Contrary to what my initial thoughts (and many others), Demand Media’s stock has held nicely since the IPO. The employees were not able to talk about the stock during DomainFest because they were in their quiet period but there was one thing I could sense. The people that received stock in the IPO were sure hoping that the price held. The higher ups were allowed to sell some of their shares at the IPO but everyone else has to hold the stock a certain period of time before they were allowed to cash a little in. As of late, it looks like they will all be fine.
Stifel Nicolaus was the first company to cover that gave it a Buy with a target price of 28. Goldman Sachs and Jefferies both gave it a hold. Here are the reasons according to Stifel Nicolaus, you should buy Demand Media
- Demand Media is better than anyone else at producing content people want to read, cheaply and in volume.
- Demand makes evergreen content that’s cheaper to produce and makes more money over time than other digital content providers (read: blogs).
- Sure, Demand is dependent on Google now, but they’ve been very good at SEO so far. The report points out that Google’s latest search tweaks hammered Demand’s competitors more than them. And getting more traffic from Twitter and Facebook means lots of potential growth.
- They can grow revenue by having more brand advertising. Right now most of Demand’s advertising revenue comes from Google’s AdSense, which is cheap. But they’ve hired away Yahoo’s Joanne Bradford to sell Demand’s premium site to brand advertisers, who are going to pay more. Demand does have a few premium sites like Cracked and Livestrong that are doing very well and could get lots of ad revenue.
- This is a “greenfield opportunity” where Demand has “economies of scale”, meaning it’s a big empty market where they’re the biggest and being big means you get bigger.
I don’t own any Demand Media stock. I have to admit my first instinct was to short the stock but I didn’t because I heard through the grapevine that DM wasn’t hurt by the new Google algorithm. I figure if they came through that OK they might have some legs. I also like the trend of their recent purchases. Especially the latest Cover It Live purchase. A small acquisition in the scope of things but it’s a trend of real content and content delivery. They are copying the AOL method of growth. Buy successful sites.
Overall, I’m glad to see the stock hold on because some friends are going to be able to make some money. There are plenty of things I don’t like but you can’t fault them for pushing forward with their business plan. Do everything in mass. Whether it’s buying or producing content