Demand Media Kicks Off Social IPO Season With a Bang

Amidst a nice little Obama SOTU Rally since late in yesterday's session, Demand Media (DMD) priced at $17, above the range, and is now trading around $23, a fine opening to Social OPO Season. DMD is now valued at $1.5B and is the largest Internet IPO since Google. The offering was also super-sized, from 7.5M shares to 8.9M. 

DMD has about the same market cap as the venerable New York Times. 

DMD has a different model than the NYT: it creates on-demand websites based on expected hot search keywords rather than create news stories based on, well, news. It covers topics that are of current interest, and should be compared to Time-Life or McGraw-Hill rather than a newspaper. This sites are a new form of the sort of special-interest magazines that McGraw-Hill used to cherish. Some of the most popular are ehow.com, livestrong.com, trails.com and the guy site cracked.com. 

A popular term in the websphere these days is "curation", the use of a human editor to organize and select content. DMD is a hybrid of machine-generated and curated, where the keywords help guide DMD to construct a site that matches how prospective readers are trying to find information on the web, and the human curators construct and update the site. In effect, they are using keywords to drive editorial content, and humans to make the site interesting. Although DMD is the subject of derision from old-fashioned editorial sites, it is better thought of as using modern, social techniques to determine suitable groupings of editorial content.

Its bet is the crowdsourced keyword editorial context drives better editorial content. So far its sites collectively are the 17th most watched sites on the Internet, an incredible achievement. The most read is ehow.com. 

If you wish to play this new category, a good read is this TradingIPOs analysis by Bill Simpson. He says to watch the operating expense ratio, essentially the spread between paying contributors and monetizing the sites. DMD uses freelancers for the most part. In an accounting decision which is controversial, DMD amortizes the cost of content over five years, rather than expensing; this turns a loss into a profit. He thinks fair value is $14-16, below the current trading range. 

The other issue to watch is Google's steps to rank search results differently, which could lower DMD sites in the search stack. Right now 41% of DMD readers come in from search results. The initial move of Google is to encourage searchers to report poor results, which I do not expect to lead to much of a response and therefore to have little impact on DMD. The war between quality results and synthetic sites from DMD will continue. 

Comments

[Mamma Boom Boom]

Today's Action: a rally in a vacuum.

[leon]

A rally is still a rally. And you said short term sell, right?

Nothing personal-- You're brave and honest to post predictions. More than I can say about me.

[Mamma Boom Boom]

>A rally is still a rally. And you said short term sell, right?<

No, I have not given a short term sell, yet. Only an intermediate. But the short term continues to look weaker.

[Chabazite]

C'mon Mama, when's this god damned retrace going to begin? Why don't you SHOUT at them, or something. (They might hear you - they can't hear me, I am too far away.)

[Leon]

How long is "intermediate"?

Thanks in advance.

[Virgil]

According to Dow theory intermediate is 10 days to 3 months. Morningstar defines intermediate bonds as duration of 3-1/2 to 6 years. Many trading systems will tell you that intermediate term is 3x short term & 1/3 long term.

[Wave Rust]

yel,
the DMD question is whether they will be the hood ornament or the headstone for the "useless content bubble" that has plagued the internet for decades. Google wants and needs relevant content, even if it is bad and nearly useless. Now they need it even more since the public has come down with "ad blindness" on its search page results. "Ad blindness" is a contagion ,,,, seriously. It's alot like the underwhelming reaction to Oblahblah's sotu ,,,, as America and the rest of the world is turning a deaf ear to his politics of "all speech and no cattle(action)".

DMD is not going to get slapped by Google because of the traffic they generate. They get it about Google. Mediocrity of content is okay with Google, as long as they can keep it coming. In fact, DMD is doing exactly what Google wants, creating content that gets eyeballs. The Google content network is seemingly huge but is actually relatively small in the ad networks biz. And, Google has created this situation for themselves and they are seen as thriving on their dominance in search.

Google is the problem without a 'solution bot' ,,,, yet. They are dominating their corner but they've painted themselves into it, and the paint ain't drying.

You remember when I asked about click-throughs and income generated from your prechter affilate ads. Good times vs. bad times ,,,, that's the very thing that Arianna, "slope" and "alpha" are doing with their aggregating of bloggers for ,,,, ad revenue from eyeballs ,,,, even if nobody clicks on an ad. I'm pretty sure Arianna doesn't pay any of their bloggers. The aggregators all still make money with impression counts and adsense.

You have seen it too, I'm sure, with posts that get backlinks on a temporarily "hot search topic".

The DMD game is a quant's game of SEO combined with speed of indexing for short and long tail keywords that generate clicks with text, images, and video. And, people thought Google was loony for buying YouTube! Ha! DMD knows how to optimize that.

