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Demand Media (NYSE:DMD)

Q1 2014 Earnings Call

May 08, 2014 5:00 pm ET

Executives

Tridivesh Kidambi -

Shawn J. Colo - Co-Founder, Interim Chief Executive Officer and Interim President

Mel Tang - Chief Financial Officer and Principal Accounting Officer

Analysts

Sameet Sinha - B. Riley Caris, Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Peter Lowry - JMP Securities LLC, Research Division

Laura A. Martin - Needham & Company, LLC, Research Division

Operator

Good afternoon. My name is Jessica, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Demand Media First Quarter 2014 Results Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Vice President of Finance, Tridivesh Kidambi. Mr. Kidambi, you may begin your conference.

Tridivesh Kidambi

Thank you, operator, and good afternoon, everyone. On behalf of Demand Media, welcome to our first quarter 2014 conference call. You can find our related release, along with supplemental materials, posted on the Investor Relations section of our corporate website located at ir.demandmedia.com.

On the call with me today are Shawn Colo, our interim Chief Executive Officer; and Mel Tang, our Chief Financial Officer. Following the Safe Harbor statement that I will make, Shawn will update you on our business. Mel will then provide details on our first quarter financial performance and key operating metrics. Following the prepared remarks, we will open up the lines for Q&A.

Before we get started, we need to make the following Safe Harbor statement. We would like to remind everyone that during today's conference call, management will make certain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from our current expectations discussed in such forward-looking statements. In particular, comments about our anticipated future revenue, earnings, operating expenses, page view and growth rates, as well as statements regarding our business strategy and objectives, plans, intentions, operating outlook and planned investments are considered forward-looking statements. Factors that could cause actual results to differ materially from anticipated results are detailed in our press release furnished to the SEC.

I would also like to point out that during this call, we will discuss certain non-GAAP financial measures while talking about the company's financial and operating performance, including revenue ex-TAC, adjusted EBITDA, adjusted EPS and certain free cash flow metrics. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures can be found in the financial tables included at the end of our press release.

Lastly, before we begin, I would like to remind everyone that today's conference call is being recorded and that it is also available via webcast on the Internet through the Investor Relations section of our corporate website. A replay will be available on our website.

With that, I will now turn the call over to Shawn Colo, our interim CEO. Shawn?

Shawn J. Colo

Thank you, everyone, for joining, and welcome to our 2014 first quarter results call. We delivered a quarter in line with our expectations, and our strategic outlook and enthusiasm for the Rightside business, as well as our Content & Media platform, remains unchanged. We are investing a significant amount of time and energy not only in growing these businesses but also in preparing for their standalone success.

Let me begin with Rightside. We are very encouraged by the positive momentum we are seeing overall for ICANN'S new gTLD program. To date, the industry has seen more than 650,000 names registered with 165 extensions launched into the sunrise or general availability phases. That's up from 90 extensions in the previous quarter. As a reminder, there are a number of phases an extension goes through before it's generally available to the public. It takes approximately 16 weeks for an extension to progress from sunrise through the general availability phase. As more names enter general availability, we expect to see accelerating domain name registrations for each gTLD.

The quarter ending March 31 was the first full quarter of operations for our new registry platform, and already, Rightside is one of the most prominent players in the market with more than 100 of these extensions leveraging our back-end registry platform. That's almost double the number we had on our platform last quarter. So far, we have processed nearly 500,000 domain registrations, up from the 150,000 we reported to you on our last call. Participation by major brands and trademark holders, as well as strong adoption and promotion by third-party registrars, are leading indicators of the strength of this market.

Our efforts to acquire new extensions and increase the size of our owned portfolio of gTLDs are also gaining steam. We now have 29 registry operator agreements signed with ICANN. That's up from 14 we had in place last quarter. We will continue to focus on expanding our portfolio further and look forward to sharing more specifics with you on some of the newly acquired additions in the coming weeks. As a reminder, in addition to the 29 extensions for which we have signed operator agreements, we also have another 80 applications in process through our partnership with Donuts.

