 apps and 8,000 mobile device types. According to research firm eMarketer, in the U.S., Millennial Media is expected to generate $101.2 million in mobile ad revenue in 2015, up from $97.8 million in 2014. Millennial will grow 3.5 percent this year in the U.S., compared with 23.1 percent growth in 2014. Still, Millennial is a relatively small player, as eMarketer expects the firm to capture just 0.3 percent of total U.S. mobile ad dollars in 2015, down from 0.5 percent in 2014.

In the U.S., eMarketer expects AOL to generate $1.16 billion in total digital ad revenue in 2015, up from $1.05 billion in 2014. Further, eMarketer expects AOL to capture 2 percent of the total digital ad market this year, down from 2.1 percent in 2014.

AOL said the deal will allow it to "add significant mobile brand advertising scale across One by AOL," its major ad platform. The deal will also give AOL access to around 1 billion global active unique users "and robust addressable and cross-screen targeting capabilities," as well as accelerate its mobile position in key international markets, including Singapore, Japan, UK, France and Germany. AOL is binging on Millennial's staff and called them "world-class engineering, sales and product talent that specialize in mobile."

In April, AOL unveiled One by AOL, an ad platform that lets advertisers optimize their ad campaigns across different channels including video, display and TV. As AOL has explained, the platform "is designed to combine data, attribution, and our buying platforms to provide advertisers with predictive analytics that provide immediate insights on metrics like reach, frequency and performance, and post-campaign insights that look across all screens and formats to deliver immediate impact on relevant metrics."

Wells Fargo analyst Jennifer Fritzsche said in a research note that the acquisition is designed to strengthen Verizon and AOL's programmatic advertising platform as it prepares to launch Go90, which is reportedly going to happen in the coming days. "This acquisition will help VZ monetize its upcoming OTT offering by enhancing its advertising scale and programmatic ad capabilities," she said.

For more:
- see this release 
- see this TechCrunch article 
- see this WSJ article (sub. req.)
- see this Bloomberg article 

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