Majority of 2011 U.S. IPOs are under water.
If you managed to buy Demand Media’s stock at the $17 offering price in January, you’ve taken a 55% hit. The stock closed today at $7.62.
More likely if you bought on the first day you paid north of $20 for the stock.
But is this fall because the company is weak or is it just a case of bad timing? (or good for those that got to sell there shares in January?)
Data tracker Dealogic says 63% of U.S. initial public offerings this year are underwater. Of course the entire market is below where it started this year, so that shouldn’t come as a huge surprise. And we were all taught in school that IPOs underperform the market in the long term.
Nonetheless, investors are now paying more attention to earnings of recently IPO’d companies. In the case of Demand Media, its earnings are negative.
Darren says
I don’t know about the other companies that are down, but Demand Media should be able to bounce back. They have a great model and are diversifying their business.
SL says
@Darren: “Great” is probably a little too enthusiastic. “Serviceable” or “ok” might be more apropos.
Pandora is the one that’s at greatest risk, imho. The puts are juicy on that one.
KatherineD says
Darren’s right – Demand Media’s model IS great. This is more a case of negative publicity from the media that likely feels challenged by Demand.
Demand wasn’t hit by Panda nearly as hard as the rest of the content production companies, because, despite its reputation, people are searching for and reading Demand’s content.
For some odd reason, Demand has been the target of many reporters who regularly insult Demand’s writers, but those same reporters are making the transition to Demand when the rags they writer for close their doors or scale back production.
Financial reporters point out that Demand isn’t “profitable,” but that’s not actually true. Demand has amassed a gigantic amount of evergreen, quality content that web surfers will be hunting for years to come. They pay their writers once for each article, but those articles continue to earn for decades.
If you don’t think Demand is the way of the future…just keep watching. And if you want to get in while the getting’s good…now’s your chance.
KD
Andrew Allemann says
@ KatherineD:
“Financial reporters point out that Demand isn’t “profitable,” but that’s not actually true”
No, that is true. The argument you’re making is that Demand will be profitable in the future because of the assets it is developing.
Dave says
Demand Media and all other content-based websites are based on a business model of SEO-based advertising and content..
Its a business model built of balsa wood floating on the ocean, because Google can (and will) wipe your website off the face of the planet in a second.
Andrew Allemann says
I think people underestimate the importance of eNom and Demand’s domain portfolio in the entire equation. The content might be the growth area, but without eNom Demand would be much less stable.
KatherineD says
Yes, Andrew, there is an intrinsic difference between “profit,” meaning the current gain, and “profitability,” meaning the “ability” to “profit.”
And Demand’s ability is huge.
Andrew Allemann says
@ KatherineD – I’m hardly a Demand detractor, but I bet startups everywhere will love your definition of “profitable”.
I’m able to make a profit in the future, so I’m profitable?
That’s funny.
KatherineD says
Dave,
Except, Demand doesn’t incorporate any SEO tricks, no keyword stuffing, etc. Demand is producing content that is indistinguishable from “expert content” elsewhere on the web. And, when it’s all said and done, that’s what Google must promote in order to survive.
Not balsa. Pretty much Old Ironsides.
KatherineD says
@ Andrew,
Glad that tickled you, Andrew. I know what you’re getting at, but Demand has a huge asset-earning capacity. That translates to a pretty sweet ROI, does it not?
Maybe I should have said “long-term” profitability, but I do like my definition because in this case, it’s very accurate.
Scattarat says
What type of school and what class taught you:
“And we were all taught in school that IPOs underperform the market in the long term.”
If you learned that in school, you had a great school.
Me…I was forced into a mostly worthless public school education. Most of what I learned was on my own or in college.
Andrew Allemann says
@ Scattarat – I was referring to college 🙂