From the S-1 application Demand Media filed today is this little gem, that none of us would be too proud of saying if it was our own business:
“”We were founded in 2006 and have a limited operating history.”
“We have had a net loss in every year since inception.”
“As of June 30, 2010, we had an accumulated deficit of approximately $52 million and we may incur net operating losses in the future.”
“Moreover, we anticipate that our cash flows from operating activities in the near term will not be sufficient to fund our investments in the production of content and the purchase of property and equipment, domain names and other intangible assets and may never be.”
Wow.
Where do I go to buy some of this?
A loss since inception of $52 million and they may never have the cash flow to cover expenses?
Really?
My company Worldwide Media, Inc. has been in the domain business since 1997 and has reported a profit in every year since inception.
Of course we’re are not going public.
What the Hell are we doing wrong?
Yikes.
David
Clearly you and I have no idea how to run a “wall street” business
I love this business plan — where can I get one
Mike,
Making a profit?? So yesterday. Wall St. and Harvard. What will they think of selling next?
can I buy that business?
Does not surprise me. Rosenblatt has been a bragging and bullshitting about what a great company Demand Media is for years. I knew it wasn’t all it’s cracked up to be.
One of his companies that shall remain nameless. (But you know which one I’m talking about.) takes forever to pay us, is poorly run, and also made false promises.
WM,Inc
great logo, nice site artfully done.
Mike
Yes you may soon be able to buy part of it
@MHB
I had and interesting conversation with a very successful investor at at cocktail party in Manhattan last year. He told me, “You and your brother do well, but CCIN is still a private company and you’ll make much more money when you learn how to play the game.”
I knew exactly what he meant.
“A loss since inception of $52 million and they may never have the cash flow to cover expenses?”
Hmmm, Put in those terms it sounds like they’re flogging a dead horse, what’s the actual upside to their overall business plan? They don’t sound very confident.
Actually, it sounds pretty similar to how many of our banks & governments have been operating ….eeek, what a mess.
I was amazed when I saw the negative # for net profit. I couldn’t believe it!
The upside is that one day they will be profitable…keep cranking those articles out on ehow I guess.
Hopefully there will be more detailed filings as the IPO gets closer, so one can determine the profitability (or lack thereof) of each segment of their business.
I wonder if we’ll see GoDaddy file again soon, based on this filing by their competitor?
Demand Media’s revenue is setting records and net losses experiencing a downward trend. It looks to be a prudent investment. Smaller businesses need to pay attention to fundamentals, but larger businesses with vision can depend on trends. Think about Amazon. I remember working in online research and SEO for a little startup in 2000 in the same business as Amazon, and we gossiped how Amazon was losing $$ year after year. But I noticed, the gap was getting smaller, then finally it started breaking even. Finally it made a profit. That was in the days that Yahoo! ruled and Google was developing a reputation.
In retail, we gossiped about fashion houses. Even though they had bid names and advertised on TV, it took years before they quit losing $$, and that is just the nature of the business. Donna Karan was losing $$ consistently in the ’90’s.
I often wonder when I hear these things where does all the money go? Sure u can read their books and reports but does that really tell us who now holds this $52M? Someone somewhere out there recieved this money and is pretty happy about it. I doubt it was 52 million people each receiving a dollar. So who out there is actually better off from this or is the money just out in the either?
And furthermore who keeps giving these people money? I guess it’s the public next. Better lots of people lose a little bit of money each than just a few private investors. I guess good for wherever the money really ends up.
dotcom bubble #2 (aka the dot whatever bubble)… could it happen?
people just don’t learn. i think it could well happen a second time.
ivy league education means instant credibility. wall st. hype can only help. i’ll bet no investor could understand how the “technology” works. they could not explain it, step by step, to a child. kids can probably figure this stuff out better on their own anyway!
people should not invest in things they do not understand.
caveat emptor.
I wonder what their paychecks look like since 2006?
A part from over paying to play, stupid ideas whats left, the bottom line of one’s pocket over that of the company?
They are taking in well over 100M a year so it’s obvious that they do not lack income. It’s all just a matter of where it’s going.
Large salaries for starters. They probably have a private jet or two, a company yacht, and maybe a 150 foot Hummer limo.
The company itself might not be profitable on paper but the folks running it are living large.
