Demand Media Preps for an IPO by Month End

Online content company Demand Media is well on its way to trade on the New York Stock Exchange under DMD by the end of January. Today it cleared an SEC hurdle, priced its shares, and kicked off a two-week road show with lead underwriters Goldman Sachs and Morgan Stanley.

What's Demand worth?

The company plans to sell up to 8.65 million shares priced from $14 to $16, which would raise $138 million. And that would put a valuation of about $1.3 billion on Demand Media, a slightly more conservative valuation than when Demand first filed its S-1 in August.

The company generated about $250 million in revenue last year, so expect other growth companies and Wall Street bankers to keep a close eye on Demand Media's valuation when it starts trading.

There's a lot of attention on the Demand IPO as a signpost of the IPO Markets in 2011. Renaissance Capital Director of Research Paul Bard tells me that if the IPO is well received, it could make an important statement that investors are now more receptive of growing, riskier companies.

What exactly does Demand Media do?

It creates content with a long shelf life — like how to tie a tie, or quit smoking — based on algorithms designed to predict content demand. It employs over 10,000 freelancers to create more than 5,700 articles and videos daily. It distributes this content to its own sites, including eHow.com and Livestrong.comand it also syndicates the articles and videos to over 350 web sites, including the online versions of the San Francisco Chronicle and the NFL.

Demand has had a rocky road to its IPO — it faced SEC scrutiny for what one might call questionable accounting practices. The company recognizes its content costs over a five year period, and not when those costs occur, as many media companies do. Demand Media focuses on content with a long shelf life, which is how it explains this longer timeline. The SEC didn't ask for any accounting changes, but far more detail about this practice, which we see in the most recent S1.

Over the next two weeks as Demand hosts its road show, investors will be evaluating whether it's too reliant on its relationship with Google . The company mentions Google 62 times in its S1, saying repeatedly that it derives a "significant portion" of its revenue from Google's cost-per-click ads.

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