Why Demand Media Shares Soared

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 (NYS: DMD) , a company that monetizes in-demand content formats and the owner of eHow.com and CoverItLive, rallied as much as 22% this morning after reporting better-than-expected first-quarter results and raising its full-year forecast.

So what: For the quarter, revenue rose 9% to $82.9 million while adjusted profits (excluding one-time charges) totaled $0.07. Both figures hurdled past Wall Street's expectations for a profit of $0.05 on revenue of $79.6 million. The big news was the company's full-year forecast, which blew both its own previous guidance and Wall Street's out of the water. Demand Media now anticipates revenue to come in as high as $367 million with profits of up to $0.35. This crushes the current Street consensus for a $0.28 profit on $341.3 million in revenue.

Now what: The big gray cloud overhanging Demand Media had been whether it would adapt to Google's (NAS: GOOG) tightening of its search metrics, which eliminated some of Demand Media's links. Pessimists had argued that without these links, Demand Media could lose advertising revenue. The company, however, noted that it's in the process of cleaning up its archive and removing old links, which essentially nullifies the impact of Google's more stringent search parameters. All told, Demand Media isn't cheap, but its growth appears to be just getting started, and I have a suspicion it could head higher from here given its momentum.

Craving more input? Start by adding Demand Media to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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