Rightside's mission goes beyond just the gTLD opportunity. We are building an end-to-end service model that advances the way businesses and consumers to find and present themselves online. Through our vertically integrated registry, registrar and value-added services, we provide a complete solution for our customers. We're the only company of scale providing this end-to-end service model, and this gives us a competitive advantage in the market along with dramatically improved revenue, margin and free cash flow opportunity. This strategic focus has enabled us to gain an early lead across the industry.

We have processed more than 70% of all gTLD registration, and our eNom and Name.com registrars have achieved market shares that is well in excess of several of our larger competitors. In fact, our market share for end-user gTLD registrations is more than double that of our legacy .com and .net market share on Name.com. With continued execution, we expect to translate this early lead into revenue growth and strong profits going forward.

Now turning to our Content & Media business. As I mentioned on our previous call, we have a number of incredibly valuable assets that are well positioned in their respective categories, and we will continue to make investments where we see attractive long-term returns. Within the Media business, we remain focused on our core initiatives for the year, which include driving growth across Society6 and Content solutions, as well as an overhaul of eHow.com. I'm pleased to say we've made progress on all fronts. This progress will not be evident in our near-term quarterly financial results, but qualitatively, our team continues to make great strides that we believe will translate into a return to revenue and profit growth for the business over the long term.

Let me start with our core media property, eHow. Growth in this property will result from sustained focus on content quality and product improvements. It's early days, but we are seeing a positive response to a number of new content formats such as expert blogs. We saw page views from bloggers more than double month-over-month in March. Incorporating independent voices from across the web in a more open and engaging format is a key part of our strategy to rebuild the site. We have a big opportunity to help these bloggers reach a global audience and promote themselves in the process. Our development teams are creating tools and infrastructure to ensure that these creators have visibility into a number of core audience and engagement metrics, and we'll be rolling out new features in the coming months with this specific creator community in mind.

In order to fulfill our mission to be the most helpful site on earth, we are transitioning eHow back to its roots as a platform. With more than 80 million people per our internal data visiting the site each month, eHow is well positioned to become a platform where bloggers can amplify their voice, expand their reach and earn more money in the process. As some of you may recall, creators used to add content directly to the site. This proved difficult to manage from a quality standpoint, and the controls that we put in place resulted in eHow becoming more of a static reference site and less of a social experience. The market has changed a lot since we made that decision, and it's apparent to us that the winners in the Media business will look a lot more like marketplaces and a lot less like traditional publishers.

This marketplace view is consistent with our acquisition and investment in Society6. Once again, success will be determined by how well we serve not only the consumer but also the creator, who in this case is an artist as opposed to a writer or a filmmaker. The Society6 team made great progress this quarter developing tools for our member community and launching new products for our consumers. Membership continues to grow on Society6. There are now more than 560,000 members, up more than 10% quarter-over-quarter. We rely on our members to upload new original designs, and we saw an increase of 35% year-over-year in image upload in Q1. We also rely on members to promote the work of other artists, which feeds the algorithm that determines which works are featured on our homepage and category pages. During the quarter, we completely redesigned the My Society section, making it easier for members to promote, share and discover new and emerging artists.

We continue to focus as well on supporting members through collaborations with brands and by highlighting selected members through in-depth profiles and interviews. We also continue to educate our members on how to improve their sales and gain overall visibility for their work.

On the consumer side, we improved the overall experience on several fronts. We launched a new homepage that incorporates lifestyle photography that better merchandises our products and enhances the Society6 brand. We also optimized our Society6 mobile store, increasing conversions by 10% in the process. The team executed well from a product launch perspective, too. Three new products were introduced during the quarter: wall clocks, rugs and shower curtains. All of these efforts are clearly resonating with consumers. In March, more than 20% of customers were repeat buyers, a number of which we expect will grow going forward.

At the same time, we've been able to diversify our revenue across product categories such as home decor. In fact, when you look at revenue growth from products excluding phone cases, it was up 50% year-over-year in Q1. While new products are propelling growth, we continue to see strong demand for existing products such as art prints as well. Revenue from art prints was up 27% year-over-year in the quarter.

Lastly, let me update you on our content solutions business. Like our other core initiatives, this business also has marketplace characteristics and leverages the experience we have managing freelance creators at scale. We continue to invest in this platform in order to serve the needs of both creators and brands. Market feedback on our full service offering has been very positive, and we are seeing repeat business from several of our large brand partners. Our customers work with us because of our ability to meet their needs at scale and quality levels. In addition, they choose us because of our extensive and proprietary data, which we use to ensure maximum impact of the content we create for them.

