Demand Media shares jump 33% in trading debut
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Demand Media Inc. on Wednesday found itself in demand as the Santa Monica online content company’s shares soared 33% on their first day of trading.
The stock, priced at $17 in the company’s initial public offering late Tuesday, closed up $5.65 to $22.65 on the New York Stock Exchange after trading as high as $23.50.
The closing price gave Demand Media a market capitalization of nearly $1.9 billion, larger than the New York Times Co.'s valuation of $1.56 billion.
In another well-received IPO, Nielsen Holdings, the TV ratings and entertainment research firm, rose $2, or 8.7%, to $25 in its trading debut Wednesday.
Demand Media’s shares were expected to do well after the company on Tuesday boosted the size of its offering from 7.5 million shares to 8.9 million and set the IPO price at $17, above the $14-to-$16 range it had previously estimated.
The strong investor interest in Demand Media suggests that the market approves of the company’s formula for mass- producing online content, even if the media establishment does not. The company’s sites, which include eHow, Answerbag and Livestrong, ranked the firm as the nation’s 17th-biggest Web property overall in November, according to ComScore, as 105 million viewers clicked on its how-to articles and videos on topics such as how to sew your own pillow.
Investors flocked to the shares despite reports that Google Inc., on whom Demand depends for the bulk of its traffic, may alter the way its search engine delivers results to combat ‘content farms.’
Google did not mention specific sites in its announcement last week, but some assumed that Demand Media would fall within that category. A Google spokesman declined to specify which sites it considered to be content farms.
Richard Rosenblatt, Demand Media’s chief executive -- and former chairman of MySpace -- on Wednesday said he was confident that Google’s changes would not hurt his company.
‘We never called ourselves a content farm,’ said Rosenblatt, who holds about 10% of Demand Media’s 83 million outstanding shares. ‘They define a content farm as a site with shallow or low-quality content. We don’t think of our content as shallow or of low quality.’
Rosenblatt argued that his company specifically addresses topics that people search for but can’t readily find. In addition, each article or video the company produces goes through multiple steps involving writers and editors, he said.
‘Each article is actually touched by 14 humans, titling, writing, fact checking and copy editing,’ he said. ‘We can’t imagine a more rigorous quality process. We think content farms are non-original, duplicative, spammy content. And that’s not us.’
-- Alex Pham