January 12, 2011 / 5:07 PM / 8 years ago

Demand Media moves ahead with $112.5 million IPO

NEW YORK (Reuters) - Demand Media Inc, which relies on search engine data and thousands of freelancers to churn out low-cost articles and video, set terms on Wednesday for a $112.5 million initial public offering.

The company employs 13,000 freelancers who contribute to websites including its own eHow.com and Gannett Co’s website for the newspaper USA Today.

In August, Demand Media filed for an IPO of up to $125 million. On Wednesday, the company and stockholders filed to sell 7.5 million shares for $14 to $16 per share.

Demand Media plans to sell 4.5 million shares while stockholders will sell an additional 3 million shares.

Since its founding in 2006, Demand has stoked controversy and intrigue among news editors because of its use of software algorithms to predict what stories readers want and the lifetime advertising revenue value from search engines such as Google Inc.

A December amendment to its filing to clarify the unique way it expenses the cost of creating videos and text recently drew attention to the planned IPO, according to the All Things Digital blog.

Instead of accounting for expenses when they occur, Demand Media spreads the cost over five years, arguing that it continues to generate revenue over that period.

Demand Media is the brainchild of Richard Rosenblatt, the former chairman of MySpace, who brokered the 2005 $580 million deal to sell the once thriving social network to Rupert Murdoch’s News Corp.


Demand Media offers a far cheaper option for content than staff journalists and could add pressure to the business model of traditional media outlets.

For its part, Rosenblatt, Demand Media’s chief executive, has said his company is not in the news business. Rather, Demand creates entertainment and instructional videos and text stories based on reader interest.

Rosenblatt’s public insistence that the company was “profitable” also has elicited criticism.

Demand Media’s revenue rose to $179.4 million in the nine months that ended September 30, up 25.5 percent from a year earlier. Twenty-eight percent of Demand Media’s revenue in the first nine months of 2010 came from Google.

The company’s net loss narrowed 25.1 percent to $31 million in the same period.

In a sign of the popularity of these businesses, Yahoo Inc recently bought Demand Media competitor Associated Content, and AOL Inc is in the process of offering a mix of professional and contributor-generated content.

Santa Monica, California-based Demand Media plans to list on the New York Stock Exchange under the symbol “DMD.”

Goldman Sachs and Morgan Stanley are leading the underwriters on the offering.

Reporting by Suzannah Benjamin in Bangalore and Clare Baldwin in New York. Editing by Kenneth Li, Joyjeet Das and Robert MacMillan

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