In a post today in SFgate.com, authored by Lou Kerner, of the Business Insider, he predicts that Demand Media will be the 1st $1 Billion dollar Tech IPO since Google.
Here are Mr. Kerner’s arguments for Demand:
Demand’s. ehow.com is the 44th most trafficked site according to Alexa (I show it being #141)…. which gets most of its content from over 10,000 “qualified” contributors that Demand pays very modest fees ($5, $10, $30 plus potential revenue share) to produce the content.”
“”The company had its root in the high margin “direct navigation” business, that they monetize with Google search links.”
“Demand also purchased enom, the second largest domain registrar, after GoDaddy, with over 9.5 million domain names under management in its wholesaling model.”
“While a low margin business, enom is well positioned to scoop up valuable domain names that are dropped by registrants.”
“Other Demand Media brands include Lance Armstrong’s LiveStrong.com (U.S. Alexa 722), comedy site Cracked.com (U.S. Alexa 422), and white label social networking platform Pluck.”
“”To date, Demand has raised over $350 million, the last round at a purported valuation in excess of $1 billion. The company is rumored to profitable on its $200+ million in revenue in 2009.”
The author, Lou Kerner s a cofounder at SecondShares.com, whose previous ventures including Bolt Media,and The .tv Corporation, which licensed the top level domain .tv from the tiny island nation of Tuvalu.
Mr. Kerner did not speak about Demand’s part ownership in NameJet.com which I’m sure is a nice profit center or the coming new gTLD’s in which Demand is expected to be a player.
It would be great to see a company in the direct navigation space go public with a valuation topping $1 Billion.
Very impressive.
Yes you are right, it would be nice to see a direct navigation company that is in search do well. Our contention is that if it were taking advantage of a more robust form of search it would knock it out of the park. The vast amount of future growth is in SEO , like it or not. With the current ad growth environment dead ahead a company such as the one we are launching should fare even better.
Gratefully,
Jeff Schneider
Would be very suprised if this happens….look at the quinstreet IPO, they book around 300 million in revenues per year and their ipo was lackluster…look at the bankrate sale last year, very little premium to their share price….when you really look at the value of demand media, so much lies at the foundation of their manipulation of google search…any algo changes or moves by google to cleanup the content play will dramatically affect their revenues….just my 2 cents…
Quinn Street hasn’t done that badly. The stock went public at $15, its $16 and been as high as $18.
Yes not blowing the market away but its has a $720M market cap
I’ve decided I’m going to throw some money at this stock, ride the wave, then sell half and keep half probably. 🙂
Never going to happen… haha
Nice timing on the article as SF hosts http://www.Ad-Tech.com .
I could never get over the fact that the digital advertising industries largest conference had “-” in their domain.
QS fell short of their IPO target, which is why I think demand would have a tough time getting one billions… demand has gotten a ton of media attention….but I think I would rather own, quinstreet or internet brands due to their biz models and sites…
I believe Wall St. is smarter than that and more cautious today.
What is Demand really selling?
All of the traffic depends on the search engines.
If Google, Yahoo and Bing pull the plug or downgrades their sites,
the value evaporates.
They openly disclose that their sites are just a slightly
higher grade of the MFA (made for adsense) sites which Google hates.
The company has value but can it demand a high multiple
because its revenue comes from the internet?
I worry about the possibility that Rosenblatt might be setting
up Wall St. for a “pump and dump”.
The sizzle that DM seems to be using to sell the steak appears to me to be the “content farming” as their dominant lever to build branded properties.
I don’t see a direct navigation IPO play as possible in today’s climate. The registrar and domain aftermarket parts of the business are strong revenue generators but the margins are lacking. Since there is as of yet no significant retail secondary market for domains other than GoDaddy, so I don’t see that as the piece that draws the investors.
The model seems highly dependent on Google and other search providers for inbound traffic (I’ve seen this play before and it does not have a nice ending). So my question is why would Google continue to feed them traffic over the long term? All I am saying is that I see their traffic generation model has having non-organic elements to it and I see that as a huge risk.
To be fair I could be and most likely am uninformed on the subject.
I’m glad to see that my buddy Ron agrees with me.
A lot depends on how much brand/direct navigation traffic their names are really getting. With our Geo and Generic brands such as Nashville.com, Whisky.com, PalmSprings.com, Daycare.com the combination of direct and search is synergistically substantial allowing us to generate maxium advertising revenue. If their portfolio is comprised of brands like ours, but in much great numbers, I have no doubt their IPO will fly because a major portion of their brand traffic is Search Engine Independent.
“I worry about the possibility that Rosenblatt might be setting
up Wall St. for a “pump and dump”.”
Actually, Wall St. knows it’s a “pump & dump” and this is evidenced by the fact that Demand has hired Goldman Sachs to explore an initial public offering.
The vampire squid’s reach is wide & deep. Remember that main stream media’s sole purpose at this point is to maintain the power of the elite.
There could be some good profits here if one is not afraid to book some profits at the right times.
We seriosly doubt that this particular offering will be a pump and dump. Anyone who is in the know senses that the tech industry offerings for the next few years will lead the markets. To pump and dump is foolish if your criteria are sound and the criteria is most definitely sound in our opinion.
Gratefully,
Gratefully, Jeff
jeff,
Me thinks you have too much faith in your fellow man.
