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This Google Panda “Victim” Just Posted Record Revenue And Profitability

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This Google Panda “Victim” Just Posted Record Revenue And Profitability
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The Google Panda update, originally unleashed in early 2011, continues to take its toll on the Internet, for better or for worse (most would probably say better). While there are frequently rumors about new updates or refreshes to Panda, the last one that we’ve had official confirmation on was only last month (Update: Speak of the devil. Google just confirmed one is rolling out). Panda will continue to patrol Google’s search results for the foreseeable future, so webmasters who want to attract visibility in them should pay attention to the kinds of things Panda likes (or doesn’t like).

Have you been hit by the Panda update at any time since it was first launched? Were you able to recover? Share your story.

Demand Media paid attention when its major content property eHow fell victim to the update last year. Now, the company has released its quarterly earnings report to record revenue and popularity. If that’s not a Panda recovery story, I don’t know what is. It appears to be safe to say that Demand Media has conquered Panda, and is flourishing.

Revenue was up 20% year-over-year at $98.1 million, with $3.2 million profit (compared to a $4.1 million loss for the same quarter last year).

CEO Richard Rosenblatt said, “Demand Media’s audience surpassed 125 million monthly unique visitors during the third quarter, as we delivered record revenue and profitability. For the first time in over a year, we increased our content investments for two consecutive quarters as we expanded the distribution of our content platform. We remain focused on our long-term growth initiatives, which include continuing to increase our investment in core content as well as in opportunities across mobile, video, international, and new generic Top Level Domains.”

Now, to be clear, Demand Media has revenue sources that have little to do with Panda. For one, the company runs a major registrar business. However, the content side of things, and even eHow itself, continue to improve in performance. Make no mistake. Demand Media has come back from the Panda update.

The company’s owned and operated page views increased 33% year-over-year, driven primarily by strong traffic growth on eHow.com and LiveStrong.com, the company says.

eHow has historically been the poster child of the Panda update, you might say. Some believe Demand Media was one of the major drivers in Google even creating the update. If you can remember back before the update was first unleashed, there was a lot of discussion in the media and Blogosphere about content farms. eHow was often cited (if not the most often cited) as falling into this category. In fact, many were shocked when Google finally pushed the update, and eHow appeared to escape unscathed.

That did not last, however. As Google continued to push out more updates for Panda, Demand Media eventually felt the effects, and by then it was a public company, and had to answer to investors. It deleted tons of articles. At first the number it gave was 300,000. In May, Demand Media revealed that it had deleted as many as 600,000 articles. It’s unclear whether they’ve deleted more since then. They didn’t just delete articles they found to be of low quality though. They also sent numerous articles through a more rigorous editing process, and added a feedback tool to all content so users could indicate any problems they come across. They also got rid of a lot of non-professional writers, and added more “expert” and celebrity curators. Essentially, eHow got a big boost in the quality control department.

Since the clean-up initiative, the company has hardly looked back. eHow has increased its audience steadily. Now, eHow is ranked as the #13 site in the U.S. according to comScore. That’s up even from the previous quarter, when it was ranked #16. ehow had over 100 million unique monthly visitors worldwide for the 11th consecutive quarter, according to Rosenblatt, who cited internal numbers.

Demand Media’s properties are seeing a billion worldwide monthly uniques, which is a record for the company. Demand has been so pleased with the progress it has made in the content area, the company promoted Michael Blend, who had been leading its content and media services, to President and COO earlier this year.

Rosenblatt discussed the progress during the company’s earnings conference call, attributing the success largely to articles, videos and mobile apps with quality content and engaged communities. “All in all we really raised our game,” he said, noting that they have expanded the diversity of articles and added assignment curators.

He also noted that almost half of the company’s articles are being published to its network of content partners.

One important thing to note about all of this, with regards to the Panda update and search referrals, is that this whole quality control initiative has greatly helped the company to gain traffic from social media (especially Facebook). I think it’s safe to say that a decreased dependence on Google is really the cornerstone for a true Panda recovery. That way, if you do get hit by Panda at a later time, it doesn’t kill your traffic entirely. Of course, if you’re producing the kind of content that people want to share on social networks, it’s highly unlikely that you’re doing things that Panda wouldn’t like.

If you still haven’t taken the time to assess the quality of your site’s content. You may want to do so. The next Panda refresh is likely just around the corner.

What do you think of Demand Media’s efforts in bouncing back from Panda? Let us know in the comments.

Here’s Demand Media’s earnings release in its entirety: 

SANTA MONICA, Calif.–(BUSINESS WIRE)–Nov. 5, 2012– Demand Media, Inc. (NYSE: DMD), a leading digital media company, today reported financial results for the quarter ended September 30, 2012.

“Demand Media’s audience surpassed 125 million monthly unique visitors during the third quarter, as we delivered record revenue and profitability,” said Richard Rosenblatt, Chairman and CEO ofDemand Media. “For the first time in over a year, we increased our content investments for two consecutive quarters as we expanded the distribution of our content platform. We remain focused on our long-term growth initiatives, which include continuing to increase our investment in core content as well as in opportunities across mobile, video, international, and new generic Top Level Domains.”

