Demand Media raises outlook on first-quarter revenue beat

NEW YORK Tue May 8, 2012 6:43pm EDT

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NEW YORK (Reuters) - Demand Media Inc (DMD.N) reported better-than-expected first-quarter revenue and raised its 2012 outlook, suggesting it is finally moving past changes that Google made to its search engine that hobbled the company last year.

Demand shares, which closed on Tuesday at $7.93, were up 20 percent in extended trading.

Demand Media relies on freelance writers to provide articles and videos designed to appear at the top of Internet searches that in turn generate advertising revenue. It operates a clutch of websites, including eHow, LiveStrong and Cracked.

Revenue, excluding traffic acquisition costs, rose 9 percent to $82.9 million, the online content company said on Tuesday. That was above analysts' average estimate of $79.6 million, according to Thomson Reuters I/B/E/S.

The company raised its forecast for the year bolstered by growing advertising revenue and traffic. Revenue, excluding traffic acquisition costs, is expected to be in the range of $347 million to $353 million versus a previous forecast of $337 million to $344 million.

The company is being closely watched as a new way to inexpensively produce content, especially in light of the challenges facing traditional media. Newspapers, for instance, are struggling with plummeting advertising revenue, which puts a strain on the cost structure that supports journalism.

Even so, Demand Media needed to shift its business model when Google Inc (GOOG.O) made changes to the way its search engine produced results in order to weed out content it considered "low quality."

Those changes, known in technology circles as project "panda," hammered Demand Media's results along with competitors such as About, owned by the New York Times Co (NYT.N).

Demand responded by cleaning up its archives, putting in measures to assess the quality of content and betting heavily on video and social media.

For instance it struck up a partnership with YouTube by launching channels with Demand's content.

The Santa Monica, California based company , which also provides Internet domain name registration, went public in January 2011 with much fanfare. The company's shares are down more than 50 percent from its year high of $17.

A recent press report said that Demand had been approached by a private equity firm to take the company private but that the talks fell apart.

Demand Chief Executive Richard Rosenblatt would not comment on the report when asked about it during a call with analysts. "We want to grow this business as big as we can," he said.

"We can't comment on any type of offer but what I can tell you, we want to drive shareholder value."

Adjusted for one-time items, earnings per share were 7 cents, beating analysts' expectations for 5 cents per share.

Demand Media reported a net loss of $1.8 million, or a loss of 2 cents per share, compared with a loss of $5.6 million, or a loss of 13 cents per share in the same period a year ago.

(Reporting by Jennifer Saba; editing by Gary Hill, Andre Grenon and Leslie Gevirtz)

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