Demand shares rise on solid Q1 revenue

Demand Media's Q1 is marked by better-than-expected revenue while it gets spanked by Google

Shares of Demand Media ended the day up 3%, on the first day after reporting better-than-expected quarterly results.

Demand Media had good news and bad news at Thursday’s earnings call. First the bad news, because it’s standard practice: Google’s new plan to sweep the Internet clean of bad content has given eHow (one of Demand’s many Web properties) a significant beating. The good news: Demand’s revenues were higher than anyone expected in its first quarter as a public company. And then the bad news again: the company still isn’t profitable.

(Editor's note: Demand Media co-founder and EVP of M&A, Shawn Colo, will be giving a keynote at Vator Splash LA on May 26, at The Highland Hollywood. Use Vator20 for a 20% discount when you register here. Discount expires May 10)

Demand Media reported $79.5 million in revenues in Q1, an increase of 48% over Q1 2010, when the company posted $53.6 million in revenues. Wall Street had predicted Demand would report some $69.9 million in revenues, so Demand can give itself a little pat on the back for that one. But it might not want to pat too confidently, as income was still non-existent. In fact, losses were higher this year than they were in Q1 2010. Demand posted a net loss of $5.6 million in Q1 2011, compared to a net loss of $4.1 million last year.

So Demand saw a dramatic increase in revenues, but is still no closer to turning a profit…

But that’s the GAAP financial summary. The non-GAAP financial summary shows that Demand Media’s net income for Q1 was $5.1 million, an increase of 121% over last year, when the company posted a net income of $2.3 million. But Demand’s “non-GAAP” method of calculating its net income likely stems from its unorthodox accounting practices, in which it extends the up-front cost of paying writers and editors over the course of five years with the rationale that the pieces they produce are long-lasting stories that will continue to get Google hits for years to come.

But that’s not the case anymore now that eHow has taken quite a spanking from Panda, Google’s tweaked algorithm. The website saw a 20% decline in traffic and a 12% drop in total page-views. To remedy the situation and ensure that Panda doesn’t swallow anymore of its traffic, Demand is jazzing up its content offerings. It has officially discontinued its eHow user-generated content program and the company has teamed up with Rachael Ray, who will be the creative mastermind behind eHow’s Food Channel. Additionally, the company joined forces with the ever-feisty Tyra Banks to launch TypeF.com, an interactive fashion and beauty website that encourages women to embrace their own unique styles.

"Outperformance in Q1 was driven by ongoing revenue growth from our content library, combined with strong direct brand advertising sales,” said Demand Media’s president and CFO Charles Hillard in a statement. “Our raised fiscal 2011 guidance reflects our better-than-expected first quarter results as well as our continued reinvestment in content and diversifying sources of traffic and revenue."

Image source: demandmedia.com