DMD would not want your content, Yel. You're too slow and too rich for their standards! :)) Your content sucks for lack of optimized keywords of hot topics, outside of the narrow sliver of the financially-weighted niches and range of topics you are interested in.

But if you wanted to write about dog training or viagra or self-help or even Oprah ,,,, well, I'm sure DMD might want your 300 words and be glad to pay you $30 pieces of silver. :)

Don't get me wrong, e-commerce of all sorts is still a nascent industry (like the stone age for the internet) that most businesses or industries have yet to really master or understand. But, you know that.

I'm guessing DMD is a hood ornament but never venerable as an institution, but eventually memorialized as a failed model ,,,, unless they adapt to Google slaps and future advanced bots. Or, human bots ,,,, like the thousands employed by goog in India.

that's my 2 cents on DMD.

wave rust

btw, counselor ,,,, if there are squattors, are there squatees? :)

sorry about the dooblay post. goog hates duplicate content :)

[Wave Rust]

rally over? hmmmm

might be. short term tops look like this.

"could go higher, might go lower", as an old fart used to say.

weekly's are in 3rd derivative divergence. oooohhh

too many people looking for a top, often find tops that aren't there.

then they stand around wondering why it won't go down, when suddenly they fall through the trap door they are standing on.

trade what you see, not what you want, or what the wavistry says. If you don't know, stay in cash and wait in safety.

i'm in cash.

patience is my paymaster.

wave rust

[yelnick]

wave, the end in April looked like this. A topping process over several weeks with a little pop in the middle. the bifurcation didn't come until early May, when the market fell sharply and in a couple of days had broken below the recent plateau. looking back, the whole process went from around Apr16 to May6. We seem about around April26 right now.

Normally the market rises into FOMC day then falls after, so we might see a final pop tomorrow than a drift down. The end though will be marked with a sharp bifurcation.

[Manav]

Yel, I still think 2011 will see sharpish but short (in duration)setbacks and the market will generally trend up...I think Wave's argument of too many top pickers has merit..We need one last final hurrah before a big fall, to get all the cats into the market, the fat as well as the lean ones

[Lew]

this isnt spam

anyone check out the video on the dollar collapse at endofamerica15 dot com?

scary stuff

[Account Deleted]

ES Chart: http://niftychartsandpatterns.blogspot.com/2011/01/s-500-futures-before-opening-bell_27.html

[Wave Rust]

yel,
agree, probably more like results after august top though, imo

ready to short any break

wave rust

[Wave Rust]

endofamerica15 dot com

is that sponsored by a grant from The Troika - Oblahblah, Reid and Pelosi - with Recovery Act funding?

wave rust

[Mamma Boom Boom]

>C'mon Mama, when's this god damned retrace going to begin?<

Chab, take a pill. Actually, it has begun! If you were managing a portfolio of stocks you would notice that many are lower than they were 30-40 days ago.

>How long is "intermediate"?<

Leon, my definition is at least 4 months, but usually 6-10 months. It's a major change in direction.

[MT]

">How long is "intermediate"?<

Leon, my definition is at least 4 months, but usually 6-10 months. It's a major change in direction."

Or : markets can stay irrational longer than you can stay solvent.

But a top is near Mamma. I think monday is the best day for a swift and deep reversal.

[Chabazite]

Chab, take a pill. Actually, it has begun!
------------------------------------------
Hmm, is that why we keep making higher highs? Never mind, your words reassure me - even though my shorts are squeezed and are causing me much pain.

[Mamma Boom Boom]

MT & Chab: As you know, trading indexes is a different ball game than trading stocks. Tops are big drawn out affairs. Markets go from broad to narrow, long before it becomes obvious to all that a decline has arrived.

Neo-Mamma

[MT]

I know Mamma. But this time it will be sharp and swift.
How to make your wishes come true next monday? Watch for a spike tomorrow,

[JT]

So many TOP PICKERS continuing to clutter the Blogosphere.

Meanwhile, Bearish sentiment in the AAII just ramped 5% points and Bullish sentiment dropped nearly 9 points to 42%. Good luck with continuing to Pick The Top. Like a broken clock, you guys will eventually get it right.

:)

[Hockthefarm]

Most 50+ boomers probably need a good double in their 401k's to hit the 1 MM$ mark and retire with some jingle.

And that 1 MM$ will generate 40 k$ per year for them. Some jingle.

So stock funds are seen as the only play for folks needing a double. Where else would they go with their money?

Bottom line, any 10 to 15 percent correction will get bought hard. I think Sy Harding has hit the nail on the head: The bull ends in mid to late 2012.