When a company plans to go public within a couple years, they keep the salaries low and offer stock options.
I believe I saw that Rosenblatt made $ 250K salary plus $90-100K bonus. ??? That is chump change for him.
The real juicy stuff will show up in the red herring and the final prospectus.
It will be interesting to see the liquidity path of management.
Will Rosenblatt and gang run for the hills 2 yrs after the IPO?
They really can’t leave before then.
Like many companies like this, the management will make a fortune on paper because of the stock. If they can keep the company moving forward after the IPO and the stock price climbing, they will then dump the stock option shares.
And, with the corporation being flushed with cash after the IPO, you will see a number of acquisitions to make revenue continue to climb as well as the share price.
The 3 groups that will make out like a bandit from this IPO is
1. VC
2. Management
3. Underwriters
The people left holding the bag 2 yrs later. I wonder who???
I was blown away when I saw these numbers.
It explains why a number of current Demand Media shareholders have been trying to unload shares via private transactions. I know this because brokers have approached me about buying them. Since I have more than my fair share of exposure to the domain name asset class, I did not even consider it.
Now that I see the S-1, I have two thoughts:
1. The business is woefully capital inefficient.
2. They *have to* IPO. Nobody is going to buy the company right now and unless they got really good at selling assets on the quick, they will need the cash.
With Goldman and Oak in their corner, I would still expect them to get out — and soon. In fact, don’t be surprised if they raise more than $125 million.
As for the “Wall Street Game”, in the long run, the company valuation will regress to a market valuation that tracks to the fundamentals. That may be after Goldman, Oak and Richard have left the building. That is another story…
Anyway, I am happy for the valuation comparable, should it hold. After all, Epik is profitable. And similar to Professor Berkens, we did it the old fashioned way: creating value, and controlling expenses.
Wish them luck. Profligacy aside, there are some compelling assets under the hood.
@ WQ, you said “They are taking in well over 100M a year.”
The report states, $114,002 for the first six months of 2010 – up from $91,273 for the first half of 2009- a 25% increase! That’s impressive. Demand Media leads in content supply, which is the go to asset businesses are going to license, including the domain industry, to become content-rich. $125 million is not unreasonable. It looks like a sound business.
@ Rob, good on you for being profitable in this declining economy – keep it up! 🙂
Louise
Could be a cover up for what they really have made in profits. Peter Guber Entertainment Industry Mogul, recently joined board of directors.
Could be like the movie studios. They cover up profits and claim more expenses so as not to have to pay out profits.
I say call in forensic accountant. But again I think they are more hype then profit.
Without commenting on the viability of Demand Media’s business model…
Some of you are REALLY NAIVE.
Try to get a “broader perspective” (ie. learn something other than domains) on the business world & Wall Street.
In case you don’t know, the S-1 lists EVERY POSSIBLE CONCEIVABLE risk factor so that investors are aware of what they are investing in – so that the company does not get sued into oblivion if these “risk factors” come to fruition.
It’s standard procedure in any IPO.
That said, I think this investment – like almost every other PUBLIC “domain company” – will prove to be a turkey.
AKA Pump & Dump…
At first glance most any investor would be cautious about investing in a company which is operating at a loss. If a company is to eventually trade at some industry multiple of future earnings, what are those earnings projections and how is the company going to get there? Basically, what are management’s plans to turn the current operating loss around? Unfortunately the management of many public companies treat the company as a personal piggy bank so one would want to see evidence that this filing is not merely an attempt to cash management out. Is management in it for the long haul and is their compensation set to incentivize that?
I have this feeling that MHB is having a little fun with us. No doubt, Mike- more than probably most of us out here- has looked over many S-1 filings and NOT seen every scary scenario ever out there or which might come in the future… (“our receptionist went out with a janitor at BP in 1998… our CFO’s great-great grandfather might have had a baby sitter whose decendents owned a dealership which is said to have sold a Chevy convertible to Charlie Manson… there is a chance asbestos will be found in a building next door to one we might end up buying…Our CEO may somehow lose his fabulous tan…”
A lot of paperwork which goes into any “public” filing is simple, CYA stuff- also known as basic “Insurance.”
I’m really out of practice (by years) at reading S-1.
