Demand Media the next big internet IPO?

By: ispeculatornew
Date posted: 06.11.2010 (4:28 am) | Write a Comment  (5 Comments)

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Like most of the media, we have concentrated on the more obvious choices when discussing future internet IPO’s. Facebook, Twitter, LinkedIn and Foursquare, all look like they have an IPO in sight although it is certainly debatable how soon that will happen. But recent talks are that instead Demand Media could be the next big IPO and probably over $1 billion, the first in the space since Google became public a long time ago. But unlike the other names mentionned above, Demand Media does not have a very public profile. Why? Mainly because it does not use its company name as part of its branding. It is much more like IAC Interactive in that sense. They are unknown to the common internet user, especially compared with bigger brands such as AOL and Yahoo!

What is Demand Media?

It is similar to the other names, but I like it much better. Demand Media holds a few different properties. According to its website, it has 6 of those. Compare that to a few dozen ran by Iac Interactive and even bigger numbers for AOL and Yahoo. The difference of course is that Demand Media is smaller. That is part of it, but it is also a much more focused company and tries to build the best in everything that they do get involved in, which cannot be said for the 3 others.
Its biggest property by very far is “eHow”. Even the name might not ring that many bells. But search the internet for instructions on doing almost anything:

“How to….”

And you will likely land on eHow. The content is written by users mainly, in a similar way than Wikipedia. But those users also have incentives as they get paid small amounts. That enables Demand Media to offer an incredibly deep guide of “How to’s” and has helped eHow become one of the 20 most used properties on the internet. Not bad hey? Demand Media’s other properties are much smaller and not worth that much yet. But if the company can keep the same focus and planning for the others as it did for eHow, I would think that traffic will come as well

Competition

Sure, AOL, Yahoo and IAC are all trying to get more involved in user generated content but I think they are late in the game. You need a very special platform and environment to get users so involved and Demand Media has already proved it could do that. It is not the case of the 3 others. They will try, spend money and energy on it, but it might not work out so well.

Revenues

No surprise here to see that revenues come from advertising for now. I think that as the company continues to get bigger, it will be able to get other revenue possibilities but for now, its focus is on growth, rightly so. Its page are very highly targetted and as the CEO said. If you have a user trying to find out how to change or buy some ink for hisa printer, what better place for a company like HP to sponsor and find clients?

Worth investing in?

Of course answering that question is impossible without information about the valuation but to be honest, if Demand Media comes out with a valuation (in terms of P/E) similar to the others, I would probably be a buyer as their business model is far superioir in my opinion. It will certainly be interesting to follow what happens with this upcomming company.

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5 Comments

  1. Comment by Craig — June 11, 2010 @ 5:57 am

    Hey IS,

    What is your investment strategy when it comes to IPO. Do you buy the stock the very first day or you wait to see how the market react and invest in the following months?

  2. Comment by IS — June 11, 2010 @ 8:49 am

    @Craig -I find it very difficult to judge an IPO and generally wait a little before thinking about investing. In the cases of Twitter, Facebook, LinkedIn and even Demand Media, I feel like my understanding of the business is fairly good and could get involved more quickly but we’ll see:)

  3. Comment by Lisa Marie Mercer — June 12, 2010 @ 10:13 am

    Informative article with one minor correction. EHow was once written by users, but Demand studios changed its business model. Now, only writers with a certain level of writing expertise are allowed to write on any of their sites.

  4. Comment by IS — June 12, 2010 @ 3:11 pm

    @ Lisa Marie – Many thanks for bringing that up. I would guess the business model is still the same. Do you know how they give out those levels?

  5. […] accounting methods which is certainly not very reassuring to potential investors. Because of that, DemandMedia’s IPO is currently delayed until further […]

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