Financial Summary
In millions, except per share amounts
Three months ended September 30,
2011 2012 Change
Total Revenue $ 81.5 $ 98.1 20 %
Content & Media Revenue ex-TAC(1) $ 47.4 $ 58.8 24 %
Registrar Revenue 30.7 34.0 11 %
Total Revenue ex-TAC(1) $ 78.1 $ 92.8 19 %
Income (loss) from Operations $ (3.3 ) $ 4.5 NA
Adjusted EBITDA(1) $ 21.7 $ 27.6 28 %
Net income (loss) $ (4.1 ) $ 3.2 NA
Adjusted net income(1) $ 5.0 $ 9.8 97 %
EPS $ (0.05 ) $ 0.04 NA
Adjusted EPS(1) $ 0.06 $ 0.11 83 %
Cash Flow from Operations $ 22.1 $ 24.6 12 %
Free Cash Flow(1) $ 6.0 $ 16.6 177 %
(1) These non-GAAP financial measures are described below and reconciled to their comparable GAAP measures in the accompanying tables. Effective Q1 2012, the Company began reporting Adjusted EBITDA instead of Adjusted OIBDA. Reconciliations for both measures are available on the investor relations section of the Company’s website.

Q3 2012 Financial Summary:

  • Content & Media Revenue ex-TAC grew 24% year-over-year, due primarily to strong page view growth on the Company’s owned & operated properties, as well as 50% growth in network RPMs, reflecting higher revenue from our growing network of content partners. Sequentially, Content & Media Revenue ex-TAC increased 6% compared to the second quarter of 2012, driven primarily by network RPM growth.
  • Registrar revenue grew 11% year-over-year and increased 2% compared to the second quarter of 2012. Revenue growth was driven by an increase in number of domains on our platform, due primarily to growth from new partners.
  • Free Cash Flow was $16.6 million compared to $6.0 million a year ago, reflecting growth in cash flow from operations and a year-over-year reduction in intangible asset content spend, primarily on eHow. Sequentially, investment in intangible assets increased 36% compared to the second quarter of 2012.

“We continued our 2012 financial momentum in Q3 with record adjusted EBITDA and strong free cash flow growth, while increasing our investment in content sequentially,” said CFO Mel Tang. “We are raising our 2012 financial guidance and remain focused on driving Demand Media’s long-term growth through continued disciplined investments.”

Q3 2012 Business Highlights(1):

  • On a consolidated basis, Demand Media ranked as a top 20 US web property throughout the first nine months of 2012, ranking as #13 in September 2012, up from #17 in January 2012. Demand Media’s web properties reached over 125 million unique users worldwide in September 2012.
  • On a standalone basis, eHow.com ranked as the #13 website in the US in September 2012.
  • LIVE ranked as the #3 Health property in the US in September 2012.
  • Cracked.com maintained its ranking as the most visited humor site in the US throughout the first half of 2012, with more time spent on the site than any other humor website. The Cracked Network, which includes IndieClick, ranked as the #1 Humor property in the US in September 2012.

(1) Source: comScore.

Operating Metrics:

Three months ended
September 30,
2011 2012 %
Change
Content & Media Metrics:
Owned and operated
Page views(1) (in millions) 2,527 3,363 33 %
RPM(2) $ 15.16 $ 13.49 (11 )%
Network of customer websites
Page views(1) (in millions) 5,046 4,965 (2 )%
RPM(2) $ 2.47 $ 3.78 53 %
RPM ex-TAC(3) $ 1.80 $ 2.70 50 %
Registrar Metrics:
End of Period # of Domains(4) (in millions) 12.2 13.7 12 %
Average Revenue per Domain(5) $ 10.20 $ 9.99 (2 )%

____________________

(1) Page views represent the total number of web pages viewed across (a) our owned and operated websites and/or (b) our network of customer websites, to the extent that the viewed web pages of our customers host the Company’s content, social media and/or monetization services.
(2) RPM is defined as Content & Media revenue per one thousand page views.
(3) RPM ex-TAC is defined as Content & Media Revenue ex-TAC per one thousand page views.
(4) Domain is defined as an individual domain name paid for by a third-party customer where the domain name is managed through our Registrar service offering.
(5) Average revenue per domain is calculated by dividing Registrar revenue for a period by the average number of domains registered in that period. Average revenue per domain for partial year periods is annualized.
Beginning July 1, 2011, the number of net new domains has been adjusted to include only new registered domains added to our platform for which we have recognized revenue. Excluding the impact of this change, average revenue per domain during the three months ended September 30, 2012 would have increased 1% compared to the corresponding prior-year periods.

