Last week, I wrote an article highlighting several speculative stocks I went long on. One of the companies, Demand Media (DMD), announced earnings Tuesday. And it continues to impress.
Note to the legions of Demand Media haters: If you did not listen to the company's Q2 earnings call, you're even less qualified to spew uninformed opinions than you were prior to the IPO and before or after the Q1 report.
First, the numbers did nothing short of knock the ball out of the proverbial content farm. You can view them here.
As noted in the past, I am not much of a numbers guy. I prefer to focus on a company's business model and the story it's telling. In Demand's case, it's the real deal. Consider some of the highlights:
- While reinforcing the notion that it creates content people want, Demand noted, on the call, that it intends to develop a "socially-driven" content recommendation engine similar to what Amazon.com (AMZN) employs to drive e-commerce sales.
- Nobody asked about this on the call, so I telephoned Demand President/CFO Charles Hilliard about it. I asked point blank: Could the content recommendation engine become a product that Demand offers to other content providers, such as newspapers? If so, it could serve as another revenue stream for the company, similar to Amazon Web Services. Hilliard's response: "In the spirit of conservatism ... stay tuned." That response makes me bullish.
- On Google (GOOG): Hilliard told me that Demand does not have communication with the search side of the business that houses the engineers. Google's most recent search tweaks had only a 6% impact on the company's FY 2011 revenue. As Hilliard told me, "We'd like to have that 6% back," but the diversity of the company's business helps protect it against this type of thing. Demand does, however, have a relationship with the advertising side. In fact, the company just extended and expanded that relationship with Google.
- As part of the new deal, "Demand Media properties will be included in premium, brand-safe channels within Google Display Network Reserve." During this initial run, Demand receives placement along with other content providers hand-picked by Google. Again, I asked Hilliard straight-up, "Does this mean that this side of the business considers Demand a partner?" He answered in the affirmative.
- On the call, Demand made it clear that it intends to get even more aggressive with social media. Its purchase of Graffiti RSS will help facilitate this goal.
- I like Demand CEO Richard Rosenblatt's distinction between search and social: People who conduct searches know what they want. Demand fills the niches by creating content that targets what people are searching for. With social, content comes across your feed. You don't know what you want until you see it. Demand can drive traffic and, in turn, revenue using an Amazon-like approach (my words there, not Rosenblatt's) that drives people to the properties it owns and provides content for.
- Rosenblatt discussed a focus on the 18-34 demo. In articles I write regarding terrestrial, Internet and satellite radio, I bring up that key age group for advertisers quite a bit. I also discuss the need for content companies to be able effectively sell that demo to ad agencies. Demand's acquisition of IndieClick shows the company gets it in this regard. On the call, Rosenblatt spoke of being able to offer advertisers access to this demo across several of its sites, including Cracked.com, which remains the top online destination for comedy, according to comScore.
In summary, the comparisons I have made between Yahoo (YHOO) and Demand Media hold relevance now more than ever. Demand's executives and employees run with tunnel vision. Much more than eHow, the company is everything Yahoo wants to be. Eight-hundred pound gorillas like Yahoo often have trouble keeping track of all of their moving parts, getting lean and not only maintaining, but establishing focus in the first place.
There's plenty to be bullish about at Demand Media, particularly at prices way off the highs set during the IPO euphoria. With the Q2 report history and as forward-looking as ever, I expect we'll see investors fill the gap between these new lows and the aforementioned highs. But, they'll do it on more than the Google news. They'll do it because Demand Media continues to prove that it's about more than the one thing its detractors have now been proven wrong on.
Once and for all, the Google-eHow noise can be put to rest and investors can do what Demand Media does so well: Focus on a future the company will dominate. The future of of how people seek, find, share and consume online and mobile content.
Disclosure: I am long DMD.
Additional disclosure: I am long DMD via the DMD November $12.50 call options.