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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 of $42 million, according to our back-of-the-envelope math.

The San Mateo, Calif. company declined to comment on our math, but I’ll explain below how I derived it. I’m also assuming Admob keeps only a third of the revenue itself, giving the rest back to 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.

Why is $14 million something to get excited about? 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 really 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 foreign 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 the overwhelming majority of impressions are direct response, that is, paid only if someone clicks 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 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 to 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 the UK are actually better than in the U.S., although Asian rates are still a fifth or sixth of the U.S. (The company’s latest stat report provides notable perspective on global trends: U.S. impressions for Admob grew a meager 1 percent in May compared to April, while impressions in Indonesia soared 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: This piece has sparked a debate. HipMojo has a different, more critical point of view, while Mukund is more supportive of my piece with his look at the Indian market. Separately, consider coming to Mobile Monday this evening, where I’ll be moderating a panel including Admob’s head of marketing, Jason Spero in San Francisco. We’ll be focused on measuring mobile web traffic and where it’s coming from.]

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

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