Demand Media Prices IPO Above Range

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 |  About: Demand Media (DMD)
by: SA Editor Mohit Manghnani

Demand Media (NYSE:DMD), a Internet-based content company, priced its IPO 25th Jan., above its expected range at $17 per share, with a first-day return of 33.2%.

Business Overview (from prospectus)

We are a leader in a new Internet-based model for the professional creation of high-quality, commercially valuable content at scale. While traditional media companies create content based on anticipated consumer interest, we create content that responds to actual consumer demand. Our approach is driven by consumers' desire to search for and discover increasingly specific information across the Internet. By listening to consumers, we are able to create and deliver accurate and precise content that fulfills their needs. Through our innovative platform—which combines a studio of freelance content creators with proprietary algorithms and processes—we identify, create, distribute and monetize in-demand, long-lived content. We believe continued advancements in search, social media, mobile computing and targeted monetization will continue to be growth catalysts for our business.

Offering: 8.9 million shares at $17 per share. Net proceeds from the offering will be used for general corporate purposes.

Lead Underwriters: Goldman, Sachs & Co. (NYSE:GS), Morgan Stanley (NYSE:MS)

Financial Highlights:

Revenue for the nine months ended September 30, 2010 increased $36.5 million to $179.4 million as compared to $142.9 million for the same period in 2009...Service costs for the nine months ended September 30, 2010 increased by $12.2 million or 15% to $95.2 million, as compared to $83.0 million in the year-ago period...Sales and marketing expenses for the nine months ended September 30, 2010 increased by $2.4 million or 17% to $16.8 million, as compared to $14.4 million in the year ago period... Product development expenses increased by $3.7 million or 24% to $19.1 million during the nine months ended September 30, 2010, as compared to $15.4 million in the year ago period...Net loss for the nine months ended September 30, 2010 decreased by $10.4 million to $31.0 million as compared to $41.4 million in the year ago period...

Competitors

The online content and media market we participate in is new, rapidly evolving and intensely competitive. Competition is expected to intensify in the future as more companies enter the space. We compete for business on a number of factors including return on marketing investment, price, access to targeted audiences and quality. Our principal competitors in this space include traditional Internet companies like Yahoo! (YAH) and AOL (NYSE:AOL), both of whom are making significant investments in order to compete with aspects of our business. For example, in 2010, Yahoo! acquired Associated Content, an online publisher and distributor of original content. Associated Content allows anyone, both paid and non-paid content creators, to publish content in any format, and connects the content to consumers, partners and advertisers. In 2009, AOL (AOL) launched Seed, a content and media platform that helps create online content for distribution across all of AOL's properties. However, we believe we compare favorably with these companies with respect to the focus, experience, scale, proprietary technology and processes and editorial control that characterize our content creation operations. Additionally, we compete with web portals that focus on particular areas of consumer interest such as Glam, WebMD and About.com for online audiences and marketing budgets. With respect to our social media tools we compete with several private companies such as Jive Software and KickApps. However, we believe, we compare favorably with these companies with respect to breadth of product features, flexibility of integration and scale of customer usage.

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