Hock

[Mamma Boom Boom]

>Good luck with continuing to Pick The Top. <

Thanks! Good luck to you, too. You'll need it. (nic..nic)

[leon]

You can pick your friends, you can pick your nose

But don't try to pick a top. You will lose money.

[Mamma Boom Boom]

The other day Yelnick and I got into a debate concerning proper wages. So I decided to apply a little science to it.

My basis of this argument is that US wages peaked out about 15 years ago, soon after our Treasonist elected officials passed Nafta and continued working on other trade agreements, eventually sending our good paying jobs to China, India, etc. I said that public workers pay stayed in line with a proper course while private workers were gutted.

The test:
First, I had to determine what the actual inflation rate was, during that 15 years, not the phony numbers the government puts out. So I ended up using John William work, and came up with a rate of 370%. That's bigger than what I would have guessed, but it's the magic of compounding.

Next, I tracked down a 1996 compensation table from BLS. Here are some random occupations and wages:

Professional/Technical $22.60
Executive/Administrative $26.03
Sales $17.09
Precision Production $15.80
Laborers $9.70

Here's the kick in the teeth, if our elected officials had not sold us out, those wages today would look like this, respectively:

$83.62.....................$167,240 yearly
$96.31.....................$192,620 "
$63.23.....................$126,460 "
$58.46.....................$116,920 "
$35.89.....................$71,780 "

That's based on a straight 40 hour work week.

It's painful to look at, isn't it. Almost everyone makes less money today, many people by half, than they did 15 years ago. That is if they are lucky enough to have a job.

I will stick with what I told Yelnick: The average worker in America, 'TODAY', should be making about $150,000 per year.

Don't you just hate our elected officials.

[Hockthefarm]

"I will stick with what I told Yelnick: The average worker in America, 'TODAY', should be making about $150,000 per year."

I assume those wages would come with a nice benefit package. So who would buy their production? It sure won't be China or India or Canada.

So you really want to close our borders and force people to buy products built in the US of A. Otherwise, your statement has little meaning to me.

Hock

[Mamma Boom Boom]

>So you really want to close our borders and force people to buy products built in the US of A. <

You have to take care of your own, first. If and Ipad is too expensive, don't buy it.

[Hockthefarm]

Gloomer Showdown:

The sky has been falling here since we put in the big low a few years back.

My take is that 2011 is going to be a good year.
The sweet spot is going to be US mid cap growth. My only caveats are that unemployment stays above 8.5% and that the fed money pump just keeps on rolling.

I've picked out the T. Rowe Price mid-cap growth fund as a proxy for my premise (RPMGX). It closed at 60.17 yesterday.

Question: Where will it close on the last trading day of 2011?

Nom de Plume RPMGX on 12/31/2011
HocktheFarm $75.21

Cut and paste your entry to keep the list current.
Hank has had a hot hand lately. If willing, let's charge him with picking our entry date.

Should separate the wheat from the chaff. My only reasons for picking this fund are that it is in the space I like and it returned 26% last year.

Hock

[Hockthefarm]

Mamma:

"You have to take care of your own, first.
I think "your own" in your case is a pretty small subset of our society.

If and Ipad is too expensive, don't buy it.

Right. Just imagine what GM quality would be like with no Japan and if the UAW controlled 80 percent of the auto market in NA like they did in the 1970's. Each car would probably come with a tow truck. You would want Obama to pick up the cost of that.

This vehicle will self destruct in 3 months. All cars leak oil honey!

Hock

[Mamma Boom Boom]

We shouldn't be doing business with China, period. And Indians are getting rich, but not even fully conscious.

Hock, do you care, even a little bit, about the 44 million Americans on food stamps or the 70-80 million underemployed?

[upstart]

Smooth rise with little corrections from DOW 10929 in November will act like an ending diagonal; i.e., market will quickly correct back AT LEAST to the origin at 10929.

[Hockthefarm]

Hock, do you care, even a little bit, about the 44 million Americans on food stamps or the 70-80 million underemployed?

Yes. But do you? Seems to me you would like to see 70 to 80 million new train porters. I want people that work their asses off to have the opportunity to get ahead. And I want to see those that don't parked at the side of the road blubbering.

Thanks for asking,
Hock

[Mamma Boom Boom]

Hock, it doesn't appear there's anything to gain by talking to you. You have a very twisted idea of what life would be like without government interference.

[Hockthefarm]

Fair enough. Just don't get too caught up reading your own press.

