Demand Media Prices Above Range; Largest Internet IPO Since Google

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Online media platform and domain name registry Demand Media raised $151 million by offering 8.9 million shares at $17, above its expected range of $14 to $16. The company originally filed to sell 7.5 million shares (of which 3 million were to be sold by insiders). The Santa Monica, CA based company, which had raised over $350 million from Oak Investment Partners, Spectrum Equity, W Capital and Goldman Sachs (among others), will begin trading on Wednesday on the NYSE under the symbol DMD. Goldman, Sachs & Co. (NYSE:GS) and Morgan Stanley (NYSE:MS) acted as joint bookrunning managers on the deal.

Demand Media is a rapidly-growing new online media platform that leverages an army of freelancers to churn out massive amounts of content optimized to rank high on search engines, particularly Google. This point became a hot topic over the last week following the release of Google's fourth quarter earnings, in which Google subsequently posted a blog hinting that it intends to become more proactive in combating low quality content, including articles produced by "content farms". While Demand Media's business experienced accelerating momentum in 2010 thanks to its ability to generate large amounts of targeted traffic for advertisers, many have questioned the long term sustainability of its model. We raised many of these issues in our Pre-IPO Research on Demand Media, although we submit that it probably will not matter in the near term given the small size of the offering, huge growth projections and investors' seemingly insatiable demand for high-growth (and arguably disruptive) Internet/technology IPOs.

Demand Media generated over $250 million in sales in 2010, up 27% over the prior year owing to accelerating growth in both its content and domain name businesses. EBITDA, as reported by the company, surged to $60 million, up 63%. The company's operated web properties, most notably and, collectively attract over 105 million unique users per month and now rank 16th based on monthly web traffic.

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