Demand Media reports record revenue and profit

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SummaryThe better-than-expected results was also buoyed by a partnership with Google Inc's YouTube.

Demand Media Inc reported record quarterly revenue and profit on Monday because more people are visiting its websites such as eHow, Livestrong and Cracked.

The better-than-expected results, also buoyed by a partnership with Google Inc's YouTube, prompted Demand Media to raise its full-year outlook.

I think this is the first time we saw an indication of the YouTube deal impacting the numbers, said Sean Kim, an analyst with RBC Capital Markets.

Demand Media relies on freelance writers, photographers and videographers to provide articles and videos designed to appear at the top of Internet searches that in turn generate advertising.

The company said third-quarter revenue, excluding traffic acquisition costs, rose 19 per cent to $92.8 million. Analysts on average were expecting $91.5 million.

Demand Media's audience surpassed 125 million monthly unique visitors during the third quarter, as we delivered record revenue and profitability, Richard Rosenblatt, chairman and chief executive of Demand Media, said in a statement.

Demand Media, which went public last year, is being carefully watched as a new media model that lowers the costs of producing content.

Last year, however, Demand Media had to shift its business model when Google made changes to the way its search engine produced results to weed out content it considered low quality.

The company cleaned up its archives and implemented checks to raise the level of its content and also struck up a partnership with the Internet search company in the fourth quarter of last year.

That alliance to produce content to its channels helped boost the amount of revenue Demand received from its network of partner sites by 50 percent.

Thirty-seven percent of third quarter revenue was from Google, Demand CFO Mel Tang said on a conference call with analysts and investors.

Demand has roughly 20 partnerships where its content is published, including Gannett Co Inc's Arizona Republic.

Rosenblatt said on the call that Livestrong's traffic or metrics have not been materially impacted by Lance Armstrong. Armstrong, who founded the cancer charity, stepped down as its chairman over a doping scandal.

Our relationship is with the Livestrong Foundation, not Lance, Rosenblatt said.

The company raised its full-year forecast for revenue excluding traffic acquisition costs to between $359.8 million and $361.8 million from $355.5 million to $359.5 million.

For the year, adjusted EPS is expected to be in the range of 37 cents to 38 cents per share versus the previous forecast of 35 cents to 37 cents per share.

Net income for the third quarter was $3.2 million, or 4 cents per share compared with a loss of $4.1 million, or a loss of 5 cents per share, in the same period a year ago.

Adjusted for stock-based compensation and other items, the company reported earnings per share of 11 cents, beating analysts' forecast by a penny. Demand shares closed up 6 percent at $8.74 on Monday.

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