Feb 19 Demand Media Inc will explore
separating its media business from its domain name service, the
company said on Tuesday, a disclosure that sent its shares up
nearly 20 percent in after hours trading.
The company said the contemplated move would be a tax-free
distribution to U.S. stockholders of new publicly traded stock
and could be completed in nine to 12 months.
"The catalyst is the level of investment we see and we don't
want to handicap either business from realizing their full
potential," Demand Media CFO Mel Tang said in an interview.
As Demand Media grows its top level domain business it will
need to invest money into building out its technology and
operational infrastructure, said Tang.
Demand Media has two sources of revenue. In its media
business, freelance writers, photographers and videographers
provide articles and videos designed to appear at the top of
Internet searches that in turn generate advertising. The other
is a growing registrar business that maintains top level generic
Its media sites include eHow, Livestrong and Cracked.
"I think both businesses are going in different directions,"
said Doug Arthur, an analyst with Evercore Partners.
"Historically there was some cross pollination. I see the logic
Revenue from its registrar business represents about
one-third of total revenue. Tang estimated that a stand-alone
registrar business could roughly generate about $150 million in
revenue with margins approaching 20 percent.
Demand Media also reported fourth-quarter revenue rose 22
percent to $103.1 million.
The company said adjusted for items including stock-based
compensation, net income rose to $10.8 million, or 12 cents per
share, from $6.8 million, or 8 cents per share, in the same
period a year ago. Analysts were expecting 11 cents per share,
according to Thomson Reuters I/B/E/S.
The spike in shares came in after hours trading after
closing at $7.84 on Tuesday.