Demand Media IPO Pops
Well, the stock market just closed, so I guess it's time to eat crow:
After pricing its shares at $17 last night, Demand Media went public this morning with an initial public offering. After only a few hours on the market, Demand Media, Inc. was trading at $25 a share—it's since fallen to the $23 per share range, but that is still considerably higher than was anticipated. With 8.9 million shares available, trading in that range puts the company's market cap near $2 billion, more than that of the New York Times and in the same general ballpark as IAC and AOL, two big (and established) players in the digital space. That's as crazy as it sounds.
That's from Nicholas Jackson at the Atlantic. For its first day, the company's stock closed 33 percent above its IPO price, meaning that those who bought the company's story about search engine optimization and super low cost editorial content look pretty smart.
I was not among them—and I remain skeptical of Demand Media's long-term prospects—but the company deserves credit for a great IPO today. Demand still isn't turning a profit—by normal accounting standards—but the strong showing suggests that a lot of smart people think that it will.
Demand is worth watching because it represents an increasingly popular business model: It tries to anticipate topics that users will be searching for, and commissions low-cost (and often low quality) how-to guides designed to rank at the top of Google's results. It sounds good as long as Google doesn't change its algorithm drastically, writes New York's Nitasha Tiku: "It's going to be a rude awakening when Google 2.0 under Larry Page tweaks its algorithm to drive Demand's spammy content further down your search stream. But hey, the bubble's just getting started."
As an aside, this is great news for the IPO market, which was all but dead during the recession, and which lately seems to be gaining steam.
Please comment with your I-told-you-sos and your thoughts on Demand's prospects. Does it deserve to be as valuable as the New York Times?