Like Roy said, majority are very similar, just different data.
When I first skimmed it the other day, I thought it was lacking indepth details compared to others. That is why I thought the red herring would have more. The second time I skimmed it, I think everything is in there.
Since, Demand is a new company there is not a lot of history.
But, I just realized they didn’t give indepth data about Enom.
Enom is over 10 yrs old.
The steps are
S-1 filed with SEC.
SEC approves it or request more details.
Majority of the time (in the past) they rubber stamped it.
Red herring is printed and the roadshows begin.
I believe the week before (?) the launch day, the final prospectus is distributed. All of the missing numbers and data are inserted.
In the past, maybe 500 IPOs are floated per year. I believe only 30-40 IPOs were marketed last year.
I know it is out there. Maybe, someone can locate a chart displaying
the quantity per year over the past 10 yrs.
I thought it strange they were bringing to market a company that has never made a profit and the potential profit not obvious in the future.
It is the content possibilities they are hoping Wall St. ‘buys’.
One of the ways to see if Rosenblatt is going to stick around, when does his employment contract expire? (I know it is in there. No interest in looking for it.)
The IPO will be successful if they can sell the content dream.
As we know, NameMedia and Godaddy tested the water for going public and
I guess Wall St. was just not buying the potential.
Rosenblatt is an excellent salesman. Maybe, he might be successful in
selling the dream.
Where is John?
He came from the brokerage side of IPOs.
He can shed more light on the topic than most of us.
We will not hear anything from Enom and Demand since the quiet period began with the S-1 filing.
(OK, I’m done discussing it.)
Guys
I didn’t even start to cover all of the CYA type of worst case scenarios contained in the S-1 because yes, I know that they have to spell out every potentially horrible thing that could happen to them.
What I talked about is what actually HAS happened to them, which is they have been in business since 2006, lost money in each and every year and have an accumulated loss of $52M.
So the question to be asked is what not are what are worst things that can happen from this point forward but what are the BEST things that can happen to them from this point that will switch them from a company that loses tens of millions to a company that will make tens of millions?
If they make a substantial part of their revenue from Enom, has it or will it gain market share?
If they make a substantial part of their income from Google for serving up ads will this number increase substantially?
or will profit come from new business like gTLD’s?
Where is the profit going to come from when the “golden years” of making money off domains parked at Google most believe has passed.
Meyer
The difference is that Godaddy.com own 50% of the market and its share is increasing and probably VERY profitable.
I bet they haven’t lost money in every year of its existence
1)retrun commensurates with risk (and viceversa)
2)At times I think people Overglorify/Romantacize the Domain Market , it pales in comaprison with many other product and services ‘ markets…. add dnjournal Monthly sales (Double or even Triple reported sales to guessestimate non-reported..add) and you won’t even come close to the Real Estate Sale$ in any given medium size city in one day .
3)How many monkeys does it takes to optimize a few thousand domains (even a Million)? , nowadays when parking solutions are very smart and semantic, in addition I feel parking is dwindling or at best reaching a Plateau which it was the chore the Domain buisness was founded upon , not to mention the monetary foundation it made what it is today…
I feel every year there is more and more domains held by this large Tunas that fail to get just enough revenue to pay their yearly renewal …
How many monkeys does it take to answer the couple of dozen price inquiries they might get a week?
I know there is more than meets the eye here and perhaps I am oversimplifying things but truly it boils down to overhead (Operating expenses) and the bottom line…
Doesn’t it Yun Ye kept about 1/2 of Marchex portfolio ?
I would love to see his Company’s Organigram and Balance Sheet (or Frank Schilling’s in the alternative) and compare it to MCHX , NM or DM…
Looks like Tyra Banks is becoming a Demand Media shareholder 😉
“Demand Media and Tyra Banks plan to launch a multi-platform digital presence embodying her unique philosophy of Beauty Inside & Out, closely supporting her core mission to expand the definition of beauty. Per the agreement, Tyra Banks will become a shareholder in Demand Media.”
