January 12, 2011, 3:48 PM — Like most long-time professional writers, I detest content farms such as Demand Media. They pay writers and other content producers crap to produce crap. They clog up Google's search results with their crap content. And Demand Media uses a crap accounting system to hide the true cost of its crap content.
But my job here is to objectively assess Demand Media's initial public offering, which on Wednesday submitted an amended prospectus to the Securities and Exchange Commission in which it said it will offer 4.5 million common shares priced between $14 and $16 each. So, let's get on with my professional, unbiased assessment of Demand Media's IPO.
In fact, Demand should trade on Nasdaq so its ticker symbol could be CRAP. (Instead it's going on the New York Stock Exchange as DMD. What a blunder!)
Craptacular Fact No. 1: Demand Media is losing money. Net loss for the nine months ended Sept. 30, 2010, was $6.35 million, down from $18.54 million the year-ago period. A smaller loss is still a loss, and as Demand points out in the prospectus, the online content world is volatile, so there's no guarantee the trend toward profitability will continue.
Craptacular Fact No. 2: Demand is increasingly dependent on search giant Google. It derived 28% of its revenue from Google ad deals in the first nine months of 2010, up from 18% in 2009. Demand's ad contract with Google expires in the second quarter of 2012. If it's not renewed, then what? (See Craptacular Fact No. 5.)
Craptacular Fact No. 3: Google could change its search algorithm at any time to the detriment of content farms such as Demand Media, which clog up search results with crap. Google itself is under pressure to constantly improve its search results, and there was talk last year that it would change its algorithm to prevent the Demand Medias of the world from polluting its search results.
(Update: Google on Jan. 21 renewed it vow to prevent content farms from diluting the quality of user search results.)
Craptacular Fact No. 4: Demand traffic is down 21 percent over the past three months, according to web traffic analyzer Alexa. But those recent stats aren't in the prospectus, which only covers results through last Sept. 30.