As we mentioned on our last call, content marketing is a $40 billion market, and we see it growing even bigger as brands work to figure out how to integrate content into their marketing plans in a scalable way. Organizationally, we continue to look for opportunities to sharpen our focus across the business. During the quarter, we executed our plan to focus on programmatic advertising and partnerships as a way to monetize our inventory more effectively. Specifically, we partnered with Electus to create one of the leading combinations in the Humor category, which allows us to focus on content and audience development and leverages Electus' branded ad salesforce. We've also entered into agreements with Grupo Cisneros to represent ad sales in Latin America and Healthline to represent pharma ad sales for LIVESTRONG.

In closing, we're on track to complete the spinoff of Rightside, and because of the team's hard work and preparation, we've positioned ourselves as a leader in a new and exciting global market for domain name services. Similarly, our core expertise of building scalable platforms for creators will lay the foundation for growth in the future for our Content & Media business. This foundation will result in a business with marketplace characteristics that is diversified across advertising, commerce and subscription revenue streams.

Before I turn the call over to Mel, I'd like to add that the search for a permanent CEO of our Content & Media business is ongoing. And in the meantime, I will continue to work closely with our teams as we execute on our strategic initiatives.

With that, I'd like to turn the call over to Mel to review the financials. Mel?

Mel Tang

As Shawn noted, Q1 performance was in line with our expectations. We have continued to achieve growth in key areas while also beginning to lay the foundation for stabilizing other areas of our business. During the quarter, growth in Society6, Content Solutions and our Registrar businesses partially offset the year-over-year impact of continuing traffic declines to our Owned & Operated properties that started in the second half of 2013. Importantly, our Registrar and registry businesses made significant progress this quarter in the new gTLD initiative, and we continue to be on track to spin off Rightside later this summer.

Let's discuss our first quarter results in more detail. Revenue excluding traffic acquisition costs was $87.4 million, down 8% year-over-year, driven by the year-over-year impact of continuing traffic declines to eHow and our shift away from direct display advertising, partially offset by S6, Content Solutions and international revenue growth, as well as 11% year-over-year growth in Registrar revenue.

Adjusted EBITDA was $11.5 million, reflecting a decline in high-margin advertising revenue from lower traffic, coupled with a mix shift to lower-margin commerce and Registrar revenue. As we noted last quarter, we are now including gTLD expenses in adjusted EBITDA, which were $2.3 million in the quarter. If we excluded the impact of gTLD expenses, comparable with treatment last year, adjusted EBITDA would have been $13.8 million. Free cash flow was $2 million, reflecting lower adjusted EBITDA and the timing of certain working capital payments, as well as lower CapEx and purchases of intangibles.

More specifically, year-over-year, Q1 Content & Media revenue ex-TAC decreased 19% to $48.3 million. Owned & Operated revenue was $40.8 million, driven by Owned & Operated page view growth of 22% to 4.6 billion, driven by mobile page view growth of 170%, offset by desktop page view declines and RPMs of $8.86, reflecting a mix shift to mobile and programmatic sales, offset partially by commerce revenues from Society6. Revenue per visit on our Owned & Operated properties was up slightly year-over-year to $0.04, primarily driven by the addition of Society6.

Now on to network. Network revenue ex-TAC was $7.5 million, reflecting lower year-over-year revenue from our domain monetization and Pluck social tools businesses and our previously announced decision to reduce the number of websites we represent as part of our IndieClick network, all partially offset by growth in our Content Solutions businesses. With respect to network page views and RPMs, network page views were 1.8 billion, and network RPM ex-TAC was $4.07, related to the removal of lower monetizing network pages from our IndieClick network.

On to our Registrar. Revenue was $39.1 million, up 11% year-over-year, driven by 10% year-over-year growth to 15.4 million domains under management due to Name.com. Annualized revenue per domain, or ARPD, of $10.32 increased 1% year-over-year due to a mix shift to higher Name.com ARPD.