Hock

[yelnick]

mamma, the real (inflation adjusted) wage per person (not family) has been flat or down since 1973 for the longest time since 1790 (based back then on estimates). This is a tragedy that is felt but not seen. Two family earners have ameliorated the drop in living standards, but at the cost of both spouses working even if one wants to stay home. Divorce tends to throw both downward in living standards. 

what this means is the increase in GDP and apparent wealth is illusory since 1973, based on debt not production

sure, some segments do better, and the whole society has more flashy toys. 

this stagnation began well before China/India emerged, well before NAFTA. 

the cause is deeper than globalization. 

using more debt to keep GDP afloat, using govt subsidies to promote diseconomical businesses (green energy for example), increasing entitlements and transfer payments, and allowing the financial sector to switch to speculation from investment, all are digging us into a deeper hole.

China is but a convenient bogeyman. It is not the cause, but it may be useful as a benchmark ie. we might motivate the rebirth of productive activities by chasing China. If the China bubble bursts, however, as I think it will around June 2011, then the bogeyman goes away and we sit back in comfort when we should instead be restructuring our economy and our government's ad hoc industrial policy away from politically-favored sectors and towards production. 

[twitter.com/Frac_Man]

Yelnick, what's Precther and Neely thinking ?

Gemx is looking for a Wave 3 Up !

Thanks

Hank

[Wave Rust]

dow's gotta bust a move if it's still bullish for the rest of the indices. trend is getting wobblies again

lots of dow stocks looking sheepish now.

this is nothing but a possible trade out of a stalled market that may or may not happen. like it might last 2 days of 10 days or 2 weeks ,,,, who knows ,,,, it's just overbought and can stay that way for another 5,000 or 10,000 points.

still way out bullish. I won't say mega-bullish because then everybody gets so stupid about the 'mega' thing ,,,, as if there's never going to be a correction.

just trying to clearer about what i was referring to earlier with my readiness to short.

wave rust

[yelnick]

Hank, STU still expects the top is in, any day, please start. The next level is 1306. Neely has been saying the S&P has to correct, but it keeps pushing up against his time/distance box. My Fractal Finance approach has not flagged a top, but now a plateau is forming this week (TWTh), which if it continues signals a possible trend change ahead, at which time I wouldn't be surprised to see a test of the prior small degree plateau around Dow11800. It needs to go considerfably below that to show any major trend change. Month ends are jink & jive time, however, and tomorrow GDP comes out. Some whispers have it exceeding consensus of 3.5%, but then the durables came in really poorly. Hard to call. Bottom line is to let this play out into next week. My timing for any serious correction is pushed out to Feb6.

[Wave Rust]

yel,

that was a weird durable release today.

did you see that?

came out and got about 3 corrections in 5 minutes! had Santelli flustered.

wave rust

[yelnick]

wave, durables may surprise the GDP folk tomorrow. They expect 3.5% and pray for more. it may have been driven by Boeing weakness.

[Hank Wernicki]

Yelnick look at the ESH11 4/23/10 top and today !

Identical, as it holds a nice turn down ...

thanks

Hank

[Mamma Boom Boom]

yelnick, everything you say is true. But it never really got out of hand until Clinton signed NAFTA and repealed Glass-Stegal (this is why I consider Bill Clinton the worst President ever, followed by Bush then Obummer)

I want to address a couple of Hocks contentions:

>Right. Just imagine what GM quality would be like <
Think what quality would be like if banks were practicing prudent lending and folks had to put 30-40% down. They wouldn't buy any more junk would they.

>if the UAW controlled 80 percent of the auto market in NA <
UAW probably would not have survived had it not been for the government. Government created this monster. And if they had survived I guarantee you they would have a 'SIR' in their mouth, because they would be working right along side of non-union labor. They had better be smarter and harder working.

>imagine what GM quality would be like with no Japan<
I didn't mention Japan. Japan has every right to be a trading partner. Their currency trades on the market and they take care of their people (much better than the USA) And they push quality. Japan is an ideal society to do business with.

>I think "your own" in your case is a pretty small subset of our society.<
Your own is every legitimate person in this country. Think what our society would look like if every person had to pay for their children's education, not sponge off their neighbor. And if it was illegal to have children if you had no visible means of support. That would certainly change what maternity wards looked like, and it would certainly change the way schools conducted business. They would be forced to educate the kids, not supply a day-care center.

yelnick, we have a big problem in this country, in that we measure the health of our economy 'all wrong'. Growth should not be measured by the amount of debt we take on or the amount of stuff we export. The only consideration should be 'the well being of the people'.

Think how easily that would come into play if politicians had to pay for their own campaign. If campaign contributions were illegal. That would certainly eliminate the TREASON.

[Mamma Boom Boom]

>mamma, the real (inflation adjusted) wage per person (not family) has been flat or down since 1973 for the longest time since 1790 (based back then on estimates).<

This in itself would make for a good debate. I wonder how much of that is absolute fact and how much is people reaching for a better life.