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Category: Demand Media

Demand Media, after 4th-quarter loss, projects better 2012

Richard Rosenblatt Demand Media

The Internet can be a cruel mistress.

Demand Media Inc. found that out the hard way. A year ago the Web company, awash in traffic, was the darling of Wall Street, valued at $1 billion in a Jan. 26 initial public offering.

Three months later, Google Inc., which had sent millions of visitors a day to Demand’s websites, modified its search results to de-emphasize destinations deemed to have lower-quality content. The change throttled the Santa Monica company’s traffic nearly 25% between January and July.

Wall Street turned against the company, driving its stock from a lofty $24.57 in March to $5.62 by October.

On Thursday the company — whose properties include Livestrong, eHow and Cracked.com — reported a $6.4-million loss on $84.4 million in revenue in its fourth quarter, which ended Dec. 31. It had posted a $1-million profit on $73.6 million in sales a year earlier.

“The business that they took public changed fundamentally when Google changed its algorithm,” said Patrick Walravens, an analyst with JMP Securities. “The business model they had for producing content no longer works. So what’s the new model?”

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Demand Media stock reels on Morgan Stanley downgrade

Demand Media
Demand for shares of Demand Media dropped Wednesday after a Morgan Stanley analyst downgraded the Santa Monica company's stock and expressed skepticism that the website operator could continue to grow its online audience.

Demand Media, whose stock soared 33% to $22.65 on the day of its initial public offering a year ago, shaved off 42 cents, or nearly 7% of its value, to $5.92 in late afternoon trading. Demand operates a number of websites, including LiveStrong.com and eHow, that publish hundreds of thousands of quick, pithy how-to and advice articles and videos on a broad range of topics, from dieting to planting tomatoes.  

Morgan Stanley analyst Scott Devitt, in his note on Demand Media, said the company's approach to mass producing content is under pressure as Google and other online search engines penalize sites that are deemed to have lower quality offerings.

Because Demand relies so heavily on Google in particular for its traffic, changes in the search company's algorithm have led to a precipitous drop in viewers coming to its sites, Devitt said. Demand lost nearly a quarter of its user base last year -- going from 124 million visitors in March to 94 million in December, he wrote.

Demand scrambled to boost its appeal to search engines by focusing more in "premium" content in October, but Devitt concluded, "We find little early evidence of success." 

The Morgan Stanley downgrade came on the heels of news that three of the company's six co-founders had resigned Jan. 30. They include Larry Fitzgibbon, who had spearheaded Demand's efforts to grow its overseas audience; Joe Perez, executive vice president of product; and Steve Kydd, who headed the company's video unit.

A Demand Media spokeswoman declined to comment on the departures and the downgrade, citing an inability to speak publicly during a quiet period preceding its fourth quarter earnings announcement, set for Feb. 16.

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Demand Media to serve up travel articles for USA Today

Demand Media prospectus values company at $1.24 billion

-- Alex Pham

Photo: From left, co-founder and mergers and acquisitions chief Shawn Colo, president and CFO Charles Hilliard, and co-founder and CEO Richard Rosenblatt. Credit: Stefano Paltera / Los Angeles Times

 

 

Zynga files long-awaited IPO plan, hopes to raise $1 billion

Zynga2 Zynga Inc. finally lobbed its long-awaited bid to begin selling its shares on the New York Stock Exchange, joining an illustrious list of technology companies that have enjoyed successful initial public offerings this year, at least during the first days of their IPOs.

The 4-year-old San Francisco company -- whose social games CityVille, FarmVille, Empires & Allies and Zynga Poker make up the top four most popular applications on Facebook -- boasts more than 271 million players who have fired up one of its 57 games at least once in the last month, according to AppData.com.

Zynga's filing with the Securities and Exchange Commission on Friday follows stock offerings from a cluster of Internet companies, including Pandora Media Inc., LinkedIn Corp., Yandex and Demand Media Inc., whose lofty debut prices were reminiscent of the 1990s technology bubble that burst over a decade ago.

Pandora, the latest to go public, was initially priced at $16 on June 14, but plummeted to $12.94 by June 17 on concerns over the Internet radio company's prospects for becoming profitable. Its shares have since recovered and were trading at $20.66 at midday.

Zynga, in its filings, did not disclose a share price, the number of shares it will offer for sale or when it expects to begin offering its stock. The company hopes to raise $1 billion.

"Bankers are very aware of the Pandora fiasco and would not like to see a repeat of that," said Nitsan Hargil, senior analyst with GreenCrest Capital Management in New York. "They are likely to price Zynga much more conservatively."

Mark Pincus Zynga differs from Pandora in another key respect. The company reported profit of $90.6 million on $597.5 million in annual revenue for its 2010 fiscal year ended Dec. 31

"Zynga is a company with real revenue and real profit," Hargil said.

Founded in 2007 by Silicon Valley serial entrepreneur Mark Pincus, Zynga has built an empire out of selling virtual goods for its games.

Named after Pincus' late French bulldog, Zinga, the company amassed funding from high-profile investors such as Kleiner Perkins Caufield & Byers, Avalon Ventures, Foundry Group, Softbank and Andreessen Horowitz. Private investors include MTV founder Bob Pittman, LinkedIn Chairman Reid Hoffman and Clarium Capital Chairman Peter Thiel.

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Zynga builds an empire of social gamers

Pandora Media prices its shares at $16, above expectations

-- Alex Pham and Dawn C. Chmielewski

Photo: Mark Pincus at his home in San Francisco in 2007, the year he founded Zynga. Credit: Jakub Mosur / Los Angeles Times.

Demand Media now in the black, posts debut earnings ahead of forecast

Demand Media, an online publisher whose initial public offering earlier this year was a hot commodity on Wall Street, posted its first profitable quarter Tuesday.

