Leaf Group has profitability in sight again after a steep fall from grace.
The Santa Monica-based internet portfolio company’s Chief Executive Sean Moriarty believes the firm has turned a corner after bleeding cash and watching its annual revenue sink 70.2 percent to $113.5 million in 2016 from its peak at $380 million in 2012.
The company posted $191 million in losses over the same period.
Moriarty has led a complex juggling act since he was brought aboard to right the ship in August 2014. His tenure has seen Leaf Group simultaneously cut costs via layoffs and divestitures, stabilize declining traffic to its web properties by improving quality of content, and acquire fast-growing e-commerce businesses to boost revenue.
The firm, formerly Demand Media, changed its name to Leaf Group in October 2016.
The changes helped steady the firm’s internet media division revenue, and have combined with growth in the e-commerce division to put the company on the verge of getting back into the black on an operating basis, Moriarty said.
“We are back to a place not only of a stable foundation, but solid growth,” he said. “We expect to be profitable, on an EBITDA basis, in Q4 of next year.”
Leaf Group’s revenue is expected to rise 12.8 percent this year, to $128 million, according to Jason Kreyer, an analyst with Craig-Hallum Capital Group in Minneapolis. That would be the firm’s first revenue growth in five years.
The firm had little outstanding debt and $33 million in cash, as of the quarter ended Sept. 30. It generated $33.5 million in revenue and recorded a loss of $6.8 million for the period.
The company’s $175 million market capitalization remains a shadow of its former $2 billion value, but some see a small cap internet company with a legitimate claim to future growth prospects.
“If you look at it in terms of a turnaround, I’d argue the turnaround has already taken shape,” said Kreyer of Craig-Hallum. “That’s generated some excitement on where they can go going forward.”
Righting the ship
Demand Media rocketed to the top of the internet publishing world when it debuted in 2006 as a cheap content mill that gamed the biases of search engines. In 2011 the search engine winds shifted as Alphabet Inc.’s Google Inc. rejiggered its algorithm to direct traffic to higher-quality content – partly as an effort to remove low-quality webpages, such as those pushed by Demand Media, from its search engine results. Traffic to the company’s websites fell off a cliff, its advertising revenue soon followed and it’s spent the past five years recovering.
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