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UPDATE 1-Demand Media reports record revenue and profit

Jennifer Saba
Monday, 5 Nov 2012 | 10:28 PM ET

* Q3 adj EPS of 11 cents beat Wall St. view by a penny

* Rise in Web traffic helps revenue, profit

* Raises full-year outlook

* $3.2 mln net income compares with year-ago $4.1 mln loss

Nov 5 (Reuters) - Demand Media Inc reported record quarterly revenue and profit on Monday because more people are visiting its websites such as eHow, LiveStrong and Cracked.

The better-than-expected results, also buoyed by a partnership with Google Inc's YouTube, prompted Demand Media to raise its full-year outlook.

``I think this is the first time we saw an indication of the YouTube deal impacting the numbers,'' said Sean Kim, an analyst with RBC Capital Markets.

Demand Media relies on freelance writers, photographers and videographers to provide articles and videos designed to appear at the top of Internet searches that in turn generate advertising.

The company said third-quarter revenue excluding traffic acquisition costs rose 19 percent to $92.8 million. Analysts on average were expecting $91.5 million according to Thomson Reuters I/B/E/S.

``Demand Media's audience surpassed 125 million monthly unique visitors during the third quarter, as we delivered record revenue and profitability,'' Richard Rosenblatt, chairman and chief executive of Demand Media, said in a statement.

Demand Media, which went public last year, is being carefully watched as a new media model that lowers the costs associated with producing content.

Last year, however, Demand Media had to shift its business model when Google made changes to the way its search engine produced results in order to weed out content it considered ``low quality.''

The company cleaned up its archives and implemented checks that would help raise the level of its content and also struck up a partnership with the Internet search giant in the fourth quarter of last year.

That alliance to produce content to its channels helped lift the amount of revenue that Demand received from its network of partner sites by 50 percent.

Demand has roughly 20 partnerships in place where its content is published, including Gannett Co's Arizona Republic.

The company raised its full-year forecast for revenue excluding traffic acquisition costs to the range of $359.8 million to $361.8 million from a range of $355.5 million to $359.5 million.

For the year, adjusted EPS is expected to be in the range of 37 to 38 cents per share versus the previous forecast of 35 to 37 cents per share.

Net income for the third quarter was $3.2 million, or 4 cents per share, compared with a loss of $4.1 million or a loss of 5 cents per share in the same period a year ago.

Adjusted for stock-based compensation and other items, the company reported earnings per share of 11 cents, beating analysts' forecast by a penny.

Shares of Demand closed up 6 percent at $8.74 on Monday.

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