Q3 2012 Operating Metrics:

  • Owned & Operated page views increased 33% year-over-year, driven primarily by strong traffic growth on eHow.com and LIVESTRONG.COM. Owned & Operated RPMs decreased 11% year-over-year, due primarily to page view growth from lower RPM properties and traffic sources, including growth in mobile traffic.
  • Network page views decreased 2% year-over-year to 5.0 billion, due primarily to lower traffic from our social media partners. Network RPM ex-TAC increased 50% year-over-year, reflecting higher revenue from our growing network of content partners, primarily YouTube.
  • End of period domains increased 12% year-over-year to 13.7 million, driven primarily by the addition of higher volume customers and continued growth from existing resellers, with average revenue per domain decreasing by 2%, due to a mix shift to higher volume resellers.

Business Outlook

The following forward-looking information includes certain projections made by management as of the date of this press release. The Company does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other factors are discussed in more detail in the Company’s filings with the Securities and Exchange Commission.

Excluding up to $3 million of 2012 expenses that the Company expects to incur related to the formation of its generic Top Level Domain (“gTLD”) initiative, the Company’s guidance for the fourth quarter and fiscal year ending December 31, 2012 is as follows:

Fourth Quarter 2012

  • Revenue in the range of $101.5 – $103.5 million
  • Revenue ex-TAC in the range of $95.5 – $97.5 million
  • Adjusted EBITDA in the range of $27.5 – $28.5 million
  • Adjusted EPS in the range of $0.10 – $0.11 per share
  • Weighted average diluted shares of 89.5 – 90.5 million

Full Year 2012

  • Revenue in the range of $378.9 – $380.9 million
  • Revenue ex-TAC in the range of $359.8 – $361.8 million
  • Adjusted EBITDA in the range of $101.6 – $102.6 million
  • Adjusted EPS in the range of $0.37 – $0.38 per share
  • Weighted average diluted shares of 86.5 – 87.5 million

Conference Call and Webcast Information

Demand Media will host a corresponding conference call and live webcast at 5:00 p.m. Eastern timetoday. To access the conference call, dial 877.565.1268 (for domestic participants) or 937.999.3108 (for international participants). The conference ID is 48753341. In order to participate on the live call, it is recommended that analysts should dial-in at least 10-minutes prior to the commencement of the call. A live webcast also will be available on the Investor Relations section of the Company’s corporate website at http://ir.demandmedia.com and via replay beginning approximately two hours after the completion of the call.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we use certain non-GAAP financial measures described below. The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliation of Non-GAAP Measures to Unaudited Consolidated Statements of Operations” included in this release.

Effective Q1 2012, the Company began reporting Adjusted EBITDA instead of Adjusted OIBDA. While the dollar value of each measure is the same, a comparison of the historical reconciliation of both measures is provided in our supplemental financial schedules posted on the investor relations section of our corporate website at http://ir.demandmedia.com. The non-GAAP financial measures presented in this release are the primary measures used by the Company’s management and board of directors to understand and evaluate its financial performance and operating trends, including period to period comparisons, to prepare and approve its annual budget and to develop short and long term operational plans. Additionally, Adjusted EBITDA is the primary measure used by the compensation committee of the Company’s board of directors to establish the funding targets for and fund its annual bonus pool for the Company’s employees and executives. We believe our presented non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) management frequently uses them in its discussions with investors, commercial bankers, securities analysts and other users of its financial statements.

Revenue ex-TAC is defined by the Company as GAAP revenue less traffic acquisition costs (“TAC”). TAC comprises the portion of Content & Media GAAP revenue shared with the Company’s network customers. Management believes that Revenue ex-TAC is a meaningful measure of operating performance because it is frequently used for internal managerial purposes and helps facilitate a more complete period-to-period understanding of factors and trends affecting the Company’s underlying revenue performance of its Content & Media service offering.

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is defined by the Company as net income (loss) before income tax expense, other income (expense), interest expense (income), depreciation, amortization, stock-based compensation, as well as the financial impact of acquisition and realignment costs, the formation expenses directly related to its gTLD initiative, and any gains or losses on certain asset sales or dispositions. Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, and (3) employee severance payments attributable to acquisition or corporate realignment activities. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

Management believes that these non-GAAP financial measures reflect the Company’s business in a manner that allows for meaningful period to period comparisons and analysis of trends. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period to period comparisons of the Company’s underlying recurring revenue and operating costs, which is focused more closely on the current costs necessary to utilize previously acquired long-lived assets. In addition, management believes that it can be useful to exclude certain non-cash charges because the amount of such expenses is the result of long-term investment decisions in previous periods rather than day-to-day operating decisions. For example, due to the long-lived nature of a majority of its media content, the revenue generated by the Company’s media content assets in a given period bears little relationship to the amount of its investment in media content in that same period. Accordingly, management believes that content acquisition costs represent a discretionary long-term capital investment decision undertaken at a point in time. This investment decision is clearly distinguishable from other ongoing business activities, and its discretionary nature and long-term impact differentiate it from specific period transactions, decisions regarding day-to-day operations, and activities that would have an immediate impact on operating or financial performance if materially changed, deferred or terminated.

