Stock Spinoffs

Demand Gives Ballpark Margins On Business Units During Conference Call

Inelegant Investor
Earlier this week, Demand Media(DMD) announced plans to split into a domain registration business and a content business.  Though the opportunity seems promising, it was difficult to evaluate without the numbers for the business broken out, which, to our knowledge, the company had not done publicly. We were pleased, then, to read the transcript of the conference call at Seeking Alpha, which provided some much-needed guidance. During the conference call, CFO Mei Tang answered a question about the spinoff:

Sure. I’ll take the separation question. So on the timetable for our release, we expect the completion of the separation to move forward in the next 9 to 12 months. And then in terms of the size of both business units, we still have a lot of work to do in front of us. But again, our high-level math is that the domain services business would be a business with revenues north of $150 million with margins approaching 20%. Note that, that doesn’t include the impact of TLDs, which could improve both the top line and the bottom line. And so on the media side, what you have is a business that’s north of $250 million with margins north of 30%

Another questioner asked CEO Richard Rosenblatt how much he thought the registration business was worth:

Pat, well, I’ll tell you, I think it’s worth more as a separate public company than it’s worth today, right, which is one of the strategic reasons why we’re doing a spin so we can invest in it appropriately and do the things we need to grow it. I always have trouble valuing these companies, which again is why I look to people like you. But it feels like in an emerging market, that so many people and so many companies and businesses globally seem to be excited about, to be one of the largest players and what we believe is the only end-to-end player, we’ll be valuable.

We agree with Rosenblatt on the prospects for the lower margin domain registration business and look forward to seeing more details in the coming months.

Disclosure: The author holds no shares in any company mentioned

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