November 7, 2013 Last Updated 4:59 pm

Demand Media posts $10 million loss in Q3, revenue down 2%

“This quarter, our media business was negatively impacted by declines in search referral traffic and advertising demand.”

Press Release:

SANTA MONICA, Calif. – November 7, 2013 — Demand Media, Inc., a leading digital media and domain name services company, today reported financial results for the third quarter ended September 30, 2013.

“This quarter, our media business was negatively impacted by declines in search referral traffic and advertising demand. Despite these challenges, I am excited about the long-term prospects for both our media and domain name services businesses,” said Shawn Colo, Interim President and CEO of Demand Media. “We have a unique set of compelling assets, which will enable us to take advantage of significant growth opportunities in both the media and domain services markets.”

Demand-earnings-chart

Q3 2013 Financial Summary:

Total revenue ex-TAC was flat year-over-year, with 11% year-over-year growth in Registrar revenue offset by a 7% decline in Content & Media revenue ex-TAC. Excluding the acquisitions of Society6 and Name.com, total revenue ex-TAC decreased 10%.

  • Registrar revenue grew 11% year-over-year, due primarily to growth from Name.com, which was acquired at the end of Q4 2012. Excluding the acquisition of Name.com, registrar revenue increased 2%.
  • Owned & Operated revenue growth of 6% was driven primarily by revenue of $5.6 million from Society6, which was acquired at the end of Q2 2013, and higher revenue from the sale of undeveloped websites, offsetting advertising revenue declines that were due primarily to a reduction in search engine referral traffic. Excluding the acquisition of Society6, Owned & Operated revenue decreased 7%.
  • Network revenue ex-TAC declined 50% due primarily to $3.1 million less revenue from the Company’s YouTube Channels as well as an unfavorable $1.6 million revenue adjustment from an advertising partner related to activity on certain network websites prior to Q3.

Adjusted EBITDA decreased 34% year-over-year, reflecting the negative impact from search engine referral traffic on high-margin revenues and the unfavorable revenue adjustment noted above.

“While Q3 was a challenging quarter, we continued to make progress across our commerce and new gTLD initiatives,” said Demand Media’s CFO Mel Tang. “Our ability to generate free cash flow coupled with our strong balance sheet provides us with a solid foundation from which to invest in strategic growth opportunities.”

Business Highlights:

Content & Media:

September 2013 comScore Rankings:

  • On a consolidated basis, Demand Media ranked as the #18 US web property and Demand Media’s properties reached more than 96 million unique users worldwide.
  • eHow.com ranked as the #23 website in the US and reached 58 million unique users worldwide.
  • Livestrong.com/eHow Health ranked as the #3 Health property in the US, with more than 21 million unique users worldwide.
  • Cracked.com ranked as the #6 Humor property in the US, with more than 8 million unique users worldwide.

In Q3 2013, mobile revenue doubled year-over-year and represented 13% of Owned & Operated revenue as compared to 7% last year.
During Q3 2013, Society6’s artist community grew over 100% and image uploads grew over 50%. Society6 also expanded its product line-up in Q3.
eHow Now’s customers more than doubled quarter-over-quarter, with the majority of revenue driven by monthly subscriptions. eHow Now’s real-time expert chat service is now live across seven categories – Pets, Legal, Auto, Tech, Health, Personal Finance and Home Improvement.

Domain Name Services:

  • The Company announced that Taryn Naidu will become Chief Executive Officer and Dave Panos will become Chairman of the Board of Rightside Group, Ltd., the Company’s domain name services business, upon completion of the separation. In addition, the Company filled several key executive positions for this business during Q3.
  • Recently, Demand Media’s domain name services business marked two significant milestones, officially receiving registry agreements from ICANN for several of its new gTLDs, including .DANCE, .IMMOBILIEN and .NINJA, and signing registrar agreements with ICANN to distribute new gTLDs through its eNom and Name.com registrar channels.

Financial:

  • In August 2013, Demand Media entered into a new $225 million credit facility comprised of a $125 million revolving credit facility and $100 million in term loan availability. The new facility, which matures in August 2018, provides Demand Media with significant additional flexibility and liquidity to pursue its strategic objectives, including the separation of its domain name services business.

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