Since our last call, we have made significant progress to prepare for the separation of Demand Media into 2 standalone entities. Starting March 1, we started testing the operational readiness of separate Rightside functions and processes we built over the past year such as accounting and HR. Currently, a majority of our Rightside operations are now operating separately, which is a big milestone ahead of the spinoff. The exact timing of the spin is still subject to a number of conditions, including completion of audited standalone financials, satisfaction or waiver of certain requirements under our credit facility, as well as market and business conditions. Assuming these and other conditions are met, we remain on track to complete the separation by the end of this summer.

Similar to last quarter, I will provide high-level estimates for revenue breakdowns for each business in Q1. Specifically, the 2 revenue segments for our media business are advertising revenue and commerce and other revenue. In Q1, advertising revenue, which again is comprised only of advertising-based revenue and exclude advertising revenue from domain monetization, was approximately $33 million. This is down 31% year-over-year, primarily due to lower traffic to our Owned & Operated properties and our strategic shift towards programmatic, higher CPM direct ad sales. Commerce and other revenue, which is primarily comprised of all transaction-based and other non-advertising revenue, was approximately $11.7 million. This is up 91% year-over-year, primarily due to revenue from Society6 of $6.7 million, more than offsetting declines in our Pluck business.

For Rightside, the 2 revenue segments are domain services revenue and aftermarket services revenue. In Q1, domain services revenue, which primarily represents domain registration fees and value-added services, was approximately $38 million. This is an increase of 13% year-over-year, driven by growth in domains under management and ARPD growth from higher ARPD Name.com domains. And aftermarket services revenue, which represents premium domain sales and advertising revenue from our O&O and partner-owned domains, was approximately $7 million. This decreased 44% year-over-year.

With respect to the adjusted EBITDA of each business, we estimate that in Q1, margins were as follows: Content & Media standalone adjusted EBITDA margins of approximately 25% and breakeven standalone Rightside adjusted EBITDA, reflecting over $2.3 million in OpEx during the quarter relating to the new gTLD initiative, without associated revenue recognition in the quarter. Note that this margin does not include incremental standalone public company costs.

Turning now to consolidated operating expenses. Q1 GAAP operating expenses were $103.6 million, up slightly year-over-year. Excluding depreciation, amortization and stock-based comp, total operating expenses were $81 million, driven by higher cost of services due to increased registration costs related to growth in our Registrar business, including Name.com, as well as approximately $5 million of product costs associated with merchandise sales, partially offset by lower TAC year-over-year.

Product development expense growth year-over-year as we ramped infrastructure investment in our commerce initiatives and in preparation for the launch of gTLDs and higher G&A expenses due primarily to $1.2 million of costs related to spinoff preparation fees within the quarter, all partially offset by lower sales and marketing expense due to our decision to transition away from direct display advertising sales and a reduction in marketing activities.

Excluding spinoff and restructuring costs, total operating expenses, excluding depreciation, amortization and stock-based comp, would have been approximately $78.2 million. This takes us to Q1 cash flows.

Cash flow from operations was $5.7 million due to lower adjusted EBITDA, as well as increases in spinoff, restructuring and gTLD operating expenses. Discretionary free cash flow was $5.3 million, reflecting lower adjusted EBITDA and the inclusion of gTLD operating expenses, partially offset by decrease in capital expenditures. In Q1, we generated $2.2 million of free cash flow after the investment in content.

A brief update on our balance sheet and liquidity. At March 31, we had approximately $268 million of liquidity comprised of $154 million of cash and equivalents and over $110 million available under our credit facility, net of our outstanding letters of credit. Rightside is also exploring options to augment its balance sheet and financial flexibility following the spin, which could include financing for banks or other sources.

In conclusion, Q1 results were in line with our expectations, and our outlook remains unchanged for the longer term. Again, our longer-term goals are the following: a return to growth for Demand Media standalone revenue driven by eHow and continued growth in our Content Solutions and commerce businesses; Rightside revenue growth and domain name service revenue from the new gTLD opportunity, partially offset by continued declines in domain parking revenue; and margin expansion to continue free cash flow generation for both businesses.

We will continue to make focused investments in 2014 against our key initiatives: the new gTLD initiative, reestablishing our leadership position in the how-to category, driving Society6 growth and building our Content Solutions business.

