After Tuesday’s market close, Demand Media (DMD) came up with its earnings and both the top and bottom lines came in ahead of expectations, very slightly. I did not get a chance to verify the market reaction at the opening and since I do not use intra-day stops, it did not matter much anyway. However, when I did look, Demand Media was doing incredibly well, rising nearly 20% on the day and leaving my trade at -30% or so.
Here is the two-day chart for DMD:
[Click all to enlarge]
However, those who had taken Demand Media to these incredibly highs seem to have ran away at 10AM EST or so, leaving the stock to tank. Look at this year-to-date chart:
Impressive post-IPO performance, eh? That is what happens when a company relies on an unproven business model, has a shaky accounting history and depends heavily on a company, Google (GOOG), that is trying to send less of its business to properties like those DMD owns (often referred to as content farms). I still do not understand how Demand Media could have closed at $8.98 on Tuesday, reached $10.75 (a 20% gain) only to end the day 23% lower than its high of $10.75. I know the markets are volatile and undecided these days, but can someone provide any type of explanation?
I’m obviously not complaining as my trade on Travelzoo (TZOO) and Demand Media now stands at a much more reasonable -11% (with my annualized return at 165%).