http://www.demandmedia.com/press-releases/2010/06/29/demand-media-and-bankable-announce-deal-to-launch-a-beauty-and-fashion-online-destination
People have asked me what I meant by dotTV assets on my comments to Mike’s other story. It was sarcastic. They had exclusive on dotTV for some names you could only buy via them and never transfer to anyone else. They set up “ChannelMe.com” with Carson Daly as Demand Media spokesperson, and TV ads trying to become the next Myspace for video. Ron Jackson wrote about it. I wrote about it. But the dotTV emperor has no clothes. Yes they brought video to the forefront on their domains- but it was TV on dotCOM that THEY chose to execute for themselves (like ExpertVillage.com)
http://www.channelMe.com
http://www.enom.tv/
http://me.tv
http://fragerfactor.blogspot.com/2007/04/ron-jacksons-riveting-profile-of.html
http://fragerfactor.blogspot.com/2010/04/frank-schilling-gems-dottv-am-i-missing.html
http://techcrunch.com/2007/05/01/have-a-tv-domain-name-you-can-join-metv
As a brand ambassador you lead by example. There is nothing in the S-1 that shows they are bullish on dotTV and have the revenue generating powerhouse these links about alluded to
I totally agree with Domo Sapien’s comments. We are all caught up in this domain content world where we DON”T want to see beyond our nose. Well after investing thousands in this business lets face it it’s not all it’s cracked up to be. Especially we’re talking wall st.
After personal business dealings with Demand Companies I could see the writing on the wall. I was suspicious they were not making a heap of money that all were lead to believe. Now my suspicions are confirmed. Glad I saw this. Who cares about Tyra Banks. It’s not Oprah Winfrey or even close.
The profit could come from lower expenses after every nook and cranny of How To search video content has been produced. They’re doubling down with content producers now, but how many “How To Paint Your Ferret Cage” videos will ever need to be produced?
I scanned the SEC filing looking to confirm that AcquireThisName.com is in fact a Demand company front end for brokering Enom’s domain portfolio. While it wasn’t mentioned specifically, I do see that Matthew P. Polesetsky and Michael L. Blend are on both Demand’s and Acquire This Name’s incorporation filings. (Acquire This Name is incorporated in Nevada http://nvsos.gov/sosentitysearch/CorpSearch.aspx )
Anyone else find a high degree of sleaze factor in dealing with AcquireThisName, or was my experience an anomaly?
Two related thoughts come to mind:
1. We lose money on every sale but make it up on volume.
2. I don’t know where we’re going, but we’re making great time.
Aggro +1
Yeah volume in losses
Owens Point is a good one, although VeriSign owns the .tv registry all of those old premium .tv domains are still exclusively controlled by Enom if they are renewed by the current holders and will continue to carry renewal fees in the hundreds, thousands and even ten’s of thousands of dollars.
Of course I’m going to assume the renewal rates on these are going to go own substantially over the next few years as people opt to not renew their premium .tv domains and take there luck with re-catching the domain on the drop for a one time payment or even on the aftermarket for less than its costing the to renew
If .tv was such a Panacea for them…they wouldn’t be concealing the numbers.
More now than ever…
Google will eventually jack down demand medias margin.
such high revenue and still no profits. not possible at all
nowadays i feel like companies are on a new model
get huge money from investors, put into your pocket and show losses.
Sam
Lets not forget that alot of their revenue comes from Enom which is not a huge margin business.
I believe I read that they had around 10Million registrations at an average cost of Under $10 so that is $100 million in revenue but we know that the cost was $7.06 or over 70 million to ICANN and VeriSign alone
enom aside, what exactly is demand media’s business? is it hiring monkeys and paying them peanuts to type “content”? if so, computers can generate “content” just as well if not better, and all they require is voltage.
the folks at bell labs, for fun, wrote programs to do this back in the 70’s. they showed that a computer could produce, using random input, a paper that could get past peer review at an academic journal just as well as one written by a thinking(?) human. needless to say, the popular internet’s “peer review” standards are much lower than any academic journal. the premise for google’s pagerank algorithm is that popularity equates with “importance”.
have you ever retrieved one of those web pages that is just meaningless gibberish, keywords strewn together? this idea of cheaply generated “content” is hardly a new or original one nor one which requires taking the public’s money to succeed.
if there’s something more to demand media, please enlighten me.
