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Demand media ir deck 08.08.16 website version

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Company Overview Q3 2016
Transcript
Page 1: Demand media ir deck 08.08.16 website version

Company Overview

Q3 2016

Page 2: Demand media ir deck 08.08.16 website version

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

Page 3: Demand media ir deck 08.08.16 website version

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

Our Mission

Page 4: Demand media ir deck 08.08.16 website version

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Investment Thesis

• Strong and experienced management team with significant breadth and depth of operating and marketplace businesses.

• Marketplace business represents over 50% of total revenue. Revenue growing over 25% year-over-year, Gross Transaction Value growing 34% year over year (Q2’16).

• Transforming Content & Media business with strong well-known brands. Significantly improved products and content. Growing social reach with 1.6 million combined followers on Facebook and Pinterest (Q2’16).

• Reduced operating costs by over $18 million per year on a run rate basis. Corporate overhead provides significant operating leverage going forward.

• More focused portfolio with sale of Cracked in Q2 and divestitures of other non-core properties

• Sum of the Parts analysis points to significant value dislocation.

• Clean balance sheet with ~$60 million cash and no debt (Q2’16).

Page 5: Demand media ir deck 08.08.16 website version

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Our Portfolio

Marketplace Model 55% of total revenue (Q2’16) $17M GTV in Q2, +34% Y/Y

Blended Take Rate ~76%

Ad Supported Model 45% of total revenue (Q2’16)(1)

51M Average Visitors per Month(2)

Marketplaces Content & Media

(1) Revenue is shown on a pro forma basis net of Cracked and certain other non-strategic properties that were disposed of over the last year (2) Average monthly unique visitors in the U.S. reached by Demand Media properties in Q2’16 across desktop and mobile (Source: April-June 2016 U.S. comScore)

Page 6: Demand media ir deck 08.08.16 website version

6

Executive Leadership

Rachel Glaser Chief Financial Officer

Sean Moriarty Chief Executive Officer Prior: • CEO at Saatchi Art • President, CEO, EVP, Tech and COO of

Ticketmaster • EVP, Technology at Citysearch

Brian Pike Chief Operating Officer & Chief Technology Officer

Daniel Weinrot EVP, Legal & General Counsel

Prior: • CFO at Move, Inc • Senior VP, Finance at Yahoo! • VP, Walt Disney Company

Prior: • CTO at Rubicon Project • CTO at Ticketmaster

Prior: • VP & Deputy General Counsel at Las

Vegas Sands Corp. • Corporate associate at Latham &

Watkins LLP

Tawn Albright EVP, Corporate Development Prior: • CEO and founding partner at

Rockhouse Partners • Executive VP for Etix

Jill Angel EVP, People Prior: • VP Operations at Saatchi Art • Team leader at Cocodot, Swirl by

DailyCandy, and GSI Commerce

Dion Camp Sanders EVP, Marketplaces Prior: • Vice President, Emerging Businesses

within the Labs Group at Disney • Founder and CEO of Pacific Edison

Page 7: Demand media ir deck 08.08.16 website version

7

Transformation of Demand Media

2014 – 2016

Rebuilt the Executive and

Senior Leadership Team

Invested in an Art and Design

Marketplace, now 55% of total

company revenue

Restored LIVESTRONG.COM

to healthy & growing lifestyle

brand

Significantly improved content

quality, product and user experience on

eHow

Rationalized the portfolio and focused the

company on fewer bigger opportunities

Reduced headcount and

operating expense while investing in

core businesses for growth

Strengthened the balance sheet,

while adding $35 million in cash in

Q2’16 and maintaining zero

debt

Page 8: Demand media ir deck 08.08.16 website version

Approximately 46M (1)

Total Unique Monthly Visitors

8

Approximately $19M (3)

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

Creators Across Platforms

$106M LTM(4)

Diversified Revenue Mix Clean Balance Sheet Employees

Key Statistics

(1) Average monthly unique visitors in the U.S. reached by Demand Media properties in Q2’16 across desktop and mobile (Source: April-June 2016 U.S. comScore) (2) Total creators across platforms: 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 (4) LTM as of 6/30/16. Revenue is shown on a pro forma basis net of Cracked and certain other non-strategic properties that were disposed of over the last year

