MobiTV Pulls Its IPO: Unfavorable Market Conditions, Or Unfavorable Business Model?

At the end of August, mobile TV and video platform MobiTV filed its S-1 and announced its plans for a $75 million initial public offering. Founded in 1999, the company had been one of the early movers in the movement to bring live and on-demand TV to mobile devices, which led to partnerships with NBC, ESPN, Disney, CBS, and a bunch of other sizable media companies. The company closed over $100 million in outside investment in their time, had partnered with the big four carriers, and revenue was on the rise, so it seemed like a company on the road to a successful IPO, right?

Wrong.

Yesterday, the company essentially withdrew its public offering, citing “unfavorable market conditions.” Yes, in the wake of the Facebook IPO debacle, some companies got cold feet, and others would say it put a “freeze” on the IPO market, especially for tech companies.

However, IT service management company ServiceNow had, by most accounts, a successful IPO at the end of June. What’s more, travel search engine Kayak is moving forward with its plans to IPO, recently pricing shares between $22 and $25. The travel search engine has seen its IPO delayed on a number of occasions (it originally filed for an IPO in 2010), and its CFO left to pursue other projects, even joining the advisory board of a competing, next-gen flight search startup.

Certainly, Kayak still relies on ITA for its flight inventory and questions have been raised about the sustainability of its model, as next-gen competitors emerge and focus on personalization, granularity, and the world beyond price comparison. However, in the first quarter of 2012, Kayak saw year-over-year revenues increase 39 percent to $73 million and, as Sarah wrote last week, the company has been focused on product advancements, launching a redesigned iPad app, a new website UI, a more universal consumer experience, direct booking, and ramping up its mobile experience.

Palo Alto Networks is also on course to IPO soon, recently pricing its public offering between $34 and $37 a share, as it plans to sell 6.2 million shares. At the top of the price range, its valuation could reach $2.5 billion.

If these companies IPO successfully, it will go a long way towards warming that “freeze” in the IPO market. And, by all accounts, these two companies will get there — and fairly soon.

Which then raises the question, is MobiTV’s withdrawal of its IPO a result of a horrid IPO market, or something else?

Well, the fact of the matter is that, as Ryan wrote at the time of its initial filing, things didn’t look too pretty for MobiTV. It actually kind of makes you wonder what the company was thinking.

In its most recent S-1 amendment, MobiTV admits that it has a “limited operating history and a history of losses.” Really, the company has yet to turn a profit, taking a loss for the past three years. In 2008 through 2011, MobiTV showed losses of $25 million, $14.6 million and $14.7 million, and most recently, $11.7 million. Sure, those losses are declining, but it’s still in the red. As of December 31st, 2011, the company had an accumulated deficit of $120 million.

The company depends on four customers for most of its revenue (the four major carriers), and if any of those four were to terminate their relationship with MobiTV the company would be in trouble. It would be hard pressed to replace that revenue source, i.e. the company has few options in terms of supplementary revenue sources. They make this clear in the language of their S-1.

What’s more their customers control end user relationships, pricing and terms, and the market they’re operating in is constantly in flux, fragmented, and extremely competitive. Again, as the company says, “many of our current and potential competitors have greater resources than we do and offerings by over-the-top providers may cause consumers to reduce their demand for mobile content through carrier-branded services.”

Yep. MobiTV’s end users are seeing a growing landscape for mobile content that’s filled with choices, as Netflix and Hulu don’t have to depend on carriers, and that’s where most customers are going at present. Makes it hard to imagine that carriers are going to stick with them in the long run as things get tighter and customers opt for other sources for their mobile content.

What’s more, the company has been seeing its cash deplete at a fairly alarming and consistent rate, and with salary and benefits, it was paying its top five executive just under $3 million. All the while its four carrier customers make up about 96 percent of its revenue.

MobiTV is quickly trying to find its way into some fixes, mentioning strategic acquisitions, international expansion, and investing in R&D and managed services, but it’s hard to see how these lead to better margins — and none of this really makes one feel great about the future of the business model, with the tenuousness of its entire business should one customer choose not to renew its contract.

In some ways, it was a wonder that the company was tapping the IPO market, but we now see that it has decided that wasn’t such a good idea. Whether an IPO is in the cards in the future remains to be seen, but things sure don’t look rosy the way they stand now. Especially in such a rapidly changing and dynamic market.