Ahead of Earnings Next Week, Demand Media Shares Drastic Dip Due to Googley Panda-Monium
April showers bring…well, a bad month for the still-young stock of online content maker Demand Media.
After a successful IPO in January, shares of the Santa Monica, Calif., company had stayed largely in the mid-$20 range, including a high of $27.38.
That is, until this month, when gloom in the form of algorithm changes at Google–with the seemingly dulcet code name of “Panda” and designed to weed out poorly made content–appeared to hit SEO-heavy Demand hard.
At first, the updates by the search giant seemed not to effect Demand as much as other sites. But more recent tweaks have caused traffic to its flagship site, eHow.com, to be much more negatively impacted.
And–presumably due to its search advertising-heavy business model–that worry then caused the stock to plummet from above $24 in the beginning of April to yesterday’s close of just above $15.
Since Demand went public, its shares are now down almost 34 percent.
You can see the situation pretty clearly in this Demand stock chart below (click on the image to make it larger):
Of course, this might all be needless panic on the part of Wall Street investors, but the drop has been all too real.
Not surprisingly, Demand acknowledged the dip, but also countered some third-party reports that were more dire.
It tried to staunch that worry on April 18, with a press release and blog post by its Media and Operations EVP Larry Fitzgibbon, which read in part:
…Google recently made significant search algorithm changes in an update dubbed Panda that has rolled out in various capacities from late February thru mid-April. With respect to Panda’s mid-April update, some of our properties saw Google search referrals move up while other properties, including our largest property eHow.com, saw these referrals go down.
As I said in my prior post, we generally do not comment or speculate on changes by major search engines, as these changes can happen nearly daily. However, recent third-party reports attempting to estimate the impact to our search driven traffic, including one projecting a 2/3rds decline in eHow.com traffic, are so significantly overstated that we decided to comment. As discussed in our press release issued today, we currently expect that in Q2 2011 our owned and operated Content & Media properties will generate year-over-year page view growth comparable to or greater than the year-over-year page view growth reported for Q2 2010. We have also reaffirmed our calendar year 2011 financial guidance in this press release.
That’s why it will be interesting to see what Demand execs will say on its first-quarter earnings call next Thursday, May 5, to explain how it will cope with Panda and–more importantly–what it plans to do to minimize the skadoosh impact on its business and share price.