It’s important to remember that Demand raised $350,000,000. That’s an abnormal amount of funding for a startup to raise in a largely undefined and by some standards under-evolved market like “domains”. Those investors want their gosh darned money out, and I bet they’d like it sooner than later. With that much invested capital at risk, there is no limit to the shenanigans people will pull if they feel they need to. I hope it does not happen but if history is any guide, the probability of a pump and dump is very high indeed.
Follow the money: Any IPO will only bring the company so much in the way of capital proceeds. Because there are so many investors with so much invested, some if not all of the investors will get a piece of the IPO proceeds, but will then need to start liquidating their positions to recoup their original investments, let alone profit from same. That’s when the pump and dump activities could occur.
I’m an optimist by nature but a pragmatist by education.
Anyone in the know, knows what Goldman Sachs is.
Smart money doesn’t like uncertainty , I don’t think the domain Industry has matured enough , I even think calling it an Industry is quite arrogant…
PEG (Price earnings Growth) : In addition I fail to see how DM profits will grow … stable yes but growing? , the new gtlds and c.c (country codes) could fragment the .com market some more …
When everything else fails refer to the valuation/historical pricing of :
Marchex Tucows Banks.com Live current etc …
“Anyone in the know, knows what Goldman Sachs is.”
Congress spent all day today trying to figure that out.
If you ask one of the congressman tonight, he will say
they are a bunch of crooks.
But, that might be – “the pot calling the kettle black”.
🙂
@Ron
I have been an Investment Banking underwritter of over 200 IPOs (when I wored for the larger Wall Street firms)… and you seem to have a very good grip on what to look at and be wary of in an IPO. If/when they file their offering registration statement with the SEC… the historical income statements and balance sheet will really be “zoomed in” on…..and I will certainly also zoom in big time with regard to evaluating the percentage of the stock offering proceeds going to fund company operations & debt repayment vs. the amount going into the current shareholders pockets……….
…….Big question: Will it be a major “take the money n’ run” scenario or not by current/pre IPO investors ?
Whisky.com is clearly a typo of whiskey.com. Someone needs to put this squatter in his place.
Quote:
““While a low margin business, enom is well positioned to scoop up valuable domain names that are dropped by registrants.”
and keep them…
I was watching bookits .com which expired and now is in the hands of an obscure company rumored to be owned by enom, when you’re placing and order at namejet you are also provide them ideas… aside they can test the traffic while the domain goes tru the expired cycle…
The fox is encharged of the chicken pen.
Conflict of interest at it’s worst .
http://www.acquirethisname.com/domain-name-offer.aspx?domain=E99F3E3B9441110E9680A082E3E0F955&ee=1
@ Ron
This scared me a bit, based on your several years as GM at Domainsponsor: “To be fair I could be and most likely am uninformed on the subject.”
@ Anonymous Scaredy Cat “My 2 Cents” – “I’m glad to see that my buddy Ron agrees with me.” Yipes! Ron’s your “buddy”? He’s not your buddy until he shows up for sushi. 😉
I’d be nervous announcing Goldman Sachs was doing anything for my company right now — yet DM revealed that just days before the stage collapsed.. Demand Media is probably swallowing funny little pills this very moment – thinking that hiring Goldman Sachs (with 10 exec’s previously working for the GW Bush admin leading to the financial collapse in 2007-2008) wasn’t such a good move after all. Perception and results are everything.
But what do I know? To be fair, I could be, and most likely am, uninformed on the subject.
“Anonymous Scaredy Cat “My 2 Cents” ”
Stephen,
We discussed this a month ago by emails about my use of anomymous names. (now you remember)
I like my statements to be evaluated on their value and merit.
Rather than if I’m friends with the reader.
I generally make solid and thoughtful points depending on my moments of senility.
🙂
Ron Sheridan, please don’t invite me for sushi.
However, Ron Jackson knows I like crab cakes.
@ My 2 cents
Ooops… my bad. Blame it on the scotch, my Mark Twain-like frustration with current events, and the fact that Mikey Castello is pressuring me to learn and play him online with the satanic freak video game DOOM 3. I’m having nightmares already, but if Mikey C can deal with it, I’m a coming and gunnin’!
Sorry bro for calling you out. By the way, Ron likes crabcakes and anything that tastes good. Don’t expect a conversation tho when the food is served. j/k no, not j/k. yes, a little kidding, no… well…
Ron, when we hitting the PDX sushi spots as planned? I found the KILLER sushi spot in the nation here in the PDX. email me for the delectable info … just thinking about it is making my mouth water!
Bad timing at it’s best. Not knocking anyone but teaming up with Goldman Sachs is a kiss of death IMO. What investor is going to jump onboard a new offering peddled by GS with the stigma and current investigation underway.
Anybody who has been following Mr. Rosenblatt knows alreadyd…. This man is an artist when it comes to “risky business”
Ron Jackson has a nice article from few years back which should be re-visited.
http://www.dnjournal.com/cover/2007/april.htm
In closing Rosenblatt added, “I realize that I keep coming back to the same point of focusing on the user. Don’t tell users what they have to do, or how to do it. Just give them the place, give them the tools, and give them the means to find other like-minded people to share what they know. And keep innovating and giving them new and powerful tools to make doing all that even easier!”
That philosophy has helped Rosenblatt sell several internet media companies for a total of over $1.3 billlion. He has already acknowledged that Demand Media will go public, probably before this year is out. He told Business 2.0 that he expected the company to hit a market cap of $2 billion by the middle of next year. Those are heady numbers, but Rosenblatt has been riding a hot streak for 13 years. Whether or not he can keep it going will be one of the most interesting business stories we will see unfold over the next 12 months.