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Company Overview Q2 2016
Transcript

Company Overview

Q2 2016

This document and any related oral presentation does not constitute an offer or invitation to subscribe for, purchase or otherwise acquire any debt or equity securities of Demand Media, Inc. (“Demand Media” or the “Company”) and nothing contained herein or in the related oral presentation shall form the basis of any contract or commitment.

The distribution of this document and any related oral presentation in certain jurisdictions may be restricted by law and persons into whose possession this document or any related oral presentation comes should inform themselves about, and observe, any such restriction. Any failure to comply with these restrictions may constitute a violation of the laws of any such other jurisdiction.

The information contained herein does not constitute investment, legal, accounting, regulatory, taxation or other advice and the information does not take into account your investment objectives or legal, accounting, regulatory, taxation or financial situation or particular needs. You are solely responsible for forming your own opinions and conclusions on such matters and the market and for making your own independent assessment of the information. You are solely responsible for seeking independent professional advice in relation to the information and any action taken on the basis of the information.

This presentation contains certain forward-looking statements. All statements other than statements of historical facts contained in this presentation, including statements regarding the Company’s future results of operations and financial position, business strategy, plans and objectives for future operations, are forward-looking statements. You should not rely upon forward-looking statements as guarantees of future performance. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those contained in any forward-looking statements, including those described under the heading “Risk Factors” in the Company’s periodic reports filed from time to time with the Securities and Exchange Commission (the “SEC”), which are incorporated herein by reference. Moreover, the Company operates in a very competitive and rapidly changing environment and new risks emerge from time to time. In light of these risks, uncertainties and assumptions, the forward-looking statements included in this presentation may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Except as required by law, the Company undertakes no obligation to update any forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in the Company’s expectations.

The Company is publicly traded on the New York Stock Exchange under the ticker symbol “DMD” and is a registrant under the rules and regulations promulgated by the SEC. Before evaluating whether you should consider an investment in the Company’s securities, you should read all of the disclosures set forth in the Company’s annual, quarterly and periodic reports filed with the SEC, including the disclosures under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company’s SEC filings can be found at www.sec.gov and ir.demandmedia.com.

2

Disclaimers

3

We build platforms for communities of creators to reach passionate audiences in large and growing lifestyle categories

Our Mission

4

Our Portfolio

Marketplaces Content & Media

eCommerce Model 50% of total revenue (Q1’16)

Ad Supported Model 50% of total revenue (Q1’16)

*As of April 12, 2016, Cracked was sold to E.W. Scripps. On a pro forma basis Content and Media was 47% of

total revenue in Q1’16 .

*

Approximately 59M (1)

Total Unique Monthly Visitors

5

Approximately $19M (3)

Paid to Creators in 2015 Approximately 240,000 (2)

Creators Across Platforms

$126M FY2015 Diversified Revenue Mix Clean Balance Sheet Employees

Key Statistics

(1) Total unique visitors in the U.S. reached by Demand Media properties in March 2016 across desktop and mobile (Source: Mar. 2016 U.S. comScore) (2) Total creators across platforms: current number of active creators for Society6, Saatchi Art and StudioD in 2015; based on internal data (3) Total paid to creators: full year 2015 for Society6, Saatchi Art and StudioD; based on internal data

$0M

$31M

$10M

$20M

$30M

$40M

Debt Cash

446

345

100

200

300

400

500

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

As of 03/31/16 Excludes cash received for the sale of Cracked of $35.1M on April 12, 2016

Scaling the Operation Pro Forma for the sale of Cracked, Employees as of March 31, 2016 is 308

26% 29%

32% 35%

37%

42% 42% 40%

42% 41%

45%

50% 53%

55%

59% 60% 60%

63%

42% 44%

48% 50%

53% 53%

49% 49%

45%

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

eHow LIVESTRONG.COM Cracked(1)

6

Mobile Evolution

Source: Demand Media internal data (1) eHow represents traffic to eHow.com only

Mobile visits as a percentage of total visits

139.8

7.0

73.1

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

eHow Livestrong Cracked

7

Video Views (in millions)

Source: Demand Media internal data, YouTube and Facebook

+34% Y/Y

8

Content & Media

• 57.6M monthly unique visitors(1)

• $62.9M in FY15 revenue(2) • eHow: Top 5 site in comScore Home Category(3)

