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This IPO Demands Your Attention

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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.

The $2 billion sticker may just be a number, but it prices Demand in the same enterprise-value ballpark as established web giants AOL (NYSE: AOL  ) and IAC (Nasdaq: IACI  ) .

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.

Which private company would you like to see go public this year? Tell us all about it in the comment box below.

Yahoo! is a Motley Fool Global Gains recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is glad to see the IPO spigot flowing again. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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Rick Munarriz
TMFBreakerRick

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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