Variety.com just published a cover story on Demand Media, Inc. (DMD) and its less than flattering.
The article entitled Epic Fail: The Rise and Fall of Demand Media starts out:
“Take note, Twitter: Not every tech company has a happy ending after a ballyhooed IPO.
Just look at Demand Media, the Santa Monica, Calif.-based firm some thought would revolutionize content production. Not long after the company went public in January 2011, its market capitalization soared to more than $2 billion, sending the then-5-year-old firm’s value briefly past that of the New York Times Co.”
“Compare those heights with where Demand finds itself today, having plummeted to roughly a quarter of its peak value.”
“Revenues for the most recent quarter were down year-over-year for the first time since that IPO. Co-founder Richard Rosenblatt is no longer CEO as of October”
“The chief exec’s role will be tough to fill given how steeply Demand has declined over its seven-year run. Changes in Google’s search algorithms have twice hammered the young company in recent years, leaving its few brands that managed to get significant marketplace traction, including eHow.com and Livestrong, hemorrhaging traffic.”
“The free fall of Demand serves as a cautionary tale for hype in the Internet age: No company burns so hot that it can’t cool off.”
“Early on, Demand used eNom’s 1 million generic domain names (such as “3d-blurayplayers-com”) to serve up relevant ads to people searching for specific topics. These “domain parking” pages were immensely profitable, generating north of $100,000 per day, according to a former Demand exec who requested anonymity.
“That’s $35 million-$40 million per year without doing any work,” the exec said.”
“But the tactic was fundamentally a bait-and-switch. Users landed on the pages expecting to find information on a subject and instead found an ad. To try to drive up traffic, Demand shifted its strategy, populating the sites with thematically related content. ”
“Demand then continued to build out the content-farm strategy, treating the domain-name registration business as largely separate from the content-production arm. Paying contributors comparatively little — usually less than $20 for a single article or video — it built up a stockpile of content against which it sold targeted advertising.”
“By April 2011, third-party measurement services were reporting that the Google changes had reduced traffic to Demand sites by as much as 40%. Demand issued a statement that the reports “significantly overstated the negative impact” of the change, but the stock took a dive — plummeting 38% over two weeks — from which it has not recovered.”
“While still the 25th most popular site on the Internet and on mobile in the U.S., Demand is bleeding out fast. ”
“The number of unique visitors across its entire network of sites has sunk 56% over the past year, to 52.1 million in October. ”
“Search isn’t the only place Google has stymied Demand. The company created three of the dozens of channels that Google subsid YouTube spent at least $100 million to fund in 2011, only to discontinue that funding.”
“To add insult to injury, Demand saw three key executives from its original team score big in online video production — but only once they left the company. Steven Kydd, Larry Fitzgibbon and Joe Perez launched foodie video hub Tastemade, which attracted $10 million in Series B funding in March.”
“Meanwhile, the company intends to spin off the domain-name services business, to be rechristened as Rightside Group.”
“Wall Street analysts wonder where Demand ultimately will end up in the coming months. The new CEO will have to quickly figure out a strategy to point Demand’s media business toward growth and profitability — otherwise, the company could be headed for a fire sale if its value keeps eroding.”
“It’s getting late,” a “Wall Street analysts is quoted as saying
You can read the entire article here.
Danny Pryor says
Not to gloat, but I predicted problems for Demand Media some time ago. In fact, it was early 2011. I was seeing it from the angle of a real content developer and from the perspective of an aspiring writer. http://bitly.com/19ha21G.
Demand Media has always produced fluff. If you want to read real information, none of their sites is the place to become enriched with knowledge or insight.
Samit Madan says
Michael, do you know if Rightside will continue to contribute to the Demand revenues?
I’m guessing the new gTLDs won’t, otherwise that might have positively affected the share price.
With the kind of assets they have, unlike some of the other IPOs we’ve seen, there’s no reason the stock should be so low, so might even be a buying opportunity here.
I’m actually less interested in market cap and more interested in profitability. By the sounds of it Demand is still a very profitable company…..I don’t have the figures on that. If they aren’t then something is seriously wrong with them. Often market cap is driven by emotion and speculation while profit underpins the actual strength of the company.
Domo Sapiens says
the key number is not only “earnings” but it needs to also factor “Growth”…
Michael Berkens says
Personally I think and have thought for a while that the domain side of Demand business is the valuable.
Not only do they have the 26 new gTLD’s they applied for but they own 50% of 107 of Donuts 307 new gTLD’s and is the back end provider of all of Donuts new gTLD strings.
That part of the company also owns the domain name registrars enom and name.com which should do very well in a new gTLD world
Samit Madan says
I agree sir, thanks for the reply.
I’m amazed that TLDH stock is going up and Demand stock is going down.
If even 10% of their strings are a success, their current share price will seem like a bargain.