[CEO Richard] Rosenblatt said the niche articles eHow writes about - How to Log In as Guest on Rosetta Stone, for example - may not be everyone's cup of tea, but people want and need this information.

Demand Media's first earnings call yesterday was good, all in all. The company, ticker symbol DMD, made a profit of $1 million in the fourth quarter (although the books show a loss because of stock conversion due to the recent IPO). But that's a huge jump over the $3.9 million loss in that quarter of 2009.

The market seems bullish on the content company, which pays bottom dollar to its writers for putting words on the internet, in spite of the fact that Google said recently that it's working to excise so-called "content farms" (which infamous content farmer Jason Calacanis recently admitted was "polluting the internet," pledging reform) from search results.

About 41 percent of Demand's traffic comes from Google, but Mr. Rosenblatt said his company plays carefully by the big G's rules. He said Demand uses "white hat" tactics in contrast to "black hat" search engine manipulators who pay for links and build armies of fake sites that link to one another.

One Demand Media writer and Seeking Alpha blogger, Rocco Pendola, wrote he's "not ready to buy yet" after listening in on the call. "As somebody who freelances and does contract work for the company, I have often found myself conflicted about what Demand does, where it's headed, and its broader impact," he wrote. But, he said, at least eHow articles today are way better than they were two years ago.

We poked around eHow this morning, and that comparison is hard to judge. Quality seems to vary widely across the site, from "How to Throw a Superbowl Party" to "How to Throw a Great Superbowl Party" to "How to Handle a Teen With Suicidal Thoughts," all posted recently.

But just for fun, excerpts from eHow's front page two years ago:

While the idea of an economic recession brings worry to those who have never experienced a recession, it does not have to. It is important to prepare for an economic recession as best as possible to make surviving one easier. --"How to Prepare for an Economic Recession"

Talk about your activities in your personal essay if you can. Discuss why they’re important to you and how they help to make you who you are. --"How to Spice Up a College Application"

Finally attach the tiny clips to the stainless sheet steel handles of the Head, and the outer most handle. And then add another tiny clip to each tiny clip. --"How to Make a Binder Clip Reindeer"

"Thank you for all the great feedback from the call; probably the first time avocados, paper laterns and roof rakes made their debut!" Mr. Rosenblatt tweeted yesterday. We weren't sure what a roof rake was, but eHow has an extensive collection of articles on the subject.

ajeffries [at] observer.com | @adrjeffries

So says Jason Calicanis, former the scribe of Silicon Alley, who now runs one of the web's biggest content farms, Mahalo.

In a great report from Danny Sulivan at Search Engine Land, we learn that Calicanis is worried that the rapid expansion of content farming has angered Google, and that once the search engine cracks down, the entire industry will suffer. 

“The one rule of working with Google is don’t make them look stupid. If you make ‘The Google’ look stupid, they’ll fuck you up."

Calicanis says updates to his site with original video and improvements in quality quality are causing his costs to skyrocket, "But I can sleep at night again."

bpopper [at] observer.com | @benpopper

"You know the sites you want search results from and you know the spammers, SEO gamers and content farms that just get in the way," Blekko says. "So get out there and slash the web: slash in the sites you like and slash out the ones you don't."

Blekko's web search bill of rights:

1. Search shall be open
2. Search results shall involve people
3. Ranking data shall not be kept secret
4. Web data shall be readily available
5. There is no one-size-fits-all for search
6. Advanced search shall be accessible
7. Search engine tools shall be open to all
8. Search & community go hand-in-hand
9. Spam does not belong in search results
10. Privacy of searchers shall not be violated

But now Blekko is doing some slashing of its own. Blekko has blocked at least 20 content farmy sites, according to TechCrunch, including Demand Media's eHow and Answerbag. If Blekko is right about the future of search (especially #5 and #9) it suggests Demand Media's recent I.P.O. maybe wasn't such a great idea. For a thorough primer on how to use Blekko, check out Marshall Kirkpatrick's guide at ReadWriteWeb.

ajeffries [at] observer.com | @adrjeffries

But investors eagerly snapped up shares of "content farm" king Demand Media Wednesday. Then on Thursday LinkedIn, the smaller, more professional social network, made its IPO intentions official. 

