Where Have All the Demand Media Haters Gone?

by: Rocco Pendola

I think we might be asking ourselves this question going forward. Of course, pundits jumped the gun and filed premature reports of Demand Media's (DMD) death when Google (NASDAQ:GOOG) decided to implement a major tweak to its search engine's algorithm. But, hey, it's the Internet age. We all have a voice. Why not shoot first and ask questions later?

"That's one of the ironies of this era. We're quicker to share half-baked opinions publicly. And now there's no way to take them back."

-David Pell, Gizmodo

Early results trickled in over the weekend. Indeed, Google's changes have had a significant impact on search results. They have managed to weed out a considerable amount of low-quality content or at least push it back several pages. Oddly, the site everybody loves to hate -- DMD's flagship eHow -- saw its Google search rank increase after the change. The tweak that rocked the farm did not spare DMD properties, however; Sistrix, the company that reported the results notes that the Sistrix VisibilityIndex for Answerbag and Trails.com decreased by 91 and 87 percent, respectively, after the Google change took effect.

The biggest losers included Wisegeek (-77%) and direct DMD competitors -- or so conventional wisdom says -- Suite 101 (-94%), HubPages (-87%), and Yahoo's (YHOO) Associated Content (-93%). eHow's Sistrix value actually rose by about 15 percent. It's key to note that these percentage changes reflect the change in the score Sistrix gives to websites based on keyword traffic and search engine ranking, not actual traffic. Using a similar methodology, another firm that tracks online search results, seoClarity (pdf), discovered similar losers and also noted that eHow, along with major retailers such as Amazon.com (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), and Target (NYSE:TGT), won big in this post-content farm killer world we now live in.

While I would like to hear from Demand regarding the Answerbag and Trails' declines (particularly Trails, which produces some pretty useful content if you like to hike), it's more than telling that eHow's visibility increased. Who knows what the future holds, but at the moment, my confidence in relation to going long DMD is growing. DMD responded to Google's move. I have been told that it doesn't plan on responding further. Instead, DMD executives head out of the scenic confines of Santa Monica this week to tell potential investors about the company's model and future plans. This is probably a better use of their energy.

I don't plan on jumping in just yet. I will, however, continue to listen. I suggest that investors listen closely to what DMD executives have to say in the coming weeks and during the firm's next conference call. Go back and listen to the last call. It's interesting that very few articles about DMD that have crossed the wire since the company's first earnings call as a public entity actually discussed anything of material from the call. Trust me -- there was a lot there. As is the case with any decision to buy or sell a stock, don't let rumor, innuendo, and uninformed rants influence your decisions. Heck, I don't even think you should listen to me. Listen to the company. Evaluate its arguments. Actually take the time to investigate what it does. Call people. Send emails. Ask questions. Do your due diligence -- don't let somebody else do it for you -- before making the decision to go long or short.

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

Additional disclosure: I conduct freelance and contract work for Demand Media. I did not provide them with advance warning about my Seeking Alpha articles, nor do I anticipate negative consequences as a result.