Demand Media climbs 33% in Wall Street debut

IPO raises $67 million; business model continues to raise questions

Internet content farm Demand Media (NYSE: DMD) finished its first day of trading on Wall Street at $22.65, up 33.2 percent from the offer price of $17 per share. Demand's shares climbed as high as $25 during the day and never fell below 22.03. The provider of low-cost Internet content -- otherwise known as search spam -- offered 8.9 million shares to the public in its Wall Street debut. (Also see: Demand Media: Worst IPO of the year) I've already stated my strong opinion of this IPO (see above link), but if you doubt my word, I direct you to a good analysis of Demand by The Atlantic's Nicholas Jackson. However, to summarize: Demand's business model is to pay writers chump change to pollute the Internet with simplistic content that it claims has a long tail, and then try to rig search results so its "write to rank" content floats to the top of Google searches. High search rankings translates into high advertiser demand. But this is a dangerous game because Google just last week said it would revise its search algorithms to prevent content farms from exploiting its system. When that happens, the outcome for Demand's advertising revenue will be negative. The company has never made a dime in profit, and uses wishful accounting to spread the costs of its content over five years. Accumulated debt is well over $50 million and, in its IPO prospectus, Demand offers absolutely no promise of future profit. Demand's market capitalization is now in the range of $1.5 billion and the company says it expects to net about $67 million from the IPO. That'll buy a lot of crappy content.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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