$0M

$61M

$10M

$20M

$30M

$40M

$50M

$60M

$70M

Debt Cash

446

279

100

200

300

400

500

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

As of 06/30/16

Scaling the Operation

Page 9: Demand media ir deck 08.08.16 website version

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Content & Media

studioD LIVESTRONG.COM

eHow

Page 10: Demand media ir deck 08.08.16 website version

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Mobile Evolution

Source: Demand Media internal data

Mobile visits as a percentage of total visits

Video Views (in millions)

116.6

15.5

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

eHow LIVESTRONG.COM

+12% Y/Y

Source: Demand Media internal data, YouTube and Facebook

37%

42% 42% 40% 41%

46%

55%

59% 60% 60% 63%

67%

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

eHow LIVESTRONG.COM

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Content & Media Ecosystem

(1) Average monthly unique visitors in the U.S. reached by Demand Media properties in Q2’16 across desktop and mobile (Source: April-June 2016 U.S. comScore) (2) LTM as of 6/30/16. Revenue is shown on a pro forma basis net of Cracked and certain other non-strategic properties that were disposed of over the last year. (3) Source: comScore June 2016 for ad-supported sites.

• 46m monthly unique visitors(1)

• $48m in LTM revenue(2) • eHow: Top 6 site in comScore Home Category(3)

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

• Monetization and Yield Management Team • Creator Marketplace • Technology Platform

Owned & Operated Properties

Brands (Sponsored Content)

Content Channels

• Distribution & Reach • Data Content Expertise

Content Creation, Audience and Contributor Platform

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eHow

(1) Source: Across desktop and mobile (US comScore Apr.-Jun. 2016) (2) Source: YouTube & Facebook (Apr.-Jun. 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 Q1’15; one additional ad unit

removed Q2’15 • New site team leadership (GM, product, content) • Category rationalization

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 • 18m average monthly unique users(1)

• ~39m monthly average video streams (2)

• Management estimates that proactive transformation efforts resulted in a revenue decline of ~$40m in FY15

Page 13: Demand media ir deck 08.08.16 website version

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eHow Site Renovation

Current Version Prior Version

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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

• Nearly 21m average monthly unique users (1)

• Significant mobile audience growth +31% Y/Y (Q2’16) (2)

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

• Over 5m average monthly video streams in Q2’16 (4)

(1) Source: Across desktop and mobile (US comScore Apr.-Jun. 2016) (2) Source: Demand Media Internal Data (3) Source: Demand Media Internal Data; App downloads over the life of the app; monthly active users in June 2016 (4) Source: YouTube & Facebook (Apr.-Jun. 2016)

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LIVESTRONG.COM Site Redesign

FEBRUARY 2016 Helping You Live STRONG

New Nav Site Wide

NOVEMBER 2016 Out With the Old!

Lose Weight and Keep It Off

JUNE 2016 Continuing to improve on Site

Nav with trending articles

Page 16: Demand media ir deck 08.08.16 website version

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StudioD: Branded Content Production

studioD

• Specialized team focused on telling branded stories for ownership or distribution across our audiences

• Leverages insights data, content formats and production process to build award winning content programs for brands and advertisers

Content Channels

• 31 live hosted channels with top brands and publishers fully managed by DMD

• ~500,000 articles

• Ad-Supported Business Model

Page 17: Demand media ir deck 08.08.16 website version

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

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

-2% Q/Q

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

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

+12% Y/Y

17

Content & Media Key Metrics Revenue Per Visit(2)

Video Views (m)(4)

Revenue ($m)(1)

Visits (m)(3)

$0

$5

$10

$15

$20

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

-7% Q/Q

(1) Revenue is shown on a pro forma basis net of Cracked and other non-strategic properties that were disposed of over the last year. (2) Based on internal data. Revenue Per Visit is defined as Content & Media revenue per one thousand visits. Revenue per visit is shown on a pro forma basis net of Cracked and certain other non-strategic properties that were disposed of over the last year. (3) Based on internal data. 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. Visits are shown on a pro forma basis net of Cracked and certain other non-strategic properties that were disposed of over the last year. (4) Source: YouTube, Facebook and internal data.