• LIVESTRONG.COM: Top 5 site in comScore Health Category(3)

• Monetization Team • Creator Marketplace • Technology Platform

(1) Source: comScore Apr’16; includes Cracked visitors (2) Excludes $10.9M of FY15 Cracked revenue (3) Source: comScore Apr’16 for ad supported sites

Demand Media Content & Media Platform

Custom Content Creation O&O Properties 3rd Party Partnerships

eHow

9

Content & Media

LIVESTRONG.COM

studioD

10

eHow

(1) Source: Across desktop and mobile (US comScore Mar. 2016) (2) Source: Facebook, YouTube, Pinterest, Instagram, Twitter (Apr. 2016) (3) Source: YouTube (Apr. 2016)

Multi-Year Transformation Commences in 2H’2014 • Removal of 2.4m low quality/duplicative titles between Q3’14

and Q2’15 • Removal of 3 ads per page in Q1 2015; one additional ad unit

removed Q2 2015 • New site team leadership (GM, product, content) • Category rationalization from 24 to 6 core categories

Product • New responsive homepage design and site wide header to

optimize mobile web experience • Public facing contributor and user profiles • Growing social audience and distribution channels (Pinterest,

Facebook) Key Metrics • 23m monthly unique users(1)

• ~7.7m followers in social channels(2)

• ~47M video streams (3)

• Management estimates ~$40m revenue reduction in 2015 came from proactive transformation efforts

11

eHow Site Renovation

Current Version Prior Version

12

LIVESTRONG.COM Transformation Facts

• 300k articles removed since Q4’14

• Reduced ad density: 3 Ads removed from every page (2014)

Product

• Redesigned home page; new and improved legacy content more easily shareable

• New native mobile ad unit

• Header bidding live on desktop platform Key Metrics

• 26m monthly unique users (1)

• Significant mobile audience growth +26% Y/Y (Q1’16) (2)

• 5m total app downloads with 300k monthly active users (3)

• Over 2m average monthly video streams (4)

(1) Source: Across desktop and mobile (US comScore Mar. 2016) (2) Source: Demand Media Internal Data (3) Source: Demand Media Internal Data (4) Source: YouTube (Apr. 2016)

13

LIVESTRONG.COM: Redesign of Site Complete

JANUARY New Year, New Site!

New Layout on Home Page

FEBRUARY Helping You Live STRONG

New Nav Site Wide

DECEMBER Ready to Live STRONG?

Interim Design in Test Pools

NOVEMBER Out With the Old!

Lose Weight and Keep It Off

14

StudioD

Fully-managed Content Channels for Publishers and Brands

• 29 live hosted channels with top brands, including Samsung & Hearst fully-managed by DMD

• Ad-supported model

• Original content

• Customized and optimized subdomain

Custom Content

• High quality content informed by customized content strategy using proprietary data and insights to meet brands’ KPIs

• Creation of 20+ text, video and visual formats, including infographics, original photography, podcast and whitepapers

• Over 1000 expert creators within our editorial, design and photography network

• Social influencer activation and management

• Audience acquisition and distribution services

• Agency model with annual contract value growing Y/Y

• Q1’16 revenue grew 37% Y/Y

• Clients include: Office Depot, Quicken, JetBlue

$17.18

$0.00

$10.00

$20.00

$30.00

$40.00

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

-20% Q/Q

219.9

50.0

100.0

150.0

200.0

250.0

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

+34% Y/Y

15

Key Content & Media Metrics Revenue Per Visit(2)

Video Views (m)(3)

Revenue ($m)

Visits (m)(1)

$13.5

$10.0

$20.0

$30.0

$40.0

$50.0

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

-16% Q/Q

485

301

0

200

400

600

800

1,000

1,200

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

Desktop Mobile

+4% Q/Q 786

(1) Visits are defined as the total number of times users access the company’s content across (a) one of its owned and operated online properties and/or (b) one of its customers’ online properties, to the extent that the visited customer web pages are hosted by the company’s content services. In each case, breaks of access of at least 30 minutes constitute a unique visit.

(2) Revenue Per Visit is defined as Content & Media revenue per one thousand visits. (3) Source: YouTube, Facebook and internal data.

Society6 Saatchi Art

16

Marketplaces

17

Society6 Marketplace platform empowering artists to make their designs available for sale on a variety of products.