Adjusted Earnings Per Share is defined by the Company as Adjusted Net Income divided by the weighted average number of shares outstanding. Adjusted Net Income is defined by the Company as net income (loss) before the effect of stock-based compensation, amortization of intangible assets acquired via business combinations, accelerated amortization of intangible assets removed from service, acquisition and realignment costs, the formation expenses directly related to its gTLD initiative, and any gains or losses on certain asset sales or dispositions, and is calculated using the application of a normalized effective tax rate. Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, and (3) employee severance payments attributable to acquisition or corporate realignment activities. Management does not consider these expenses to be indicative of the Company’s ongoing operating results or future outlook.

Management believes that Adjusted Net Income and Adjusted Earnings Per Share provide investors with additional useful information to measure the Company’s underlying financial performance, particularly from period to period, because these measures are exclusive of certain non-cash expenses not directly related to the operation of its ongoing business (such as amortization of intangible assets acquired via business combinations, as well as certain other non-cash expenses such as purchase accounting adjustments and stock-based compensation) and include a normalized effective tax rate based on the Company’s statutory tax rate.

Discretionary Free Cash Flow is defined by the Company as net cash provided by operating activities excluding cash outflows from acquisition and realignment activities, and the formation expenses directly related to its gTLD initiative, less capital expenditures to acquire property and equipment. Free Cash Flow is defined by the Company as Discretionary Free Cash Flow less investments in intangible assets and is not impacted by gTLD application payments, which were$18.1 million in Q2 2012. Management believes that Discretionary Free Cash Flow and Free Cash Flow provide investors with additional useful information to measure operating liquidity because they reflect the Company’s underlying cash flows from recurring operating activities after investing in capital assets and intangible assets. These measures are used by management, and may also be useful for investors, to assess the Company’s ability to generate cash flow for a variety of strategic opportunities, including reinvestment in the business, pursuing new business opportunities, potential acquisitions, payment of dividends and share repurchases.

The use of these non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense, or cash flows that affect the Company’s operations. An additional limitation of these non-GAAP financial measures is that they do not have standardized meanings, and therefore other companies may use the same or similarly named measures but exclude different items or use different computations. Management compensates for these limitations by reconciling these non-GAAP financial measures to their most comparable GAAP financial measures within its financial press releases. Non-GAAP financial measures should be considered in addition to, not as a substitute for, financial measures prepared in accordance with GAAP. Further, these non-GAAP financial measures may differ from the non-GAAP financial information used by other companies, including peer companies, and therefore comparability may be limited. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure. The accompanying tables have more details on the GAAP financial measures and the related reconciliations.

About Demand Media

Demand Media, Inc. (NYSE: DMD) is a leading digital media company that informs and entertains one of the internet’s largest audiences, helps advertisers find innovative ways to engage with their customers and enables publishers to expand their online presence. Headquartered in Santa Monica, CA, Demand Media has offices in North America, South America and Europe. For more information about Demand Media, please visit www.demandmedia.com

Cautionary Information Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements involve risks and uncertainties regarding the Company’s future financial performance, and are based on current expectations, estimates and projections about our industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Statements containing words such as “guidance,” “may,” “believe,” “anticipate,” “expect,” “intend,” “plan,” “project,” “projections,” “business outlook,” and “estimate” or similar expressions constitute forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. Potential risks and uncertainties include, among others: changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google to its search results as well as possible future changes, and the impact such changes may have on page view growth and driving search related traffic to our owned and operated websites and the websites of our network customers; changes in our content creation and distribution platform, including the possible repurposing of content to alternate distribution channels, reduced investments in intangible assets or the sale or removal of content; our ability to successfully launch, produce and monetize new content formats; the inherent challenges of estimating the overall impact on page views and search driven traffic to our owned and operated websites based on the data available to us as internet search engines continue to make adjustments to their search algorithms; our ability to compete with new or existing competitors; our ability to maintain or increase our advertising revenue; our ability to continue to drive and grow traffic to our owned and operated websites and the websites of our network customers; our ability to effectively monetize our portfolio of content; our dependence on material agreements with a specific business partner for a significant portion of our revenue; future internal rates of return on content investment and our decision to invest in different types of content in the future, including premium video and other formats of text content; our ability to attract and retain freelance creative professionals; changes in our level of investment in media content intangibles; the effects of changes or shifts in internet marketing expenditures, including from text to video content as well as from desktop to mobile content; the effects of shifting consumption of media content from desktop to mobile; the effects of seasonality on traffic to our owned and operated websites and the websites of our network customers; our ability to continue to add partners to our registrar platform on competitive terms; our ability to successfully pursue and implement our gTLD initiative; changes in stock-based compensation; changes in amortization or depreciation expense due to a variety of factors; potential write downs, reserves against or impairment of assets including receivables, goodwill, intangibles (including media content) or other assets; changes in tax laws, our business or other factors that would impact anticipated tax benefits or expenses; our ability to successfully identify, consummate and integrate acquisitions; our ability to retain key customers and key personnel; risks associated with litigation; the impact of governmental regulation; and the effects of discontinuing or discontinued business operations. From time to time, we may consider acquisitions or divestitures that, if consummated, could be material. Any forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture were consummated, actual results could differ materially from any forward-looking statements. More information about potential risk factors that could affect our operating and financial results are contained in our annual report on Form 10-K for the fiscal year ending December 31, 2011 filed with the Securities and Exchange Commission(http://www.sec.gov) on February 24, 2012, and as such risk factors may be updated in our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, including, without limitation, information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Furthermore, as discussed above, the Company does not intend to revise or update the information set forth in this press release, except as required by law, and may not provide this type of information in the future.

Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

Three months ended September 30, Nine months ended September 30,
2011 2012 2011 2012
Revenue $ 81,473 $ 98,147 $ 240,451 $ 277,436
Operating expenses
Service costs (exclusive of amortization of intangible assets shown separately below) (1) (2) 40,109 46,524 115,632 132,153
Sales and marketing (1) (2) 9,200 11,625 28,069 33,678
Product development (1) (2) 9,791 10,278 28,684 30,989
General and administrative (1) (2) 14,837 15,705 45,648 46,854
Amortization of intangible assets 10,828 9,501 30,781 31,216
Total operating expenses 84,765 93,633 248,814 274,890
Income (loss) from operations (3,292 ) 4,514 (8,363 ) 2,546
Other income (expense)
Interest income 5 9 52 34
Interest expense (385 ) (155 ) (710 ) (465 )
Other income (expense), net (79 ) (13 ) (338 ) (77 )
Total other expense (459 ) (159 ) (996 ) (508 )
Income (loss) before income taxes (3,751 ) 4,355 (9,359 ) 2,038
Income tax (expense) benefit (394 ) (1,180 ) (2,739 ) (611 )
Net income (loss) $ (4,145 ) $ 3,175 $ (12,098 ) $ 1,427
(1) Stock-based compensation expense included in the line items above:
Service costs $ 757 $ 672 $ 1,341 $ 2,141
Sales and marketing 1,405 1,400 3,441 4,521
Product development 1,403 1,396 3,649 5,169
General and administrative 4,190 4,578 13,671 12,155
Total stock-based compensation expense $ 7,755 $ 8,046 $ 22,102 $ 23,986
(2) Depreciation included in the line items above:
Service costs $ 4,112 $ 3,587 $ 12,305 $ 10,789
Sales and marketing 109 105 296 345
Product development 399 234 1,158 787
General and administrative 683 906 2,133 2,703
Total depreciation $ 5,303 $ 4,832 $ 15,892 $ 14,624
Income (loss) per common share:
Net income (loss) $ (4,145 ) $ 3,175 $ (12,098 ) $ 1,427
Cumulative preferred stock dividends (3) (2,477 )
Net income (loss) attributable to common stockholders $ (4,145 ) $ 3,175 $ (14,575 ) $ 1,427
Net income (loss) per share – basic $ (0.05 ) $ 0.04 $ (0.19 ) $ 0.02
Net income (loss) per share – diluted $ (0.05 ) $ 0.04 $ (0.19 ) $ 0.02
Weighted average number of shares – basic 83,934 85,182 77,001 84,020
Weighted average number of shares – diluted 83,934 88,751 77,001 86,895
(3) As a result of the Company’s initial public offering which was completed on January 31, 2011, all shares of the Company’s preferred stock were converted to common stock.
Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

December 31,
2011
September 30,
2012
Current assets
Cash and cash equivalents $ 86,035 $ 112,916
Accounts receivable, net 32,665 41,118
Prepaid expenses and other current assets 8,656 8,501
Deferred registration costs 50,636 57,437
Total current assets 177,992 219,972
Property and equipment, net 32,626 33,740
Intangible assets, net 111,304 88,577
Goodwill 256,060 256,037
Deferred registration costs 9,555 11,108
Other long-term assets 2,566 21,607
Total assets $ 590,103 $ 631,041
Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities
Accounts payable $ 10,046 $ 11,340
Accrued expenses and other current liabilities 33,932 33,623
Deferred tax liabilities 18,288 19,586
Deferred revenue 71,109 78,805
Total current liabilities 133,375 143,354
Deferred revenue 14,802 15,966
Other liabilities 1,660 2,361
Total liabilities 149,837 161,681
Stockholders’ equity
Common stock and additional paid-in capital 528,042 559,689
Treasury stock (17,064 ) (21,020 )
Accumulated other comprehensive income 59 35
Accumulated deficit (70,771 ) (69,344 )
Total stockholders’ equity 440,266 469,360
Total liabilities, convertible preferred stock and stockholders’ equity $ 590,103 $ 631,041
Demand Media, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