@mhb
that’s what I’m saying , even if there is $1 profit per domain that’s $10 million profit a year.
now coming to their sites, even after paying writers and hosting , there should be no loss from this business, if no profit atleast.
so considering all this if there is no profit, even then huge amount of losses does not seems possible.
maybe demand media never had a plan. “their” plan came into existence only after they bought expertvillage and figured out what ev was doing.
there are serious problems with dm. they rely too much on databases that are controlled by other entities. if these entities decide to compete, and use their data for themselves, what will dm do?
to give just one example: google can watch the web in real-time. what can dm do? they can query a series of databases owned by other entities, make some educated guesses and throw up some videos. i see a small problem here.
and the patents being granted to dm… have you looked at those? they would doubtfully survive litigation. what are they worth if you can’t enforce them successfully? automatically generating reading material has been obvious to anyone with basic skills in the computer arts since the 70’s if not earlier. the only thing that is novel is that, with today’s internet and it’s ever-growing audience of new and often naive readers, one can actually *make money* by automatically generating such “content”.
yikes.
UPDATE
Interesting Article, CNN rips Demand
http://money.cnn.com/2010/08/12/technology/demand_media_profitability/index.htm
http://mrwavetheory.blogspot.com/2006/10/myspace-founder-accuses-news.html
http://www.mmdnewswire.com/founder-of-myspace-brad-greenspan-issues-update-on-legal-process-and-harrassment-at-hands-of-news-727.html
http://news.softpedia.com/news/20-Billion-Fraud-in-the-Sale-of-MySpace-com-37360.shtml
http://www.lockergnome.com/web/2006/09/29/myspace-a-click-fraud-social-network/http://www.lockergnome.com/web/2006/09/29/myspace-a-click-fraud-social-network/
also
http://blog.ericgoldman.org/archives/2005/06/intermix_says_i.htm
Mark
I’m assuming your not going to be a buyer of Demand
Some ocomments are very interesting to me, but also confusing me. One of the purposes of an IPO is freequently to providde funds to allow the company to reduce its indebteness. Th net worth of the Demand Media is increased through the infusion of equity pursuant to an IPO. It has raised $355 million recently, but its not easy to figure out how they spent it. The company will have a better access to borrowing money, it ability to borrow is enhanced through the increase of the working capital. DM has already invested heavily in great assets, it has its own network of companies and websites including enom.com, eHow.com and LiveStrong.com.
There are a number of reasons for floating an IPO.
Here are just a few.
It could be 1, 2 or 3 of these.
1. Add’l working capital.
2. Ability to buy other companies.
3. Ability to buy add’l technology, equipment, etc.
4. Ability to borrow add’l funds. (bonds, stock options, etc)
5. Cash out the VC.
6. Cash out or dilute the major stockholder ownership.
7. Pump and dump.
Your guess is as good as mine.
lol
RL: they probably spent it by buying traffic.
Though Demand Media dominates as content supplier, HostExploits’ expose that ranks Demand Media as ‘the “worst” Internet Service Provider in terms of hosting botnet control servers, Malware distribution, malicious URLs, and high levels of abuse via eNom-registered domains,’ shoots a hole in its worthiness of public offering. The report notes,
“Demand Media has 7,000 active resellers, and many of these resellers exist purely to support a lucrative international drug trade which has moved off the streets and onto the Internet with apparent impunity and eNom has failed to act on the illicit activity within their space.”
according to a recent article published on HostExploit’s website:
Demand Media (eNom) Ploughs Ahead Despite Concerns
Original article:
Cybercrime goes to Wall Street
to clarify, they are profitable – Erick needs to correct his headline. $37M in EBITDA in 2009 and $26M for the first six months of this year. So probably looking at over $50M for 2010.
A Sept. 19 Financial Times article http://www.ft.com/cms/s/2/9d0bd394-c41c-11df-b827-00144feab49a.html states:
“While GoDaddy, the world’s biggest seller of domain names, and other registrars have knocked thousands of rogue pharmacies offline, until now eNom, owned by Demand Media of Santa Monica, had refused to act without a court order or law-enforcement directive.
The changed approach was disclosed in an amended securities filing for Demand Media’s planned initial public stock offering. The filing says LegitScript will assist eNom “in identifying customers who are violating our terms of service by operating online pharmacies in violation of US state or federal law”.”
I don’t know where to find the amended S-1 but would like to check it out if anyone knows where I can find it.