One troubling sign, however, from these early offerings, is the lies the securities filings have revealed. The CEOs at both Demand Media and LinkedIn had proudly proclaimed to tech journalists the profits their companies had achieved. But the S-1 filings they had to make in order to IPO tell a very different tale. 

In August of 2009, LinkedIn CEO Jeff Weiner told Business Insider that the company was "still profitable" and that ad sales were up 50% year over year. But in its IPO filings yesterday, LinkedIn revealed it actually lost $3.4 million in 2009.

Pre-IPO, Demand Media CEO Richard Rosenblatt was on record multiple times saying his company had always been profitable. The IPO filings revealed that in fact Demand Media's losses were mounting, climbing from $14 million in 2008 to $22 million in 2009. 

"I think that they (LinkedIn certainly) would argue that they ARE and have been profitable but for the heavy investment in infrastructure that they are making to build the even more incredible company that they hope they will be one day," says Lawrence Lenihan, CEO of local VC First Mark Capital. "Unfortunately, that is not how the public markets work. This is the critical problem of American business –how can you invest for future gains without the present pains of the market valuing you less. This myopia will be our downfall unless we can create another structure that embraces that investment with trust and accountability of management for delivering those returns in the future."

It's a powerful reminder to journalists that a CEO's claim of profitability isn't worth much without the data to back it up. And for all the talk of how this tech bubble is different from the dot-com version, the first two offerings of 2011 show hot web properties with shaky financials are not a thing of the past. 

bpopper [at] observer.com | @benpopper

From Virtualeconomics:

[F]rom the wording of the IPO filing it appears that Demand Media is recognising (non-performance) ad revenues not as the ads are served and billed but on receipt of a "persuasive" contract from an advertiser with a decent credit rating. If so this is an unusual approach when compared to other ad-funded media businesses and could expose the company, and its investors, to various risks - if for example ad revenues that have been recognised in this way are not in the event collected. It could also expose the company to apparent but ultimately unrepresentative fluctuations in revenues, for example in reporting periods during which large, long-term contracts are signed by advertisers.

Not only does Demand hash out its costs of production over a five-year period -- something no other publishing company does -- but it also recognizes revenue that may ultimately not be there.

Virtualeconomics' savaging of Demand doesn't stop there:

At $25 a share Demand was worth north of $2bn - more than the New York Times. At a more realistic valuation of $10 a share that market cap looks more like $800m, and at $5 a share around $400m - the same scale as a minor UK newspaper publisher such as Trinity Mirror, or a niche US online publisher like The Knot. For a five-year-old online publisher which has yet to achieve profitability and faces serious risks to its core businesses that would be no mean feat at all. But $2bn simply isn't credible, and if the Demand Media IPO tells us anything it's that in the run-up to Facebook's flotation we are facing a new internet bubble - and your best bet is once again not to be holding the shares when it bursts.

Between this news, some bearish action surrounding Facebook shares and questioning of the long-term stability of SecondMarket, we sure do seem to be in for a gloomy day.

mtaylor [at] observer.com | @mbrookstaylor

The surface discrepancy between the two companies was enough to prompt Business Insider to point out that Times Co. and Demand have roughly the same market capitalization; The Times is the tentative, get-it-right Gray Lady, whereas Demand Media pays any old dingbat to write blog posts about "How to Play Tee Ball" or what have you for $15 a pop.

Dig a little deeper, however, and the two firms have more in common than their public-market valuations.

Times Co. owns About.com, a site that hosts assorted servicey evergreen articles like "Thinking of Staging an Intervention?" Aha! Synergies.

mtaylor [at] observer.com | @mbrookstaylor

From Fortune:

The offering included 8.9 million shares, with Demand selling 4.5 million shares at $17 per share. Existing shareholders sold another 4.4 million shares--a last-minute boost over the 3 million shares they intended to sell. Demand Media also raised the offering price beyond the anticipated $14 to $16 range.