Three months ended September 30, Nine months ended September 30,
2011 2012 2011 2012
Cash flows from operating activities:
Net income (loss) $ (4,145 ) $ 3,175 $ (12,098 ) $ 1,427
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 16,131 14,332 46,673 45,839
Stock-based compensation 7,727 8,046 21,989 23,986
Other 294 967 2,363 584
Net change in operating assets and liabilities, net of effect of acquisitions 2,050 (1,925 ) (802 ) (6,890 )
Net cash provided by operating activities 22,057 24,595 58,125 64,946
Cash flows from investing activities:
Purchases of property and equipment (3,194 ) (4,982 ) (14,024 ) (12,425 )
Purchases of intangibles (13,927 ) (3,468 ) (43,989 ) (8,590 )
Payments for gTLD applications (18,202 )
Cash paid for acquisitions (27,133 ) (1,011 ) (30,972 ) (1,280 )
Other (855 )
Net cash used in investing activities (44,254 ) (9,461 ) (88,985 ) (41,352 )
Cash flows from financing activities:
Proceeds from issuance of common stock, net 78,625
Repurchases of common stock (3,728 ) (3,728 ) (3,956 )
Proceeds from exercises of stock options and contributions to ESPP 2,832 5,160 4,357 11,016
Other (1,332 ) (1,568 ) (1,547 ) (3,755 )
Net cash provided by (used in) financing activities (2,228 ) 3,592 77,707 3,305
Effect of foreign currency on cash and cash equivalents (23 ) 3 (31 ) (18 )
Change in cash and cash equivalents (24,448 ) 18,729 46,816 26,881
Cash and cash equivalents, beginning of period 103,602 94,187 32,338 86,035
Cash and cash equivalents, end of period $ 79,154 $ 112,916 $ 79,154 $ 112,916
Demand Media, Inc. and Subsidiaries

Reconciliations of Non-GAAP Measures to Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three months ended September 30, Nine months ended September 30,
2011 2012 2011 2012
Revenue ex-TAC:
Content & Media revenue $ 50,744 $ 64,136 $ 152,418 $ 177,766
Less: traffic acquisition costs (TAC) (3,381 ) (5,350 ) (9,384 ) (13,109 )
Content & Media Revenue ex-TAC 47,363 58,786 143,034 164,657
Registrar revenue 30,729 34,011 88,033 99,670
Total Revenue ex-TAC $ 78,092 $ 92,797 $ 231,067 $ 264,327
Adjusted EBITDA(1):
Net income (loss) $ (4,145 ) $ 3,175 $ (12,098 ) $ 1,427
Income tax expense/(benefit) 394 1,180 2,739 611
Interest and other expense, net 459 159 996 508
Depreciation and amortization(2) 16,131 14,333 46,673 45,840
Stock-based compensation 7,755 8,046 22,102 23,986
Acquisition and realignment costs(3) 1,058 20 1,828 132
gTLD expense(4) 707 1,589
Adjusted EBITDA $ 21,652 $ 27,620 $ 62,240 $ 74,093
Discretionary and Total Free Cash Flow:
Net cash provided by operating activities $ 22,057 $ 24,595 $ 58,125 $ 64,946
Purchases of property and equipment (3,194 ) (4,982 ) (14,024 ) (12,425 )
Acquisition and realignment cash flows 1,068 1,068
gTLD expense cash flows(4) 488 1,224
Discretionary Free Cash Flow 19,931 20,101 45,169 53,745
Purchases of intangible assets (13,927 ) (3,468 ) (43,989 ) (8,590 )
Free Cash Flow(4)(5) $ 6,004 $ 16,633 $ 1,180 $ 45,155
Adjusted Net Income:
GAAP net income (loss) $ (4,145 ) $ 3,175 $ (12,098 ) $ 1,427
(a) Stock-based compensation 7,755 8,046 22,102 23,986
(b) Amortization of intangible assets – M&A 2,969 2,666 9,799 8,332
(c) Content intangible assets removed from service(2) 1,818
(d) Acquisition and realignment costs(3) 1,058 20 1,828 133
(e) gTLD expense(4) 707 1,589
(f) Income tax effect of items (a) – (e) & application of 38% statutory tax rate to pre-tax income (2,658 ) (4,822 ) (6,521 ) (13,789 )
Adjusted Net Income $ 4,979 $ 9,792 $ 15,110 $ 23,496
Non-GAAP Adjusted Net Income per share – diluted $ 0.06 $ 0.11 $ 0.17 $ 0.27
Shares used to calculate non-GAAP Adjusted Net Income per share – diluted(6) 87,973 88,754 89,098 87,003
(1) Effective Q1 2012, the Company began reporting Adjusted EBITDA instead of Adjusted OIBDA. While the dollar value of each measure does not differ, a comparison of the historical reconciliation of both measures is provided in our supplemental financial schedules available on the investor relations section of our corporate website.
(2) In conjunction with its previously announced plans to improve its content creation and distribution platform, the Company elected to remove certain content assets from service, resulting in $1.8 million of accelerated amortization expense in the first quarter of 2012.
(3) Acquisition and realignment costs include such items, when applicable, as (1) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (2) legal, accounting and other professional fees directly attributable to acquisition activity, and (3) employee severance payments attributable to acquisition or corporate realignment activities. Management does not consider these costs to be indicative of the Company’s core operating results.
(4) Comprises formation expenses directly related to the Company’s gTLD initiative that is not expected to generate associated revenue in 2012.
(5) In April 2012, the Company invested $18.1 million in gTLD applications, which did not impact its recurring Free Cash Flow metric.
(6) Shares used to calculate non-GAAP Adjusted Net Income per share – diluted include the weighted average common stock for the periods presented and all dilutive common stock equivalents at each period. Amounts have been adjusted in 2011 to reflect the revised capital structure following the Company’s initial public offering which was completed on January 31, 2011, whereby the Company issued 5,175 shares of common stock and converted certain warrants and all of its previously outstanding convertible preferred stock into 62,155 shares of common stock as if those transactions were consummated on January 1, 2011.
Demand Media, Inc. and Subsidiaries

