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Demand Media (NYSE: DMD ) is certainly in demand this morning, as the online content producer's IPO opened at $23.50 after pricing last night at a mere $17 a share. It also boosted the number of shares sold from 7.5 million to 8.9 million.
Demand Media may not be a widely recognized dot-com media mogul, but its portfolio of vertical websites attracts more than a whopping 100 million unique visitors a month. Armed with a growing army of freelancers, Demand populates its websites with timely content. Demand's properties include how-to website eHow, outdoor hiking guide hub Trails.com, and the Cracked.com comedy site.
Demand's model isn't unique. Yahoo!'s (Nasdaq: YHOO ) recently acquired Associated Content has an even larger base of freelancers, but Demand's vetted contributors are an ambitious lot. Demand has published more than 3 million articles and 200,000 videos. Beyond its own sites, Demand deploys its content through third-party sites including Gannett's (NYSE: GCI ) USAToday.com.
It all adds up. Revenue climbed 17% to $198.5 million during 2009, and the growth has accelerated through 2010. The one rub here is that Demand has struggled to turn a profit, though it likely cleared an operating profit in its December quarter.
Demand isn't cheap. Today's pop will likely mean that underwriters go for the full over-allotment, giving it a healthy 82.6 million shares outstanding. In other words, the dot-com darling's market cap is just shy of $2 billion. Yahoo! shelled out just $100 million for Associated Content last year, though it reaches a much smaller audience.
Demand is growing faster than both of those companies, but investors may want to wait and see if this seemingly scalable model can ever deliver consistent profitability at attractive margins.
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