Will Demand Media’s (DMD) stock recover from Google shock? Absolutely

Demand Media (NYSE:DMD) appears to have heard Google’s warning shot loud and clear. The company’s made a number of dramatic changes to its business model that should save it from obscurity.

Feb. 24, 2011, was a fateful day in the fairy tale otherwise known as the ascension of Demand Media Inc. (NYSE:DMD). On an innocuous Thursday evening, Google Fellow Amit Singhal and Principal Engineer Matt Cutts released a blog post detailing an algorithmic change going on behind the scenes of the world’s largest search engine.

“In the last day or so we launched a pretty big algorithmic improvement to our ranking — a change that noticeably impacts 11.8% of our queries — and we wanted to let people know what’s going on,” Singhal and Cutts wrote. “This update is designed to reduce rankings for low-quality sites — sites which are low-value … (sites that) copy content from other websites or sites that are just not very useful.”

The release, which was codenamed Panda, has been widely viewed as an attempt to weed out articles produced by “content farms.” Namely, companies that pay freelance writers small sums to crank out large amounts of content that can then be published online and surrounded by lucrative advertisements. That is, in essence, Demand Media’s business model, as well as the model used by Demand’s competitors; companies like Yahoo! Inc.’s (NASDAQ:YHOO) Associated Content, Examiner.com and Ask.com.

Demand Media, though, has to be the most successful example of content farming to date. Last year, the company was cranking out as many as 1 million articles a month at a cost of up to $15 an article for publication on eHow.com, Livestrong.com and several other sister sites.

As word of Google’s “Panda” update spread, investors dumped Demand Media’s shares, pushing them down more than 20 percent since Feb. 24. That’s roughly the same percentage decline the company experienced in pageviews with search engine referrals for eHow dropping 20 percent (per Reuters) and total page views falling 12 percent.

“Let me be clear, this was a real impact to our business and we take it very seriously,” Rosenblatt said during the company’s conference call. Nonetheless, DMD still surprised analysts to the upside with a strong Q1 earnings report late last week. All told, they brought in $0.06 per share (excluding one-time fees) compared to estimates of $0.04 per share.

Demand Media changing its focus

What’s more important than current earnings, though, is what’s going to happen to the company’s search results moving forward. Demand appears to have heard Google’s warning shot loud and clear. The company’s made a number of dramatic changes to its business model, including:

1) Cleaning up shop. Demand Media has abandoned a program that let anyone publish on eHow.com, and they’re deleting some of their less valuable articles on the site. They’ve also re-designed eHow’s pages and created a “Helpful?” tab (shown at left) that gives readers the ability to provide Demand with feedback on an article’s quality.

2) In-depth features. Rather than paying Demand Media freelancers a flat $10 to $15 per article, they’re honing in on true experts in each respective field and asking them to write longer, more involved feature articles of roughly 850 words. Pay could go as high as $350 per piece. Recent online job postings by Demand have been looking for business writers who have degrees in business, finance, or law, and “extensive experience in business writing” (per WebProNews). That’s a far cry from the good ol’ days when anyone with a Web connection and a decent grasp of the English language was free to pen articles for eHow.com.

3) Brand new partnerships. Hand-in-hand with their push to create more valuable content, Demand’s hired two celebrities to help launch new, flagship content on their sites. The first, typeF.com, is a fashion and beauty site driven by Tyra Banks, and the second, a mini food site by Rachael Ray will appear on eHow.

4) Diversification. In March, Demand Media acquired CoveritLive.com – an online company that lets writers and news outlets create live online chat rooms where fans, readers and celebrities can interact with one another during major events from the NFL draft to fashion shows and international chess tournaments. CoverItLive offers a free ad-supported version of its software and a premium, ad-free version for marquee clients like ESPN and the BBC. The move helps Demand Media diversify away from its reliance on articles as the primary means of delivering ads. Expect more acquisitions in the months and years to come.

Fred’s Best Guess: Demand Media isn’t going to be bankrupt by an algorithm change at Google. The fact of the matter is, Demand Media makes a whole hell of a lot of money for Google, too, as it splits revenue with the search engine company for the ads it runs on many of its pages. While Google doesn’t show preference to Web sites that run Google ads, Google has a mandate to provide relevant search results no matter what users type into the search engine.

In many cases, Demand Media results are the highest quality results for more obscure searches. That’s simply by virtue of the fact that the company’s been churning out niches articles for years. Last year, it spit out the equivalent of more than four English-language Wikipedias. Some of those articles are great and some of them are going to end up in the trash bin.

So long as Demand Media sticks to its plan to make more compelling articles its primary focus moving forward, that 12 percent drop in traffic will look like a minor speed bump in the years to come, and we could truly be witnessing the birth of a new, international publishing superpower. No one wants to admit that, but in the world of online publishing, text is a commodity, and Demand Media has as much of that commodity as anyone.

