Google in the Library With a Candlestick: Demand Media's Traffic-Murder Mystery (Except It Didn't Die)
Smart investors will decide whether or not they like online content maker Demand Media, which recently filed to go public.
Before Wall Street buys into the IPO, those investors will peruse the financial disclosures, assess the management and analyze the market for creating content that uses digital tools to gauge consumer demand and assign stories based on those results.
And they will also look closely at the Santa Monica, Calif., start-up’s traffic, which has been growing steadily since its founding several years ago.
Except, insisted two bloggers in posts on the exact same day earlier this week, it looked like Demand’s traffic dramatically fell off over the last month.
First, Dan Primack from peHUB, using data from Quantcast, noted a huge traffic drop-off, although he did add that other analytic groups were not showing such declines.
He then spun what he himself called “an alternate (and unsubstantiated) theory” that Google (GOOG) had somehow tweaked its search algorithm and kicked Demand’s knees in some doing-some-evil plot to get into the content business itself.
If you are thinking it was grassy-knoll time, as I did, you are not far off.
But, by the end of the post, Primack wheeled back as fast as Demand’s traffic had supposedly declined, noting that a Quantcast spokesperson attributed the Demand traffic plunge to a “measurement tag that had fallen off.”
(Don’t you hate when that happens? That’s why we use digital superglue here at All Things Digital to keep those pesky measurement tags affixed firmly!)
But that seemingly bad data from Quantcast also popped up in a post by Slate’s James Ledbetter, who also noted a precipitous decline for Demand in late July.
He tried to throw out a number of scenarios and theories to explain the possible plunge, none of which were supported by much proof, either. But it all sounded juicy and sneaky!
The post actually seemed more of a lark for Ledbetter than any real reported analysis.
And comScore Director of Industry Analysis Andrew Lipsman even stressed in the comments of the Ledbetter piece that “there is no such traffic drop-off at Demand and there may be other inorganic reasons behind the apparent decline you noted in your article.”
Indeed, according to comScore (SCOR), which is sometimes considered an undercounter of Web traffic by publishers, Demand’s traffic is actually up to 58.7 million unique monthly visitors in July, a rise of seven percent from the previous month.
That’s actually the best Demand has done since last fall, as you can see here from comScore’s numbers since last September, during which time its traffic rises and falls by small amounts:
Demand’s U.S. Unique Visitors (000)
These numbers, as you will see, are not quite as gripping, showing a very slow march forward, as did Demand’s financials.
As I wrote in a post earlier this week, titled “The Lesson of Demand Media: The Online Content Business Is a Looooong March to the Big Time”:
The media business at Demand is still small, relatively speaking to other big content companies, with the content and media part of the revenue representing almost 60 percent of the business (a domain registrar business makes up for the rest).
And, most importantly, it is still unprofitable.
[Demand] said that, for the six months ended June 30, the company posted a loss of $22.3 million on revenue of $114 million. It was an improvement over a loss of $28.9 million on revenue of $91.3 million in the same period of 2009.
Using less strict accounting, on an operating basis, the picture is better, with the company’s loss cut to $4.7 million from $12.3 million in the same six months.
And using even less stringent non-GAAP financial rules, called, “Adjusted OIBDA,” Demand said in its regulatory filing with the Securities and Exchange Commission Friday that it made $25.6 million in profits.
Like I said, not so riveting, but also not so bad.
Which comes to BoomTown’s own theory: If you want a good story, buy a good book.