That concludes my prepared remarks. I would now like to open the line for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Sameet Sinha from B. Riley.

Sameet Sinha - B. Riley Caris, Research Division

A couple of questions here. So I just wanted to get a better understanding. So the 500,000 of domain names processed, is that 500,000 out of 650,000 or the 500,000 out of the total number of domain names that were registered in Q1? And just following up on that, in terms of programmatic actions, sorry, I'm going to switch topics here, just moving on to programmatic, can you update us on the efforts there, how much of the RPM decline was due to programmatic in your opinion? And what sort of trends are you seeing as you apply -- as you start using this technology? And have you seen any increases that you'd expect to for the year? Or do you think that's going to happen more towards the end of the year? And my final question would be can you elaborate on this marketplace concept for your Content & Media business? Specifically, I mean, the competition for bloggers, especially expert bloggers, is very high. There's so many alternative platforms. What would attract them to Demand Media? That's it.

Shawn J. Colo

Okay. I think on the first question, I think you'd asked if it's 500,000 of the total universe, which is correct. On the second question, as it relates to programmatic, what I commented on earlier, Sameet, was that we are making -- our team has done a lot of work to get ready for programmatic. Our systems and processes have been built out. Our team is getting built out. And what we're starting -- obviously, there's a lot of real interest in the market for premium programmatic, right? And again, the things that we talk about from a premium programmatic standpoint are things like reserved inventory, better segmentation and product enhancements. So if a brand wants to buy skins, for example, which are generally very high CPM units, you can't do that today via premium programmatic. But those are the things that are ongoing. And I would say that we do see some progress on those fronts from a product and technology standpoint. And obviously, we're working pretty closely with Google on a lot of those things. I suspect that we're going to start to see some of those things roll out towards the back half of the year. And as it relates to CPMs, I don't think we've commented specifically. Maybe Mel can clarify on the impact from the shift from branded to programmatic.

Mel Tang

Yes. what we said last time was CPMs are at a discount from desktop, direct sold or -- just direct sold to a tune of roughly kind of 50%. I think that is consistent with what we've seen in the marketplace thus far. But as Shawn mentioned, once we get more underway and products get rolled out from our partners, we should start to see some of those CPMs tick up in the latter half of the year.

Shawn J. Colo

And on the -- so on the marketplace concept, in some cases, we actually do that very well today. You what I mean, Society6 is a real marketplace business and has a real focus on creators. So right, creators and artists, our members, are going there to promote and sell their works on a global basis and learn from one another and do all those sorts of things. And even Cracked, for example. Like Cracked has several hundred to 1,000 freelance writers who come to this virtual writers room to create content in order to reach the Cracked audience, build their own brands and earn money in the process. And as you know, I mean, the Studio is also a creator platform. And our Studio seems to have been doing a good job recruiting and segmenting talent, and we we're looking increasingly at talent that has a much bigger social following. And so the big opportunity is -- well it's a challenge is on eHow, and I think we're pretty well positioned on eHow to attract that base, which we're starting to already, by the way. I think we have probably 50 or so bloggers contribute for us in the first quarter, which is probably up from like 3. So we are attracting that talent. And when you've got a site that is a leader in a category, I mean, it's 80 million people a month coming to that site, we've got a platform for them to expand their own brands and to reach a broader audience. And generally, that's the kind of dynamic that you need for a marketplace. It can't just be about getting paid to produce a piece of content. There's got to be a reason. I mean, that's part of the equation. Obviously, these bloggers are trying to build their own brands and businesses, but it's got to be better than that. And for us, we see a lot of people are doing this right in the marketplace where in many cases, it's about the tools and the technology and what kind of dashboards and things you can offer these creators that keep them engaged. So directionally, that's where we're headed with the Media business, and I would much rather start from where we're starting, which is pretty significant scale with millions of people coming to our sites already.

Operator

Your next question comes from Brian Fitzgerald from Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Shawn, maybe a quick follow-up on the programmatic and the premium programmatic. You mentioned you're kind of putting the pieces in place. Is it more infrastructure buildout? And you mentioned it could come later then at the end of the year. How should we think about when you get everything in place, does it inflect or does it ramp very quickly? So one question on that programmatic piece. And then on Society6, what are you finding is the most efficient way to drive traffic to that site. Thanks.

