Demand Media shares soar as Google concerns retreat

NEW YORK Wed Aug 10, 2011 11:00am EDT

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NEW YORK (Reuters) - Shares of Demand Media (DMD.N) soared as much as 20 percent on Wednesday as investors piled back into the company relieved that changes Google (GOOG.O) made to its search engine have not affected Demand as badly as feared.

Demand on Tuesday reported better-than-expected second quarter results that are sending shares up on a day that is punishing the wider markets.

"The company appears to be absorbing the body blows from Google's algorithm changes and doesn't appear to be paralyzed," said Stifel Nicolaus & Co analyst Jordan Rohan.

Demand shares were up 14.3 percent at $10.26 in morning trading on the New York Stock Exchange after hitting a session high of $10.75.

Demand Media is an online company that relies on freelance writers to provide articles and videos designed to appear at the top of Internet searches that in turn generate ad revenue.

During the second quarter, Google made two major adjustments to its formula to return search results of higher quality -- known in technology circles as "panda."

Investors and analysts feared those alterations affected Demand Media, which depends on Google in part for traffic and advertising revenue.

Shares of Demand Media, one of the first online companies to go public this year, have fallen about 57 percent since the beginning of the second quarter on concerns that panda hurt the company's results.

"We believe that the overhang from Panda on (Demand Media) stock maybe be overblown and at current levels find the risk/reward attractive," wrote Youssef Squali, managing director at Jefferies & Co in a note to investors.

Additionally, Demand Media announced on Tuesday a renewed three-year global advertising partnership with Google that includes the inclusion of Demand Media in the search giant's display ad network reserved for premium content.

(Reporting by Jennifer Saba, editing by Dave Zimmerman)

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