Earlier this week, Slate Groupโs Jacob Weisberg tweeted, โIt will be a sign of market sanity if Demand Mediaโs IPO bombs this week.โ If midday trading is any indication, the market is still a little cracked in the head. Shares today have risen more than 35 percent following an initial public offering that valued the company at $1 billion. The offering put 8.9 million shares up for grabs, 4.5 million from Demand at $17 a share and 4.4 million from exiting shareholders, who at the last minute decided to unload a million more than expected. Hey, if shares are selling at higher than the expected $14 to $16 range, why not?! Demandโs IPO, which is expected to raise $67 million, is part of the next wave of tech IPOs while the world waits for Facebook to go public in 2012. The biggest difference is that the other pending offerings, from Skype, LinkedIn, and Pandora, all represent beloved companies with, after a rocky start for Pandora, proven business models and public utility. Demand Media, the content farm responsible for articles like โTypes of Hats for Kids,โ is another storyย entirely.
Demand Media has long been criticized for underpaying its army of 13,000 freelance copywriters and copy editors (reportedly around $15 to write and $3.50 to edit โHow to Put on a Speedoโ or its more complex offerings, like โHow to Understand Ukrainian Women.โ) Itโs also frequently cited as one of the reasons Googleโs first page of search results have started looking so damn spamtastic. But when the company filed for an IPO last year, experts finally got a clear picture of its โmagical thinking.โ
The companyโs SEC filing revealed that it looked profitable only if it used a creative accounting strategy that spread the cost of creating โcontentโ over five years, using the argument that its articles are evergreen, and of course advertisers will want to buy ads on โHow Do I Manually Fill an Ointment Tube?โ for years to come. Not all of the companyโs content is that foolish. But because it hasnโt even been around for five years, even Business Insiderโs Henry Blodget pointed out that questionable accounting โmakes the company โprofitableโ when itโs actually hemorrhagingย cash.โ
Tech-industry insiders are sick and tired of all the bubble talk, but it looks like investors arenโt paying them much heed. Itโs going to be a rude awakening when Google 2.0 under Larry Page tweaks its algorithm to drive Demandโs spammy content further down your search stream. But hey, the bubbleโs just gettingย started.
Demand Media shares soar 35% in IPO [CNN Money]
The Dumbest How-To Content From Demand Media [Daily Finance]
Related: Demand Mediaโs Questionable Accounting Over Freelanceย Writers
