Demand Media Reports & Beats Estimates: eHow #13 US Web Property: Registrar Grows 11%

Demand Media, Inc. (DMD) reported its earnings for the third quarter ending September 30, 2012 after the market closed.

Demand Media, Inc. owns Enom.com, part of NameJet.com and is the back end provider of Donuts new gTLD’s application.

Demand also applied for over 20 new gTLDs and owns part of over 100 new gTLD filed by Donuts.

According to the earnings report, revenue Increased 20% Year-over-Year, at $98.1 million, and well above the $91.4 million expected

Adjusted EBITDA was Up 28% Year-over-Year

Free Cash Flow(1) Increases $10.6 Million Year-over-Year

“Demand Media’s audience surpassed 125 million monthly unique visitors during the third quarter, as we delivered record revenue and profitability,” said Richard Rosenblatt, Chairman and CEO of Demand Media. “

For the first time in over a year, we increased our content investments for two consecutive quarters as we expanded the distribution of our content platform. We remain focused on our long-term growth initiatives, which include continuing to increase our investment in core content as well as in opportunities across mobile, video, international, and new generic Top Level Domains.”
Q3 2012 Financial Summary:

Content & Media Revenue ex-TAC grew 24% year-over-year, due primarily to strong page view growth on the Company’s owned & operated properties, as well as 50% growth in network RPMs, reflecting higher revenue from our growing network of content partners. Sequentially, Content & Media Revenue ex-TAC increased 6% compared to the second quarter of 2012, driven primarily by network RPM growth.
Registrar revenue grew 11% year-over-year and increased 2% compared to the second quarter of 2012. Revenue growth was driven by an increase in number of domains on our platform, due primarily to growth from new partners.
Free Cash Flow was $16.6 million compared to $6.0 million a year ago, reflecting growth in cash flow from operations and a year-over-year reduction in intangible asset content spend, primarily on eHow. Sequentially, investment in intangible assets increased 36% compared to the second quarter of 2012.

“We continued our 2012 financial momentum in Q3 with record adjusted EBITDA and strong free cash flow growth, while increasing our investment in content sequentially,” said CFO Mel Tang. “We are raising our 2012 financial guidance and remain focused on driving Demand Media’s long-term growth through continued disciplined investments.”

Q3 2012 Business Highlights⁽¹⁾:

On a consolidated basis, Demand Media ranked as a top 20 US web property throughout the first nine months of 2012, ranking as #13 in September 2012,up from #17 in January 2012. Demand Media’s web properties reached over 125 million unique users worldwide in September 2012.
On a standalone basis, eHow.com ranked as the #13 website in the US in September 2012.
LIVESTRONG.COM/eHow Health ranked as the #3 Health property in the US in September 2012.
Cracked.com maintained its ranking as the most visited humor site in the US throughout the first half of 2012, with more time spent on the site than any other humor website. The Cracked Network, which includes IndieClick, ranked as the #1 Humor property in the US in September 2012.

Owned & Operated page views increased 33% year-over-year, driven primarily by strong traffic growth on eHow.com and LIVESTRONG.COM. Owned & Operated RPMs decreased 11% year-over-year, due primarily to page view growth from lower RPM properties and traffic sources, including growth in mobile traffic.
Network page views decreased 2% year-over-year to 5.0 billion, due primarily to lower traffic from our social media partners. Network RPM ex-TAC increased 50% year-over-year, reflecting higher revenue from our growing network of content partners, primarily YouTube.
End of period domains increased 12% year-over-year to 13.7 million, driven primarily by the addition of higher volume customers and continued growth from existing resellers, with average revenue per domain decreasing by 2%, due to a mix shift to higher volume resellers.

Business Outlook

The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

Excluding up to $3 million of 2012 expenses that the Company expects to incur related to the formation of its generic Top Level Domain (“gTLD”) initiative, the Company’s guidance for the fourth quarter and fiscal year ending December 31, 2012 is as follows:

Fourth Quarter 2012