352

277

0

200

400

600

800

1,000

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

Desktop Mobile

-6% Q/Q 630

Page 18: Demand media ir deck 08.08.16 website version

Society6 Saatchi Art

18

Marketplaces

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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 200k artists

• Over 2.8m original designs

• Print-on-demand for 32 products

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

• Artist earns a royalty on every product sold

Key Metrics

• 131k new customers / 190k total customers in Q2’16

• Visits up 15% Y/Y; transactions up 18% Y/Y in Q2’16

• Over 600k social followers (1)

• Over $12m in total transaction value in Q2’16, up 25% Y/Y

Source: Figures based on internal data. (1) Source:, Facebook, Instagram, and Pinterest

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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%

• 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 as of June 2016

• Over 500k artworks for sale

• Have shipped to ~80 countries

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

Key Metrics

• $4.5m in gross transaction value (Q2’16)

• Average order value ~$1,300 (Q2’16)

• 64% Y/Y revenue growth (Q2’16)

Source: Figures based on internal data.

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Marketplace Key Metrics

Revenue ($m) Revenue Per Transaction(1)

Total Transactions(2)

$0

$5

$10

$15

$20

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

+28% Y/Y

0

50

100

150

200

250

300

350

400

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

+19% Y/Y

$0.00

$15.00

$30.00

$45.00

$60.00

$75.00

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

+7% Y/Y

Marketplaces Revenue as a Percent of Total Revenue(3)

55%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

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

(1) Average revenue per transaction is calculated by dividing Marketplaces revenue for a period by the number of transactions in that period (2) Number of transactions is defined as the total number of successfully completed Marketplaces transactions during the applicable period (3) Total Revenue is on a pro forma basis net of Cracked and other non-strategic properties that were disposed of over the last year

Page 22: Demand media ir deck 08.08.16 website version

Financials

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Quarterly Revenue Composition (Pro Forma)

$18.5

$15.5

$12.5 $13.2 $11.7 $10.8 $10.7 $10.5

$12.6

$18.3

$13.5 $13.4

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

Content & Media Marketplaces(1)

(in millions)

Y/Y (43%) 59% (48%) 59% (56%) 63% (45%) 28% (37%) 26% (30%) 28% Q/Q (22%) (25%) (16%) (2%) (20%) 20% 5% 45% (11%) (27%) (7%) (0%)

(1) Revenue is shown on a pro forma basis net of Cracked and certain other non-strategic properties were disposed of over the last year

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Cost Breakdown

$20

$22

$24

$26

$28

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

-14% Y/Y

Total Non-GAAP Expenses Excl. Product Costs (in millions)

~$4m savings per qtr

Cost Breakout By Type

32% 24%

21% 37%

48% 39%

0%

25%

50%

75%

100%

Q2'15 Q2'16

Direct Business Costs Variable Costs Corporate Overhead

% of Total Costs

% of Total Costs

Page 25: Demand media ir deck 08.08.16 website version

Assets Liabilities

Cash & Cash Equivalents $ 60.9 Accounts Payable, Accrued Expenses, and Other Current Liabilities $ 14.5

Other Current Assets 10.7 Deferred Revenue 2.5

Property and Equipment, Net 12.0 Non-current Liabilities 1.7

Other Long Term Assets(1) 30.5 Stockholders’ Equity 95.4

Total Assets $ 114.1 Total Liabilities and Stockholders’ Equity $ 114.1

25

Balance Sheet Summary (in millions)

As of June 30, 2016

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

Page 26: Demand media ir deck 08.08.16 website version

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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

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Selected Recent Valuation Comparables for DMD Businesses

Art and Design Marketplace

Content and Media

ASX Mkt Cap $170M (USD) on ~$85M

(USD) FY 2016 revenue

Time Warner Invests $50m at a $300m valuation

2016 Revenue estimated $100m

NBCU invests $200m $1.5 billion valuation

2016 Revenue estimated $250m

Content and Media

Page 28: Demand media ir deck 08.08.16 website version

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