It was no joke when Demand Media Inc. decided to sell its Cracked.com humor website for $39 million in cash to E.W. Scripps Co.
Shares in the Santa Monica internet portfolio business surged nearly 12 percent last week to close up 62 cents at $5.86 after the announcement of the sale of the comedy brand to the Cincinnati company. (See page 38.)
Cracked was the latest internet media business to be shed by Demand as part of an effort to distance itself from reliance on advertising revenue and refocus on its e-commerce properties.
Though Cracked, which generated $11 million in revenue last year, was said to be profitable, Demand opted to add cash to its balance sheet and narrow its portfolio rather than reinvesting in the comedy site’s operations, said Chief Executive Sean Moriarty.
“As we looked at it and recognized its forward opportunity, we also realized it would require time and capital to fuel its growth,” he said. “At this time, Scripps was better positioned to fuel its growth.”
The decision to sell Cracked was made quickly, in response to an inquiry from Scripps, said Moriarty, who insisted that the property was not shopped around to potential buyers.
The deal came at a time Demand is increasingly relying on its Society 6 and Saatchi Art e-commerce operations for revenue. Revenue from those operations hit $52.2 million last year, an increase of 47 percent from 2014.
Society 6 makes and sells art prints, custom iPhone cases, and T-shirts. It was bought by Demand in 2013 for $94 million in stock and cash. Saatchi Art, acquired by Demand in 2014 for $17 million in cash and stock, is an online marketplace for artwork.
Cracked joins a number of companies Demand has offloaded in recent years, including arts and crafts website Creativebug, social media engagement tool CoverItLive, and domain registry Rightside.
Layoffs and other cost-cutting measures have reduced Demand’s expenses by 21 percent since 2013. Savings from cost cutting and cash from spinoffs have helped the company eliminate debt and build a cash cushion of $38.6 million, as of the quarter ended March 31.
Demand, which posted a loss of $43.5 million on revenue of $126 million, has projected that it will become profitable by the end of this year.
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