Demand Media: What are the Shares Worth?

In just three days, Demand Media Inc (NYSE:DMD) has an impressive market cap of $1.77 billion, yet the seasoned New York Times Co. (NYSE:NYT) sits at a $1.54 billion market cap -- does this make sense?

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Demand Media Inc. (DMD) was a very successful IPO this week, starting at $17 a share, hitting $25 and ending its first day of trading at over $22 a share.  Friday Demand Media shares closed at $20.44 trading close to a million shares.  But how much is Demand Media really worth?  Demand Media owns domain name registrar eNom, parking company HotKeys, part of NameJet, and a large portfolio of domain names. It’s true that much of the company’s growth is coming from its content businesses such as eHow, but the underpinning and stable revenue base comes from domain names.

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We turn to the great Seamus McCauley at virtualeconomics.co.uk:
(http://www.virtualeconomics.co.uk/) Demand Media is really two businesses, the well-known content farm and a less well-known (and substantially older) domain registrar. Revenues are now split approximately 60/40 across the two, with revenues flat at the registrar and revenue growth over the past two years (and therefore presumably in the future) coming from the content side. While the IPO prospectus makes some optimistic noises about the two businesses supporting one another they don't, really - like many companies, Demand Media just happens to own two businesses in vaguely related sectors.

Over at SeekingAlpha Kevin Berk does an excellent job of breaking down some benchmarks that can be used to value the two businesses that make up Demand Media, comparing the registrar business to Tucows and the content farm to IAC, Answers.com and Marchex. He concludes, on some overtly optimistic revenue multipliers, that Demand Media should be valued not at its current $22 per share but at $10 per share. On a realistic multiplier he says he could make a case for <$5 a share. I agree.  Read the Full Article - Click Here>> 

SOURCE: http://www.virtualeconomics.co.uk/2011/01/good-news-for-journalism-no-way-is-demand-media-really-worth-more-than-the-new-york-times.html#