Unaudited GAAP Revenue, by Revenue Source

(In thousands)

Three months ended September 30, Nine months ended September 30,
2011 2012 2011 2012
Content & Media:
Owned and operated websites $ 38,298 $ 45,377 $ 117,917 $ 129,715
Network of customer websites 12,446 18,759 34,501 48,051
Total revenue – Content & Media 50,744 64,136 152,418 177,766
Registrar 30,729 34,011 88,033 99,670
Total revenue $ 81,473 $ 98,147 $ 240,451 $ 277,436
Three months ended September 30, Nine months ended September 30,
2011 2012 2011 2012
Content & Media:
Owned and operated websites 47 % 46 % 49 % 47 %
Network of customer websites 15 % 19 % 14 % 17 %
Total revenue – Content & Media 62 % 65 % 63 % 64 %
Registrar 38 % 35 % 37 % 36 %
Total revenue 100 % 100 % 100 % 100 %

 

Source: Demand Media, Inc.

This Google Panda “Victim” Just Posted Record Revenue And Profitability
Top Rated White Papers and Resources
  • http://www.cobwebseo.com/ seo kolkata

    It is a success story no doubt. Other websites, affected by Panda must learn from this.

  • Tag A. Long

    >> If that’s not a Panda recovery story I don’t know what is.

    It’s one of those “have your investment banker call my investment banker” type deals, there is no earthly reason for ehow to even be in the SERPS.

    This was a board room “recovery”.

  • http://www.brickmarketing.com/full-service-seo Nick Stamoulis

    I’d really like to know what Demand Media did to help eHow recover. For the most part I still find the content on that site to be okay at best, yet is almost always does really well in the SERPs. Did they cull a lot of articles on the back end and replace them with fresh content? That’s no small undertaking for a site the size of eHow.

  • http://www.classifieds2india.com/ Free Classified Ads In India

    Amazing story after the fluctuation of Google Panda or penguin updates, and got a lot of revenue.

    Thanks keep grow:-)

  • knysna

    Lol. Another site bragging about so called recovery without doing very much!

    “there was a lot of discussion in the media and Blogosphere about content farms.”

    And? Nothings changed!

    “eHow was often cited (if not the most often cited) as falling into this category.”

    I wonder why?

    “In fact, many were shocked when Google finally pushed the update”

    LOL, I wasn’t.

    “and eHow appeared to escape unscathed”

    Holly crap, now I’ve heard it all.

    eHow and many other sites are and will once again fall pray to another Panda update once they refresh the same signals, the same signals that nailed their @sses in the first instance.

    Its just like Daniweb, it keeps coming back to bite your @ss.

    Enjoy your promotion while you still got it, its not going to last for very much longer ;)

  • BJ

    EHow and Yahoo Voices (and others) half-right, half-baked articles from several years still showing above more relevant and recent content. …Like tag-a-long says.

    It’s all about the money folks. Not about good search results. Google wants their organic results to be crap so searchers will click on the ads.

  • http://www.TelephoneMessagePad.com/ Dennis

    I often find ehow useful and chose it in search results. If there is a straightforward answer to a question such as “how do I remove the xxx icon from my desktop”, then ehow’s answer is right on topic.

    If the question is a little more nuanced, admitting of several approaches or having pros and cons, no, ehow is not the preferred source.

  • Bill

    Google probably did a manual override to boost them after all the attention

    There are Tens of thousands of small companies struggling as Google sends all product to Amazon

    Content wise – I know of several bloggers who use to make over $1K a month on adsense with great content – then Panda punch

    I think Panda was about Google eliminating checks out on link ads thru Adsense

    Penguin was about Amazon and getting small companies to up there PPC

    Now there are numerous articles on Google dropping “relevent content” ratings on sites PPC which automatically make companies pay more for PPC

    expample: same company that use to pay $.33 for jewelry boxes has to pay $.99 for same word to get in top 10 PPC because of manual PPC overide.

