commercial types. An out-of-work media executive recently told me that the company, which has opened a London office, ranked high on his target list.

Surely, I asked, he couldn’t work for an outfit that pumped out so much drek? Oh yes he could. The big attraction, he reminded me, is Demand Media’s impending IPO. With that will come share-based wealth for executives.

There’s quite a lot riding on Demand Media. Venture capitalists have invested nigh-on $350 million in the company, and voices close to Demand Media are suggesting valuations of between $1 billion and $1.5 billion. The former would make Demand Media the first $1 billion+ IPO since 2004, when Google reached a valuation of $27 billion on its first day of trading. The latter would make Demand Media more valuable than The New York Times Co., which has a market cap these days of about $1.2 billion.

A few weeks ago, Demand Media published its eagerly-awaited prospectus. It wasn’t exactly received rapturously. Several commentators noted the absence of profits, which sat oddly with co-founder Richard Rosenblatt’s public pronouncements over the years.

Rosenblatt has been describing Demand Media as profitable for a long time. The earliest reference I’ve come across dates back to March 2007, when he told one interviewer: “We’re very profitable, and we could go public now if we wanted to.” The following year, Rosenblatt described Demand as “highly profitable.” In late 2009, Wired was induced to describe Demand Media as “profitable as hell”.

This simply wasn’t true, at least not under GAAP, the collection of accounting rules that the Securities & Exchange Commission forces publicly-traded companies to use. In fact, Demand’s IPO prospectus reveals that the company has delivered losses every year since its launch in 2006, running up an accumulated deficit of $52 million.

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Authors: Peter Kirwan

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