Business Model

• Original designs from a global community of over 180k artists

• Over 2.7m original designs

• Print-on-demand for 29 Products

• Third-party vendors produce, pack and ship directly to customers

• Artist earns a royalty on every product sold

Key Metrics

• 126k new customers / 185k total customers in Q1’16

• Visits up 12% Y/Y; transactions up 25% Y/Y in Q1’16

• Over 800k social followers (1)

• Over $12m in total transaction value in Q1’16, up 26% Y/Y

18

Saatchi Art A leading online art gallery, redefining the experience of buying and selling art by making it easy, convenient and welcoming for both collectors and artists.

Business Model

• Original art from a global community of over 60k artists

• Commission based model; artist earns 70% commission

• Best in class logistics management (packaging, shipping, customs, delivery)

• Over $1.5b in total retail value of art available on the site based on list price of artworks

• Over 500k artworks for sale

• Have shipped to ~80 countries

• Unique Art Advisory program led by Chief Curator, Rebecca Wilson

Key Metrics

• $3.9m in gross transaction value (Q1’16)

• Average order value ~$1,200 (Q1’16)

• 34% Y/Y revenue growth (Q1’16)

19

Key Marketplace Metrics (1)

Revenue ($m) Revenue Per Transaction(2)

Total Transactions(3)

$13.5

$5.0

$10.0

$15.0

$20.0

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

+26% Y/Y

227K

0

50

100

150

200

250

300

350

400

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

+25% Y/Y

$59.25

$0.00

$15.00

$30.00

$45.00

$60.00

$75.00

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

+1% Y/Y

Marketplaces Revenue as a Percent of Total Revenue

32%

50%

10%

20%

30%

40%

50%

60%

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16(1) Saatchi Art was acquired in August 2014 (2) Average revenue per transaction is calculated by dividing Marketplaces revenue for a period by the number of transactions in that period (3) Number of transactions is defined as the total number of successfully completed Marketplaces transactions during the applicable period

Financials

$22.5

$19.3

$15.9 $16.1

$13.5

$10.7 $10.5 $12.6

$18.3

$13.5

Q1'15 Q2'15 Q3'15 Q4'15 Q1'16

Content & Media Marketplaces

21

Quarterly Revenue Composition (in millions)

Y/Y (41%) 59% (47%) 59% (53%) 63% (44%) 28% (40%) 26% Q/Q (21%) (25%) (14%) (2%) (18%) 20% 2% 45% (16%) (26%)

Note: Includes Cracked revenue in all periods ($1.6m in Q1’16)

Assets Liabilities

Cash & Cash Equivalents $ 30.5 Accounts Payable, Accrued Expenses, and Other Current Liabilities $ 13.1

Other Current Assets 13.2 Deferred Revenue 2.4

Property and Equipment, Net 12.6 Non-current Liabilities 1.7

Other Long Term Assets(1) 29.7 Stockholders’ Equity 68.8

Total Assets $ 86.0 Total Liabilities and Stockholders’ Equity $ 86.0

22

Balance Sheet Summary (in millions)

As of March 31, 2016

(1) Includes intangible assets, net, goodwill and other assets.

23

Cracked Transaction • Buyer The E.W. Scripps Company

• Closing Date April 12, 2016

• Cash Purchase Price $39m (37% of DMD market cap at close)

• Holdback 10% ($3.9m) held in escrow for 15 months

• 2015 Revenue $10.9m (9% of total DMD revenue)

• 2015 Revenue Multiple 3.6x

• 2015 Op Profit Multiple 12.7x

• DMD’s Purchase Price for Cracked Assets (2007) ~$1m

24

Selected Recent Valuation Comparables for DMD Businesses

Art and Design Marketplace

Content Publisher DIY

Content Marketing Platform

Read Article

Read Article

Read Article

Read Article

ASX IPO - ~$300m Enterprise Value(1)

Scripps Interactive invests $50m in Refinery 29(2)

ScribbleLive acquires Visually(3)

NewsCred raises $42m(4)

(1) Source: http://www.afr.com/street-talk/redbubble-hires-brokers-for-asx-listing-equities-desks-pitch-adia-20160129-gmgw15 (2) Source: http://variety.com/2015/digital/news/refinery29-raises-50-million-from-scripps-networks-wpp-1201481177/ (3) Source: http://techcrunch.com/2016/01/28/scribblelive-acquires-visually-to-combine-their-content-marketing-tools/ (4) Source: http://techcrunch.com/2015/09/02/newscred-42-million/

