Kara Swisher

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Demand Media's IPO Is On Deck, With Amended Filing

Demand Media, which posted its S-1 regulatory filing August, filed an amended version today that is likely to allow it to move quickly to an initial public offering.

The new version for the online content company has updated financial information for the third quarter.

Demand now must now wait for the Securities and Exchange Commission to approve the filing, after which the execs of the Santa Monica, Calif.-based Demand will immediately to go on a road show for several weeks to try to convince investors to jump on board.

Then, if there’s enough interest, the IPO is likely to come before the holidays.

Demand’s initial filing was to raise $125 million at a reported $1.5 billion valuation.

You can read the whole filing here, which shows an improved performance from Demand.

In its latest filing, Demand said it had generated revenue–from advertising and a domain business–of $179.4 million for the first nine months this year and had a net loss of $6.4 million.

In the same period a year ago, revenue was $102.3 with a net loss of $5.6 million.

Losses in the third quarter itself narrowed, to $305,000 from $4.2 million in the previous quarter and $1.9 million a year ago.

But Demand points in its filing to its “Adjusted OIBDA,” using less stringent non-GAAP financial rules, which shows a much improved $41.9 million profit compared to $18.9 million last year.

As MediaMemo’s Peter Kafka wrote:

Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand-name IPO to break the dry spell. You can feel people willing this thing to work.

If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters.

Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15x on that number.

Demand is definitely growing smartly from $170.3 million in annual revenue in 2008 to $198.5 in 2009 to possibly reaching–based on six months of 2010 results–well above $230 million in 2010.

That’s due to its increasing growth in traffic, largely via Demand’s popular eHow site and a network of others.

Almost all of the money is coming from traffic, and advertising, that it generates from Yahoo and Google–Google in particular.

Demand has done this using $355 million in funding it has raised since its founding in 2006. The company said it has only $29.2 million in cash and cash equivalents left, but there is also a $100 million untouched line of credit.

Hence, the IPO, which will give it both cash and stock to use to grow its content business, either organically or via acquisition, all while keeping the costs of content creation increasingly lower via innovative technology.

From Demand’s filings, it is clear such an effort is slow going, as it seeks to carve out any entirely new business model for content.

Now, it must find Wall Street investors who agree.

In its filing, Demand said it will sell 4.5 million shares in the IPO and current shareholders will sell another three million. It hopes to have DMD as its ticker symbol on the New York Stock Exchange.

But there is no price range yet for the offering, which is being led by Goldman Sachs and Morgan Stanley.


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— Kara Swisher and Walt Mossberg, in their farewell D post