    Google has become scam central – using analytics to extort businesses or they are broke

    either way Google has caused alot of pain for the average webmaster

    Panda, Penguin – whatever – its all about the money with Google

  • http://www.liveambitions.com Steve

    eHow vs About.com… what was the difference before? I would say the quality. Now, that they’ve put more emphasis on quality, they’ll be full steam ahead like About.com.

    One thing that really bothers me about all this is that these big publishers will get an immediate boost in rankings as soon as they release an article, while the small publishers have to go out and work 5 times as hard to promote their articles. Simply unfair.

  • http://www.nobsseo.com No BS SEO

    While I applaud EHOW for their recovery and their success I hardly think they are your “Typical” punter. Their existing database, brand awareness and follower loyalty means that they can pretty much dance to their own tune.
    Chris if I may be so bold as to suggest that you perhaps do a story on a much much smaller online player instead of one which already has millions of visitors per month and a back link structure like no other.

    • http://www.webpronews.com/author/chris-crum Chris Crum

      I’ve done stories about smaller sites recovering from updates. This began as simple coverage of the company’s earnings report.

  • http://publicrecords.searchsystems.net/ Tim Koster

    We’ve been providing a free directory of public records since 1997 and have ranked #1 for “public records” since Google’s inception. February of 2011 we got hit with Panda 1, then crushed in June 2011 with Panda 2 and lost more than 75% of our traffic and income. We’ve hired experts and worked ceaselessly to find out out what might cause the problem and made innumerable improvements and changes to the site. Nothing worked. We let almost everyone go, put our savings and 401K into keeping the site going, then chose to keep the site going in lieu of paying our mortgage. We were millimeters away from losing everything, and suddenly on October 29th our rankings and traffic went back to what it had been pre-panda. I believe it was a duplicate content issue– we had a “report a broken link” function after every database. Or it could be that we suspended thousands of “Code of Ordinances” databases as the descriptions were so similar. Both were benefits to the public, not a way to “fool” Google. We’re still not anywhere near being out of the woods, but we now have hope that we can keep the site going and possibly even keep our home. Throughout this process was the incredible frustration that came from trying to find out from Google just what exactly the problem might be so that we could fix it.

  • http://www.captaincyberzone.com Cap’n Cyberzone

    You guys at Google throw the sums of $millions around like you’re talking about quarters. How about tweaking Panda again so it once again throws some quarters my way!

  • http://www.HGPublishing.com Peter J. Francis

    I hope Demand Media has improved payment for authors, or I can’t imagine what experts are willing to write for them. I wrote one article for them two years ago, receiving $7 after going through two drafts. It was an article on literacy and although I am academically and professionally qualified as a literacy expert, the editor felt that I was straying too far from the proposed topic. I decided instead to focus on my own website for grammar and writing advice, which does not break the bank with AdSense revenue, but does provide me with more than enough editing work to fill my spare time.

  • http://Mabuzi.com Kevin

    Are content farms competition or a service?

  • Pacifico smith

    What does it importance for the google Panda?
    http://about.me/CoolWaterLadiesspray

  • http://anunsyo.com.ph/ candycardinal

    Nice story. I’ve got more knowledge about google panda..

  • http://anunsyo.com.ph/ candycardinal

    Nice story..I’ve got more knowledge about google panda..

  • http://www.web-flash-template.com Michael

    Hi, thank you for sharing!
    This story is really nice. But if you are a big company and can afford you to make a huge part of website content cutting or external links, it’s great. But you’ll have to add something qualitative instead.
    The real issue of cutting bad links (as to the last Panda and Penguin rules)is a significant traffic fall.
    Yes, you will be rehabilitated. But when your website is out of the Google’s penalty, the web traffic to your site will be tending to zero.

    Yes, you should get the only high quality links to your website but why Google has decided to launch so violent update?

  • http://www.prelit-christmastrees.co.uk phil

    Just goes to show that with a lot of hard work you can recover from Panda but also shows that you should not keep all your eggs in one basket

  • http://www.newsimplemarketing.com New Simple Marketing

    As long as your doing things right, and not spam linking, and building quality content, there should be no problems with Google Panda.

    • http://publicrecords.searchsystems.net/ Tim Koster

      Not true at all. You can do everything right, maintain a high PR ranking, be respected, liked, and used and recommended by government agencies, universities, and many many high quality sites and still get punished severely. I know from experience.

    • Guy

      white hat is not exists. it google invention like nofollow attribute. you doing anything for ranking? – optimizing titles/etc – so you are black hat.

  • http://www.socialvid.tv/ pickup

    Nice story google panda..

  • http://www.socialvid.tv/ pickup

    Nice story google panda..thanks for sharing..

  • Guy

    that demand media specializing in pure content farms. It what google before ‘fighting’. but looks like they have a agreement now.

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