Why Demand Media Shares Popped

Is this meaningful, or just another movement?

Evan Niu
Evan Niu, CFA
Feb 20, 2013 at 3:19PM
Technology and Telecom

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Demand Media (NYSE:LEAF) have popped today by greater than 15% after the company reported earnings with solid guidance. It's also contemplating the idea of splitting itself apart.

So what: Revenue excluding traffic acquisition costs in the fourth quarter came in at $96.8 million, a slight beat relative to the $96.7 million consensus estimate. The non-GAAP earnings per share of $0.12 also came out slightly on top of the $0.11 per share adjusted profit that investors were expecting. First-quarter revenue is expected to be $100 million to $102 million.

Now what: Demand Media also said it was exploring the possibility of splitting its business into two independent companies. One would specialize in outsourced content creation while integrating monetization strategies, while the other would seek to provide domain registry services, distribution, and aftermarket services. The deal would entail a tax-free distribution to existing shareholders of the new publicly traded stock in the domain services company, and could potentially occur within the next nine to 12 months.

Interested in more info on Demand Media? Add it to your watchlist by clicking here.