The Santa Monica company, best known for its how-to articles and videos, reported a $1-million profit on $73.6 million in sales for the fourth quarter ending Dec. 31. The results were better than what Demand Media had forecast in its IPO filing, which projected sales to be between $71.5 million and $73.5 million. It also predicted net income to be somewhere between a $1.9-million loss to a $600,000 profit.

Since its launch in 2006, Demand Media had racked up $53 million in losses until the fourth quarter.

Its positive margins appear to be temporary. The company said it expected to dip back into the red in the current quarter and for the fiscal year. It projected operating losses between $7.1 million and $8.6 million for the current quarter, and between $1.4 million and $7.4 million in losses for the full year.

Its shares, which gained 24 cents to close at $22.88, lost 48 cents in after-hours trading following the downbeat earnings forecast.

-- Alex Pham

 

 

Demand Media IPO to yield bumper crop for content 'farm'

DemandMediaLogo Demand Media, pilloried by critics as a content farm, is about to harvest a bumper crop.

The Santa Monica producer of how-to articles and videos on Tuesday priced its initial public stock offering at $17 a share, above the expected range of $14 to $16 a share. The new price would give Demand Media a market capitalization of just under $1.5 billion.

Demand, whose shares will begin trading on the New York Stock Exchange on Wednesday, also hiked the number of shares sold in the IPO from 7.5 million to 8.9 million. That's roughly 9.6% of the company.

The higher quantity and price hike reflect healthy pre-orders from investors, said Ben Holmes, an IPO analyst at MorningNotes.com.

For more on the IPO, read our article on our sister blog Money & Co.

-- Alex Pham

 

 

Demand Media IPO prospectus values company at $1.24 billion

Demand Media Richard Rosenblatt Demand Media, the Santa Monica-based mass producer of Web content, filed to raise up to $138 million from the sale of 7.5 million shares of the company in an initial public offering Jan. 25.

The offering, expected to be the first IPO of 2011, pegs the company's market capitalization at $1.24 billion, should the shares succeed in trading within the $14 to $16 range targeted by its underwriters, Goldman Sachs Group and Morgan Stanley.

In its prospectus filed Wednesday with the U.S. Securities and Exchange Commission, Demand Media said it posted $3 million in losses from $179 million in revenue for the first nine months of 2010, compared with a $30-million net loss from $198 million in revenue for all of 2009. You can read more about the company from its filing.

Demand Media has a topsy turvy reputation among the journalism elite, many of whom regard the company's approach as the industry equivalent of fast food. But among investors, Demand Media enjoys a reputation as one of the few content producers with an attractive business model and financial promise.

The company has a network of 13,000 freelancers who produce hundreds of thousands of articles and videos for sites such as eHow on evergreen topics such as how to keep rain from flooding one's backyard or how to throw a baseball. Freelancers are paid based on how much Demand Media expects it can get in advertising revenue from the articles or videos, generally between $10 and $20 apiece.

-- Alex Pham

Photo: Demand Media Chairman Richard Rosenblatt. Credit: Stefano Paltera / Los Angeles Times.

 

 

 

 

 

Santa Monica's Demand Media files initial public offering

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Demand Media Inc., an emerging media company whose editors and freelancers create online stories and videos based on the information people are searching for, filed an initial public offering Friday.

The document does not indicate how much the 4-year-old Santa Monica company hopes to raise from investors. A spokeswoman and attorneys for the company declined comment.

Demand Media has been among a clutch of online companies -- including About.com, Answers.com and Mahalo -- seeking to corner the how-to market. It employs its own software secret sauce to analyze search terms and draw from a pool of 10,000 freelancers to write about topics as varied as how to make small talk or how to select a multi-function printer, or create videos illustrating, say, the best exercises to remove cellulite. They churn out about 5,700 articles and videos on a typical day, according to the company's regulatory filing.

The new media company seeks to identify relevant subjects that will not only catapult it to the top of Google's search rankings, but also lure advertisers. Demand Media said it derived about 45% of its revenue for the first half of the year from advertising.

Indeed, ad revenue has grown steadily since 2007, and for the first six months of the year brought in $114 million, according to its prospectus. However, Demand Media has yet to turn a profit. For the first half of the year, it reported a loss of $6 million.

Demand Media provides content to its own websites, such as eHow.com, Livestrong.com and Cracked.com. Its videos, which are also distributed on YouTube, have generated more than a billion views. According to comScore, its collection of websites attracted more than 86 million visitors in June, ranking it as the17th largest Web property in the United States.

Mainstream media companies, including Gannett Inc.'s USA Today, hired Demand Media to create and maintain a new travel section for the newspaper's website called Travel Tips. 

The company also runs an Internet domain name registration service.

Demand Media's co-founder and chief executive, Richard Rosenblatt, is a veteran Internet entrepreneur. He served as chief executive officer of Intermix Media Inc., parent company of the social network MySpace, which he helped grow to one of the most popular hangouts on the Web -- and subsequently sold in 2005 to News Corp. for $580 million. 

Rosenblatt also founded iMall, a site that allowed consumers to create their stores and conduct business online. It was sold in 1999 to the now-defunct Excite@Home.

Demand Media's current stock offering is led by Goldman Sachs and Morgan Stanley, with underwriting from UBS Investment Bank, Allen & Co., Jefferies & Co., Stifel Nicolaus Weisel, RBC Capital Markets and Pacific Crest Securities.

-- Dawn C. Chmielewski

Photo of Demand Media Inc. co-founder and CEO Richard Rosenblatt poses for a photo in the company's headquarters in Santa Monica, Calif., June 23, 2008. Photo by Stefano Paltera/For The Times

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