25

Executive Leadership

Rachel Glaser Chief Financial Officer

Brian Pike Chief Operating Officer & Chief Technology Officer

Rachel Glaser joined Demand Media as the Chief Financial Officer. With nearly three decades of senior operations and financial experience, she most recently served as CFO at Move, Inc, parent of Realtor.com, where she helped lead the company through its successful transformation and sale to News Corporation. Prior to Move, she was Chief Operating and Financial Officer at MyLife.com. Before joining MyLife, Rachel was Senior Vice President, Finance at Yahoo! and spent many years at The Walt Disney Company in various finance, operations and technology roles.

Rachel received her undergraduate degree from University of California, Berkeley and earned her MBA at University of Southern California – Marshall School of Business.

Brian Pike joined Demand Media in 2014 and he currently serves as its Chief Operating Officer and Chief Technology Officer. Prior to Demand Media, Brian was CTO at Rubicon Project, where he led the engineering organization through rapid growth and a successful IPO. Prior to joining Rubicon, Brian was CTO at Ticketmaster where he led efforts to transform an established retailer and service company into a modern ecommerce retailer. Brian has an undergraduate degree from Stanford University and an MBA from the Anderson School at UCLA.

Sean serves as Chief Executive Officer and a member of the board of directors of Demand Media. Sean was previously the CEO of Saatchi Art, which Demand Media acquired in August 2014, and the President and CEO of Ticketmaster, where he also served on the board of directors. Sean held positions of increasing responsibility during his tenure at Ticketmaster, including EVP, Technology and Chief Operating Officer. Sean has also served as an Entrepreneur in Residence at Mayfield Fund and he began his executive experience as EVP, Technology at Citysearch.

Sean sits on several private company boards of directors, including Eventbrite and TuneIn. Sean is also actively involved in non-profit work with CoachArt and the Pat Tillman Foundation.

Sean received his bachelor’s degree from the University of South Carolina and attended graduate school at Boston University and the University of South Carolina.

Sean Moriarty Chief Executive Officer

26

Executive Leadership

Daniel Weinrot EVP, Legal & General Counsel

Daniel Weinrot is the EVP, Legal & General Counsel. He joined Demand Media in 2010 and has held several positions within Demand’s legal department before being elevated to General Counsel. Daniel was integral in managing our initial public offering in January 2011, and the tax-free spin-off of our domain name services business in August 2014. In his current role, Daniel oversees and manages Demand Media’s legal and risk management functions, which includes public company compliance, mergers & acquisitions, litigation and insurance, among others.

Prior to joining Demand Media, Daniel was most recently VP & Deputy General Counsel at Las Vegas Sands Corp., the leading owner and developer of integrated casino resort properties located in the United States and Asia. Prior to that, Daniel was a corporate associate at Latham & Watkins LLP, one of the leading international law firms based in Los Angeles. Daniel holds a JD from UCLA and a bachelor’s degree from U.C. Berkeley.

Tawn Albright is the Executive Vice President of Corporate Development for Demand Media. He joined the company in 2015. Prior to Demand Media, Tawn was CEO and founding partner of the award-winning digital marketing agency, Rockhouse Partners. Following the sale of Rockhouse to Etix, Tawn served as Executive Vice President for Etix, leading the integration of the two companies. Tawn has more than twenty years of experience managing growth initiatives for companies that include Ticketmaster/IAC, The Coca-Cola Company and Cox Communications. He is trilingual (English, Spanish, French), enjoys backpacking, ultimate frisbee, big skies and music.

He’s a graduate from the University of Arizona with a double degree in Finance and Entrepreneurship and earned his MBA from Thunderbird School of Global Management.

Tawn Albright EVP, Corporate Development

Jill Angel EVP, People

Jill Angel, EVP People, joined Demand Media in 2014, bringing with her more than 15 years of leadership experience for fast-growing companies including large organizations and startups. Prior to working at Demand, Jill served as VP Operations at Saatchi Art where she headed up people management, logistics, fulfillment, and customer service. Before joining Saatchi Art, Jill built and led teams at Cocodot, Swirl by DailyCandy, and GSI Commerce.


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