When Demand Media Inc. went public in early 2011, the Santa Monica Internet company quickly surpassed the market cap of old-media titan New York Times Co. and was heralded as the future of online content.
Nearly three years later, Demand’s stock is floundering and search referral traffic to its Web properties is waning. The future isn’t what it used to be.
The company has pinned its hopes on the pending spinoff of its domain services business and a new chief executive who can turn around its content business. But analysts say that whoever is tapped for the job will face some big challenges.
“There’s no magic formula,” said Sameet Sinha, an Internet analyst for the San Francisco office of West L.A’s B. Riley & Co. “They’re in a really tough spot with the core business declining. And the new e-commerce business will take time to grow. Will that be able to stem the tide? Probably not, and that’s the issue.”
Demand’s problems began just a month after its public debut when Google Inc. announced changes to its search algorithm that would push mass-produced content – Demand’s specialty – to the bottom of search results in favor of news and social networking sites.
By the time Demand celebrated its one-year anniversary as a public company, its stock price had plunged nearly 70 percent from its first-day close of more than $21. It never recovered. Shares now hover under $6.
To make up for the declining traffic that followed Google’s update, Demand has looked to decrease its dependency on advertising dollars by adding revenue from e-commerce through recent acquisitions, such as online artist community Society6 and do-it-yourself site CreativeBug.
But those acquisitions have yet to pay off. Demand last month reported a net loss of $10.4 million (-12 cents per share) for the third quarter, compared with net income of $3.2 million (4 cents) in the same period last year. Revenue fell 2 percent to $96.3 million for the quarter.
The month before, co-founder and longtime Chief Executive Richard Rosenblatt announced his resignation. Shawn Colo, another co-founder, was named interim CEO.
Demand has retained Chicago executive recruiter Spencer Stuart to find Rosenblatt’s replacement. Colo, who previously served as Demand’s executive vice president of corporate development, said the search for a new head is well under way.
“I think anyone who’s going to be interested in this position is going to see a big opportunity,” he said. “The culture and the people are super important. We want to make sure that we can find someone who understands all of those things and has the capacity to drive growth going forward.