* Q3 Adj EPS $0.06 per share vs. Wall St. view $0.04
* Q3 rev ex-TAC up 26 percent to $78.1 million
* Shares closed down 8.7 percent at $7.08
By Jennifer Saba
Nov 7 Demand Media reported a rise in
quarterly revenue, though it still faces tough questions about
its reliance on Google for traffic at one of its
Third-quarter revenue, excluding traffic acquisition costs,
rose 26 percent to $78.1 million, the company reported on
Monday. That was in line with analysts' average estimate of
$78.2 million, according to Thomson Reuters I/B/E/S.
Third-quarter adjusted earnings per share of 6 cents beat
analysts' forecast of 4 cents.
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 advertising
revenue. It operates a clutch of websites including eHow,
LiveStrong and Cracked.
Shares of Demand Media are off more than 70 percent from
its year high in March of $26.25 over worries that Google's search engine changes have dented the company's
Google has made key adjustments to its formula used to
return search results of higher quality, known as project
Indeed the New York Times Co's About.com, a
competitor to Demand, reported that third-quarter revenue at
that group plunged almost 21 percent, citing increased
competition and the changes Google made to its search results.
During the third quarter, Demand said that a little over 31
percent of its revenue was from Google, compared with 33
percent in the second quarter of 2011.
Demand is attempting to diversify its revenue with an
emphasis on video -- partnering with Google's YouTube in three
new original channels -- and is evaluating its content
offerings of eHow.
EHow is the company's biggest contributor representing 29
percent of total revenue and Demand is focusing on increasing
the quality of its content.
The consumer may have gotten a "thinner" experience in the
past, said Demand Media Chief Executive Richard Rosenblatt. He
cited the example that a reader may have learned only one way
to work out and lose weight. Now the company wants to expand
that content to explain several different methods to work out,
The company is also taking stock of its content database
pulling articles is does not consider to be of quality. That
move could result in a write-down of up to $8 million, the
"This is clearly a company in transition," said Stifel
Nicolaus analyst Jordan Rohan.
"The business model is being changed materially with an
increased focus on the production of video. Despite a positive
spin from the company, the write-down of up to $8 million in
content assets ... is troubling and signals that eHow is in
The company forecast fourth-quarter revenue excluding
acquisition costs in the range of $78.5 million to $82.5
Analysts are expecting revenue of $83.7 million.