The offering, which Demand says netted $151.3 million in gross proceeds, places a valuation of about $1 billion on the company, which has yet to turn a profit. Looks like investors were hungry for a piece of an Internet company following a long drought of IPO activity generally. Shares of Demand were lately up $5.95 at $22.95 in early trading on the New York Stock Exchange.

mtaylor [at] observer.com | @mbrookstaylor

Demand, which has raised some eyebrows over its definition of profitability and its creative way of accounting for production costs, is pricing its shares at $17 a piece, up from a previous range of $14 to $16. As paidContent points out, this is a signal of strong demand for stock in the company that produces servicey, ostensibly evergreen content at low cost to the chagrin of media pundits and even its own employees. 

We'll post some updates today to see how the company fares on its first day in the public spotlight. The ticker symbol is DMD, for those playing along at home.

mtaylor [at] observer.com | @mbrookstaylor

The company most famously runs content farms like eHow, generating articles on everything from staying on a diet to fixing your garage door. Its content-generation model -- pay very low rates to freelancers who churn out content at a frenetic pace has a way of turning the stomachs of workaday journalists. Demand also generates a substantial portion of its revenue by registering online domain names -- not exactly a revolutionary concept from a new media standpoint.

Of course, investors don't have to care very much about how a company treats its employees; what matters most is the bottom line. But on this count, too, there isn't a great deal to cheer about.

Less-than-glowing analysis continues to emerge as the company prepares to unleash its shares on the general public by the end of this month. CNBC's Hank Greenberg, who says that the company is looking at a share price of $14 to $16 and an overall $1 billion valuation, has a straightforward look at some of the most salient sticking points. Among them: Insiders are preparing to sell their own stakes in the company; the company is vulnerable to the advertising market; and Demand's profitability remains for the moment a theoretical proposition.

Qualms about demand date back to last summer. Since Demand filed for its initial public offering on August 6, reporters and analysts have been poring over its registration statement with the Securities and Exchange Commission, and red flags have been cropping up ever since. Although it's not necessarily damning for a company to undergo an IPO without being profitable, management's credibility has been significantly tarnished once Demand's financials came to light.

Before the company made its solicitation for public money, CEO Richard Rosenblatt had repeatedly touted Demand's profits, but when the firm filed with the SEC, it became clear that it had never generated a profit since its founding. The revelation prompted The Wall Street Journal's Scott Austin to wonder, "Where Did Demand Media's Profits Go?" It's perhaps also worth noting that Rosenblatt is perhaps most famous for his role in the 2005 sale of MySpace to News Corp. for more than half a billion dollars. As chairman of MySpace parent Intermix Media, it's fairly safe to say that as a seller of shares, Rosenblatt was on the winning end of that deal.

All that aside, what's happened in the past isn't necessarily an indication of where a company is headed. Unfortunately, the future doesn't look too bright, either. For one thing, Demand is engaging in the quirky accounting practice of amortizing its production costs over five years, claiming that much of its content has a long shelf life and therefore costs should be spread out over a long period to account for recurring revenue. As Kara Swisher at AllThingsDigital points out, this is an uncommon practice among publishing companies, and by Demand's own admission this accounting model has created a much more appealing financial picture.

So: Will Demand Media get swept up in the current Internet company frenzy despite unconventional accounting methods and management's propensity to mislead with regard to profits? Maybe investors will look past these apparent problems and see a company with an audacious strategy to dominate in the provision of servicey, how-to content on the backs of low-paid aspiring journalists. Either way, Demand's offering will serve as an important barometer for how enthusiastic investors are about all things internet.

mtaylor [at] observer.com | @mbrookstaylor

The prospectus values the company at $1.24 billion, offering a potential boon to early investors, which include Goldman Sachs, 3i Group, Generation Partners, Oak Investment Partners and Spectrum Equity.

The company is registering 8.6 million shares, 4.5 million of which will be sold by the company and 3 million of which will be sold by investors. Underwriters have the option to sell the remaining 1.1 million. Demand has named a proposed maximum offering price of $16 per share, and shares will trade on the New York Stock Exchange under ticker symbol DMD. 

The company, which offers tips on how to shovel snow and how to cook chicken on a stove, among other things, has previously run into regulatory hurdles because it recognizes its costs in a different manner from those of other publishing firms. The SEC has now apparently approved the company's accounting methods. Separately, its editorial methods regularly raise eyebrows, if not outright indignation, among media types.

Goldman and Morgan Stanley are underwriting the deal.

mtaylor [at] observer.com | @mbrookstaylor