Demand Media Has Abandoned Its Golden Goose

Oct. 14, 2011 6:16 PM ETLeaf Group Ltd. (LEAF)9 Comments
Tim Chen profile picture
Tim Chen

I believe Demand Media has essentially given up on content farming, the company's core business.

Management seems to have finally completely capitulated on trying to deploy new capital into its golden goose -- content farming. Freelance writers are complaining all over the blogosphere about the lack of work available at DMD studios these days.

It's my opinion, based on conversations with many institutional investors in my hedge fund network, that investors originally ate up the IPO because content farming was generating a 58% IRR on every dollar invested.

To put that into layman's terms, invest another $100 million into new "How To" articles, and Shazaam! Earnings will increase by ~$58 million a year. Frankly, until Google started de-ranking content farms, there was a rational justification for the company's premium valuation.

Google's tweaks have likely swung the content farming IRR from highly positive to a negative IRR. If this were not the case, the company would be negligent not to give their freelancers new assignments. Our latest eHow proprietary data shows that things are getting even worse after the latest Panda revision on October 9, 2011.

Please reference our previous posts to see how numbers have trended over time:

  1. April 14, 2011 - we broke the news that eHow rankings had started declining; stock was at $21.35.
  2. June 22, 2011 - broke the news that eHow rankings had dropped again; stock at $14.33.
  3. We believe eHow rankings have sharply dropped again.

Our crawl data:

  • Feb 19 - 1,680 top 10 hits at an average rank of 3.06 (Pre Panda 1)
  • Mar 02 - 1,892 top 10 hits at an average rank of 3.05 (Post Panda 1)
  • Apr 10 - 1,996 top 10 hits at an average rank of 2.95 (Pre Panda 2)
  • Apr 16 - 1,341 top 10 hits at an average rank of 3.39 (Post

This article was written by

Tim Chen profile picture
CEO, NerdWallet. Former Hedge Fund analyst.

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