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Jul 7, 2008

STATS: Mobile ad company Admob is about to mint money

Mobile ad company Admob is about to mint money

Advertising on mobile phones is a trying market. Americans have been slow to surf the mobile web, in large part because dominant carriers have made browsing the web so painful.

But one young company, Admob, is showing impressive results despite all this, according to interviews and an investigation into the overall ad market. Admob puts ad banners on mobile web pages run by companies like ESPN, CBS and Weather Underground. Based on its current performance, the company is getting gross annual revenues $42 million in revenues, according to our back-of-the-envelope math.

The San Mateo, Calif., company declined comment on our math, but I’ll explain below how I derived it. To conclude, I’ll assume that Admob keeps only a third of the revenue itself, giving the rest back its publisher clients. This is a conservative assumption: Its rate card says it keeps 40 percent, but market analysts say Admob cuts its larger clients a better deal. That gives Admob about $14 million annually.

What’s so good about $14 million? Well, in part, it’s because the industry is by most accounts about to embark on break-neck growth. The U.S. market for mobile display advertising is expected to more than double each year through 2011, exploding to $1.2 billion by 2012, from about $100 million this year, according Yankee Group analyst Linda Barrabee. She prepared one of the better analyses of revenue data I’ve seen to date (she drew on multiple sources of data in an industry where there’s no real good data). I don’t have a link to her report, but hope to post it here in an update. Her numbers do not include ads displayed by your phone’s search engine results.

So Admob has a sizeable chunk of the market. And it’s got exposure in foriegn markets where the mobile web is seeing stronger growth.

Now on to the math. Here’s how I approximate the $42 million for Admob’s annual run-rate:

1) Costs: Admob has about 80 employees. The cost of a fully loaded employee is somewhere between $150,000 and $200,000 in Silicon Valley, once you consider salary, healthcare, laptops, their share of server costs, etc. Let’s assume $180,000 for Admob, as it’s backed by the respected venture firm Accel Partners. That gives you a cost of about $1.2M a month. Now, we’ve also heard on solid sourcing that the company has just “broken even.” That suggests the company is making about $14.4 million for itself, and making $42 million or so in topline.

However, to be sure, let’s triangulate the costs with what we know about revenue.

2) Revenue, based on public data, and conservative assumptions: Admob publishes its monthly impressions. In the U.S. they’re at about 1.5 billion. Also, we know that overwhelming majority of impressions are direct response, that is, paid only if someone click through, not on a CPM basis. Let’s assume a click-through rate of about 0.75 percent, which is a fair assumption in the U.S. Let’s estimate a revenue per click (CPC) of 18 cents, which is also ballpark considering U.S. norms. That gives the company about $2 million a month in revenue. However, there’s a caveat. A portion of those AdMob’s impressions are paid on CPM, and that does tend to pay better. I’ll assume, based on what I’ve heard, that Admob gets about 20 and 30 percent of its U.S. business on this basis. So you do some subtraction, and then some addition back in, and we’re at about $2.2 million in the U.S. give or take. Meantime, the U.S. only makes up 45 percent of total impressions. To achieve the annual $42 million topline estimated above, Admob would need to get global monthly revenue of $3.5 million, which is quite conceivable. We’re hearing rates in UK are actually better than in the U.S., though Asian rates are still a fifth or sixth of the U.S. (The company’s latest stat report provide notable perspective on global trends: U.S. impression for Admob grew a meager 1 percent in May, compared to April, while impressions in Indonesia roared by 46 percent, as Admob turned on ads for Friendster, the largest social network in Asia.)

Conclusion: I might be off a million or two on the annual figure, but it’s clear Admob has gotten itself a nice little business, despite the bearish comments made by some people about a weak trend in mobile advertising. Indeed, we’re early in the game. With mobile advertising about to grow so quickly, Admob looks headed to IPO-type revenues within three years.

[Update: HipMojo has a different, more sobering point of view on mobile advertising. Separately, consider coming to Mobile Monday this evening, where I'll be moderating a panel including Admob's head of marketing, Jason Spero in SF. We'll be focused on measuring mobile web traffic and where its coming from.]

Admob is a nominee for best company at MobileBeat, our mobile conference on July 24.

The iPhone's Next Victim: Fledgling Mobile Ad Networks (AAPL)

iphone-your-ad-here.jpgThe mobile ad business has barely gotten off the ground, but it's already got an early winner: AdMob, a mobile ad network that serves up some 3 billion impressions a month. VentureBeat's Matt Marshall thinks the company is close to breaking even on about $14 million in net revenue. In a few years, Matt figures, AdMob will be an IPO candidate.

Our worry: That in a few years, AdMob will find itself pushed out of the industry it helped pioneer...

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