Shares of Demand Media Inc. have continued their downward slide since three executives left the company last month. But analysts said the departures might not be as critical as investors believe.
Executive Vice Presidents Larry Fitzgibbon, Joe Perez and Steven Kydd, who helped found the Santa Monica company in 2006, departed Jan. 30. Demand, which operates how-to site eHow.com and fitness site LiveStrong.com, did not give a reason for their exits.
Douglas Arthur, a managing director with Evercore Partners in New York, said the executive exodus could cause suspicion that the company is struggling with internal turmoil. It will also bring increased scrutiny when the company reports its fourth quarter financials Thursday.
“It definitely doesn’t look good,” Arthur said. “The timing is not perfect, given that they’re about to report a quarter.”
Demand’s stock was trading down more than 7 percent for the week to close at $5.93 on Feb. 8, making it one of the biggest losers on the LABJ Stock Index (see page 32).
But Arthur said the three departures are not a concern in the long term.
“I’m not sure it’s significant as it appears,” he said. “They were not, in my view, critical to how the company operated.”
Fitzgibbon, Perez and Kydd were in charge of the company’s brands, product marketing and studios divisions, respectively.
Demand filed with the Securities and Exchange Commission regarding Fitzgibbon’s departure. The company said he would receive a $125,000 bonus for 2011. The company also sped up vesting for his nearly 21,800 restricted shares and gave him one year to exercise stock options.
Before they left, the three executives had already changed their roles in the company. In their place, Michael Blend, Demand’s executive vice president of media and marketplace, had begun to oversee the studio and media teams.
“(The three) had actually transitioned out of their day-to-day operational roles several months ago,” Kirsten Moore, Demand’s vice president of corporate communications, said in an e-mail to the Business Journal. “We’re all grateful for the contributions they made to building the business.”
The other founding members, Executive Vice Presidents Shawn Colo and Courtney Montpas, and Chief Executive Richard Rosenblatt, remain with the company.
Demand recently celebrated its one-year anniversary as a publicly traded company. Its stock has had a rough ride since going public. On Feb. 8, share value was down 73 percent from the first-day closing price of $21.85.
In November, the company reported a third quarter net loss of $4.15 million on revenue of $81.5 million, compared with a pre-IPO loss of $305,000 on revenue of $65.4 million for the same period the previous year.
Analysts attribute the company’s tumultuous year to changes in Google’s search algorithm that pushed generic how-to content and articles lower in search results. Tech experts and the media had criticized Demand as a “content farm” that churns out generic articles with little value other than attracting searches.
The company responded to the criticism by signing up celebrity experts such as Rachel Ray to provide articles and videos with a stronger voice. Demand also recently received funding from YouTube to create original videos for YouTube that can also be posted on Demand’s site to add higher-quality content.