Shawn J. Colo

Okay, so let me touch on the first piece, which is programmatic and does it ramp. I mean, obviously our ability to drive increasing revenue across the business is a function of audience and audience growth. So it's important for us to continue to focus on the product changes we're making to stabilize and start to grow the audience. And as I said, we are working closely with a number of parties, including Google, to ensure that we are -- and we are at the front of the queue as we start to -- as we and they start to roll out some of these new product features. And then lastly, it's just continuing to be out in the marketplace talking to brands. And again, this is where we leverage some of the experience we had in the past, working directly with brands because they know their audience converts. And so we continue to have pretty good relationships in the brand community, and so I think we've got -- we're putting the pieces in place to potentially see some of that acceleration in the back half of the year, but again, it's a lot of work and a lot of effort from the team and product development standpoint to make sure we hit it. And I think the second question you asked was on Society6 and driving...

Mel Tang

Most efficient way to drive traffic.

Shawn J. Colo

Most efficient way to drive traffic, yes. So we have been -- it's a business that we've owned for less than a year. And I think as we said, when we bought it, it was really a team of very few people, which we've ramped up very significantly over the course of the last 9 months. And one of the things that we're building as part of that is a very strong marketing and acquisition team. And I think that team really just started getting ramped up sort of towards the middle of the first quarter, effectively. So I don't think we have isolated yet the best way to start driving audience. But I know we've been very careful and cautious to be mindful of acquiring customers profitably with a view of what the long-term value and the long-term payback of that spend is over time. But I think there's a number of avenues we have yet to explore as it relates to building that audience base.

Mel Tang

Yes, I think that's right. I mean, one thing to just keep in mind is, obviously, most of our traffic comes directly and via referrals, artists referring people to their stores, via Facebook, et cetera. The other area I would mention is mobile. We've dramatically introduced a new mobile shopping experience on there. We're seeing accelerating mobile transaction, the mobile traffic coming through the Society6 mobile page. And then to the point where, again, marketing is relatively early for us, we're seeing very good success with emails, quite frankly, that do well in terms of conversion. So we're lucky to have, I think, the organic traffic, as well as properly positioned for mobile. And then as we ramp our marketing and acquisition team, we'll find increasingly efficient ways to drive traffic to the site.

Shawn J. Colo

Yes. And I think -- I don’t know if I mentioned it in the prepared remarks, but as we begin the rollout of some of other mobile products, like our app, which we're working hard on producing, this is the kind of product experience and commerce experience that really, I think, plays very well in the macro trends, especially as it relates to what we think of just the visual web, right? So this is a product that -- where the imagery makes all the difference and you've got a -- if you have an engaged member and customer base who are constantly consuming these images and looking at various products, I think it's -- and given the price points involved, we're excited about a lot of the things we can do going forward with Society6.

Operator

And your next question comes from Heath Terry from Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Shawn, curious, I guess, one, on the numbers with revenue in the Content business declining the way it is but still seeing -- it sounds like strong page view growth or traffic growth onto the site. Obviously, I get the shift to mobile. But is there anything beyond that, that you can sort of share with us, whether it's shifts within the properties at different monetization levels? Obviously, you've touched on programmatic. I would appreciate any sort of clarity you can provide there.

Shawn J. Colo

Yes, sure. Thanks, Heath. We are seeing continued growth in page views in international markets. So eHow in Español as a property continues to grow and do really well. It doesn't monetize yet anywhere close to the levels that our U.S. properties do and eHow.com does. I think it presents us with a good opportunity. And then the other is as we look at producing new content, and especially new visual content, oftentimes when that hits the site, it's broken up into a couple of -- the content unit is broken up into a couple of different pages. And so I think LIVESTRONG in particular saw some pretty decent page view growth as a result of some product format changes we're making. But again, it's really all the things we're doing from a product standpoint really kind of have that end user in mind. And so if we think that a longer-form blog post is a better unit, we're going to do that at the expense of potentially impacting future growth in page views. But for the most part, the format that we are bullish on, which are, again more visual and leverage a lot of the work that we're doing in the Studio, by way, with the continued rollout of original photography as a roll, that's partially what's driving the page view trends that you're seeing.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Got it. And so as you look at the transition to more of a platform for eHow and opening up content, obviously, that's something that you guys put up -- I would imagine, put a lot of thought in before deciding to do it. Is there something more dramatic on the content side of the business or some higher level of investment? You're obviously still very profitable from an adjusted EBITDA basis and have the ability to reinvest in the business. Is there something to sort of re-create what your Content business wants to be that you can do or that you're considering? Or should we expect more kind of incremental moves?

