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Two weeks ago, investors were showing more positive attitude toward Demand Media (NYSE:DMD). The share price of Demand Media had gone up by over 25%. And it should have been, going by the positive outlook of 2012 just released by the company then. This might have been the biggest gain since the company initiated public trading more than a year ago.

Unfortunately, since the last 3 days, the stock price has again fallen by over 10%.

Damn, I am confused. What is happening? Let's take a deeper look into the whole matter.

As reported to Reuters, for the first quarter of 2012, Demand Media said it expects adjusted earnings of 5-6 cents per share on $81.5 million to $83.5 million in revenue, which was roughly in line with analysts' expectations of earnings of 6 cents per share on $83.1 million in revenue. For fiscal 2012, the company expects revenue in the range of $351.0-$358.0 million, revenue ex-TAC in the range of $337.0-$344.0 million, adjusted EBITDA in the range of $92.0-$95.0 million and adjusted EPS in the range of $0.30-$0.32 per share, which was again roughly in line with the analysts' expectations.

"We enter 2012 positioned to expand our existing business lines while investing in areas where we see significant future growth," Chairman and CEO Richard Rosenblatt said. "We plan to leverage our data, studio and extensive distribution in new ways to solidify our leadership in the rapidly growing digital content marketplace."

What's my take on this?

On one side, I would really not buy into the optimism Mr. Rosenblatt shows. With the shaky one-direction business model and unreliable fundamentals, it is really hard to depend on Demand Media.

And this was manifested last February, when Google (NASDAQ:GOOG) rolled out the Panda update and Demand Media sites (mainly, eHow and Livestrong) suffered around 25% loss in traffic, which resulted in sufficient revenue loss for the company.

Let's take a look at the final quarter results of 2011.

Total revenue increased by 15% to $84.4 million last quarter, over the same period last year. "Content and media" revenue ex-TAC increased to $49.9 million last quarter, over the $43.5 million of same quarter year ago. Registrar revenue grew 17% year over year and 2% over the previous quarter. Yet again, the company incurred loss from operations amounted to $6.4 million, down from a profit of $1 million in the same quarter year-ago. Why? If you look closely, the company's page views have gone up by 22-28% but revenue per thousand impressions ((NYSE:RPM)) has gone down by 8% in the owned and operated sites, and 10% in the customer network sites. So, if you ask me, I would say this is a matter of monetization. A little bit of care, and it can turn around big time.

To add to that, how can we forget that Demand Media acquired IndieClick and RSS Graffiti last August? While IndieClick specializes in online advertising, RSS Graffiti specializes in development of social media products. I can hope that Demand Media will get leverage from these two acquisitions.

Moreover, Demand Media announced the renewal and expansion of its ongoing advertising partnership with Google last August. Why do I have this feeling that Google will secretly support Demand Media, because it also makes money from it? And it shows in the fact that eHow listings still come up high on Google Search results. And Demand Media also got into creating popular videos on YouTube, which is again owned by Google.

While many people will say that Demand Media is still operating an unproven business model, I would still hope that the world works in a more complicated manner than that.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Demand Media: What's Alpha About It?