Demand Media, Inc. (DMD),reported financial results for the second quarter ended June 30, 2013.

Q2 2013 Financial Summary:

• Content & Media revenue ex-TAC grew 9% year-over-year. This was driven primarily by 15% Owned & Operated revenue growth, which slowed sequentially from 26% year-over-year growth in Q1 2013, due primarily to traffic declines from lower search engine referrals. Network revenue ex-TAC declined 15%, due primarily to lower revenue from YouTube Channels.

• Registrar revenue grew 10% year-over-year, due to growth from existing partners and the Q4 2012 acquisition of Name.com. Excluding the acquisition, registrar revenue would have grown 4% year-over-year.

• Adjusted EBITDA increased 9% year-over-year, reflecting balanced investment and cost management.

 

Business Highlights:

 

• June 2013 comScore Rankings:

• On a consolidated basis, Demand Media ranked as the #17 US web property and Demand Media’s properties reached more than 103 million unique visitors worldwide.

• eHow.com ranked as the #18 website in the US and had more than 65 million unique users worldwide.

• Livestrong.com/eHow Health ranked as the #3 Health property in the US.

• Cracked.com ranked as the #3 Humor website in the US.

• In June 2013, Demand Media acquired Society6, a rapidly growing e-commerce marketplace that augments and diversifies the Company’s Content & Media platform by connecting a large community of talented artists to consumers via an online marketplace with diversified traffic sources.

• In June 2013, Demand Media launched Stronger, a digital fitness and nutrition program offered on a monthly subscription basis. The Stronger program marks another key initiative in the Company’s growing paid content portfolio that also includes Creativebug, an online e-learning site offering high-quality arts and craft video workshops.

• In August 2013, Demand Media launched eHow Now, a new platform where customers chat directly with experts to receive advice and guidance quickly, conveniently and affordably. After a beta period with more than 1.5 million users engaging with the product, eHow Now is available in six categories – auto, tech, health, legal, personal finance and pets.

• To date, 22 of Demand Media’s new gTLD applications have passed ICANN’s initial evaluation, moving the Company’s Domain Services business closer to executing on its strategy to become one of the largest end-to-end domain services providers.

Q2 2013 Operating Metrics:

 

• Owned & Operated page views increased 33% year-over-year to 4.4 billion, driven primarily by mobile page view growth on eHow.com and Livestrong.com as well as international page view growth, which more than offset significant declines in search engine referral traffic. Owned & Operated RPMs decreased 14% year-over-year, reflecting the mix shift to lower yielding mobile and international page views, offset in part by increased revenue from the sale of certain undeveloped websites.

• Network page views increased 37% year-over-year to 6.6 billion, due primarily to growth in IndieClick page views. Network RPM ex-TAC decreased 38% year-over-year, reflecting lower YouTube revenue and the mix shift to lower yielding IndieClick page views.

• End of period domains increased 4% year-over-year to 14.2 million, driven by the acquisition of Name.com, with average revenue per domain up 4% year-over-year, due to higher domain pricing and higher average revenue per domain on Name.com.

 

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.

 

The Company’s third quarter and fiscal year guidance assumes that the recent substantial declines in search engine referrals to some of the Company’s websites will not reverse. Further, the low end of the Company’s guidance allows for significant additional traffic declines through the rest of the year.

The Company’s guidance is as follows:

Third Quarter 2013

• Revenue in the range of $99.0 – $101.0 million
• Revenue ex-TAC in the range of $94.0 – $96.0 million
• Adjusted EBITDA in the range of $18.0 – $20.0 million
• Adjusted EPS in the range of $0.04 – $0.05 per share
• Weighted average diluted shares 88.0 – 89.0 million

Full Year 2013

• Revenue in the range of $405.0 – $410.0 million
• Revenue ex-TAC in the range of $385.0 – $390.0 million
• Adjusted EBITDA in the range of $90.0 – $95.0 million
• Adjusted EPS in the range of $0.28 – $0.31 per share
• Weighted average diluted shares 87.5 – 88.5 million

 

The Company’s guidance excludes estimated expenses in 2013 of $8 to $10 million related to the formation of the Company’s gTLD initiative and $5 to $7 million associated with separating Demand Media into two distinct publicly traded companies.