Shawn J. Colo

Well, I mean, I guess, when we look across the business, I mean, there really is -- unfortunately, there's no magic bullet that's going to just instantly turn the sites back into growth mode. So it's going to take a fair amount of time for us to get the business going and going in the right direction.

Mel Tang

Was your question, Heath, more in terms of, hey, are there large upfront investments we need to make in order to transition or kickstart as it relates to the expense trends or was it something else?

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Right. I mean, I guess is there willingness to say, you know what, we have ideas or we have something that we can do by making a bigger upfront investment in -- whether it's content, whether it's technology to sort of fundamentally change the direction or what your content business is at this point.

Mel Tang

I think there are pockets, as Shawn mentioned. You cited different things that may require more upfront than others. But there is no, hey, if I wrote x amount of dollars to make this investment, that isn't necessarily there. It is more incremental, in some cases maybe a little bit more dramatic, but for the most part, these are evolutionary steps.

Shawn J. Colo

Yes, yes, I agree on that.

Operator

[Operator Instructions] Your next question comes from Peter Lowry from JPM (sic) [JMP] Securities.

Peter Lowry - JMP Securities LLC, Research Division

A quick question. What's working well in mobile? And how are you adjusting your content to address that opportunity?

Shawn J. Colo

Well, I'll touch on mobile for a second. I think Mel mentioned that Society6 is really well positioned in mobile. And we did do a lot of product work in the first quarter to mobile-optimize the site. And we haven't mobile-optimized the entire site, by the way. So we've been -- we certainly have been focused on that. We saw a 10% conversion when we did that. So there's a lot of that type of work going on. I guess the other thing I would say is the continued focus on photography and imagery as a format and that, of course, we can -- we do a lot of work. And we can centralize some of that stuff with our Studio where we have a couple of hundred freelance photographers who can really create super high-quality images. And so that's one way to leverage that format across our entire portfolio of owned sites, and it's also getting a lot of traction on Content Solutions. So when brands are coming to us to work closely with us, the original photography is really starting to get a lot of traction with those brands and those clients. And I think it's a good example of how the business and -- the team has really evolved the platform that we've got over time.

Operator

And your next question comes from Laura Martin from Needham.

Laura A. Martin - Needham & Company, LLC, Research Division

Just a couple of things. One is on Europe. I guess because of the Snowden disclosures, Europe is going to take over administration of the Internet. Does that affect any of the registrar domain name allocations or timing? And then on the mobile, just building on the last question, I actually think that's exactly the right place to be. Could you talk about the CPMs or the pricing on mobile compared to kind of where the world is going versus desktop and how much of a headwind that is?

Shawn J. Colo

Yes. I guess on the first question as it relates to oversight of the Internet in general, we don't see that having any impact on the Registrar or registry business. Mel, do you want to talk about mobile?

Mel Tang

Yes. Mobile, right now, I mean, I think it's been relatively stable from a yield perspective relative to desktop. It's still in around at least what we see, about 50%. I think you can take a look at what other players have said, and we share this view, which is over the kind of medium term-ish, you'll start to see mobile CPMs converge, if not exceed, desktop. And I think that's a view we've been sharing consistently over the past few quarters, that the yield seems to have stabilized a little bit, around 50%, relative to desktop. But hopefully, we'll start to see some of that convergence over the next year or so.

Operator

There are no further questions at this time. I'd like to turn the call back over to the presenters.

Shawn J. Colo

Okay. Well thanks, everybody, for joining, and we look forward to keeping you updated as we go forward. Thanks.

Operator

This concludes today's conference call. You may now disconnect.

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Source: Demand Media's (DMD) CEO Shawn Colo on Q1 2014 Results - Earnings Call Transcript
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