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Time to short Demand Media, Inc. (NYSE:DMD)?

I’m definitely not buying Demand Media (DMD) shares right now, but I’m not convinced they’d make a good short, either. A company doesn’t exist in a vacuum, and they’re continually tasked with adjusting to a changing market.

Late Thursday night, Google, Inc. (NASDAQ:GOOG) uploaded a fairly innocuous-sounding blog post titled “Finding more high-quality sites in search.” In the post, Google wrote that “in the last day or so we launched a pretty big algorithmic improvement to our ranking — a change that noticeably impacts 11.8% of our queries.”

The update was targeted at reducing search results for low-quality sites. Sounds reasonable. What Google doesn’t specifically say though is that the move is widely viewed as a response to a chorus of reporters and bloggers who have complained about “content farm” pollution on Google.

One of the chief targets of that content farm rage is Demand Media, Inc. (NYSE:DMD) – a company that had its IPO on the NYSE late last month. Demand Media pays an army of freelancers to churn out short articles that are written to rank highly in Google’s search results. Specifically, Demand Media produces “How To” articles for eHow.com to capitalize on the large number of “How To” searches that web users perform online.

The net result is you can type in just about any “how to” query into Google and see an eHow.com page near the top of Google’s search results. Because Demand Media pays just $15 per article, a lot of Web surfers complain about the quality of the articles. Google’s “algorithmic improvement” appears to be targeted at Demand Media and related sites including Yahoo! Inc.’s (NASDAQ:YHOO) Associated Content. The implicit message is, eHow and Associated Content articles are going to start appearing lower in Google’s search results. That means far fewer page views, and fewer page views means fewer ad clicks, which could hurt the bottom line for both companies.

For its part, Demand Media quickly responded to Google’s blog post with a post of its own. “It’s impossible to speculate how these or any changes made by Google impact any online business in the long term – but at this point in time, we haven’t seen a material net impact on our Content & Media business,” writes Larry Fitzgibbon, Demand Media’s EVP of Media and Operations.

Fitzgibbon goes on to say that the company isn’t reliant on Google alone for search. People looking for How To articles sometimes skip Google altogether and go directly to eHow.com, Fitzgibbon says. Repeat visits and visits from social networking sites like Facebook make up another big chunk of visits to the site, too. Still, it’s undeniable that Google plays an outsize role in Demand Media’s success.

During Q3 2010, search engines generated 41 percent of Demand Media’s traffic, according to IPO documents, most of which came from Google. Ad arrangements with Google also accounted for 28 percent of the company’s revenue. Those are big numbers that could mean the difference between a profitable company and a sinking ship.

I’m definitely not buying Demand Media shares right now, but I’m not convinced they’d make a good short, either. A company doesn’t exist in a vacuum, and they’re continually tasked with adjusting to a changing market. If eHow’s results get pushed off the first few pages of Google’s search results, I’d be running for the hills, but a move like that makes little sense for Google. Google’s tasked with providing relevant search results. For obscure searches like “How to Fix a Dishwasher That Makes Weird Noises,” eHow’s content might be the most relevant and informative content online. So long as their content is worthwhile for at least a handful of surfers, Demand’s pages will continue to be returned in Google’s search results.

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Top five stock picks for 2011

One of the keys to successful investing is beating the herd to the next hot stock. These five stocks and sectors could be those diamonds in the rough in 2011.

One of the keys to successful investing is beating the herd to the next hot stock. Here are my top five stock picks for 2011. They might not be in the limelight yet, but they very well could be by the end of the year:

1) Tech IPOs. In my unofficial tech IPO calendar for 2011, I detail 23 major tech companies that could have large, high-profile IPOs this year. Only one of those companies (Demand Media, Inc., NYSE:DMD) has gone public so far, and it shot up 33 percent in its first day of trading. The best are yet to come, from coupon-of-the-day company Groupon, which turned down a $6 billion offer from Google, to LinkedIn, a social networking company for professionals with more than 90 million members. Keep an eye on tech IPOs throughout the year as the market seems ready to take on more risk in a sector that’s growing rapidly; particularly in China.

2) Cloud-computing. As more businesses move their web sites and applications from dedicated web servers onto distributed server platforms, several companies are poised to soak up that new revenue stream. Amazon.com, Inc. (Public, NASDAQ:AMZN) has been at the forefront of the cloud computing industry although the company’s not all that transparent on how much revenue cloud computing actually generates for them. Estimates range from $500 million in 2010 to $1 billion. UBS analysts Brian Pitz and Brian Fitzgerald predict cloud computing could pull in some $2.5 billion a year for Amazon by 2014. Two other players you might consider in the space: Cisco Systems, Inc. (Public, NASDAQ:CSCO) and dedicated web hosting company Rackspace Hosting, Inc. (NYSE:RAX). Shares in Rackspace are up more than 86 percent over the past six months.

3) Blue chip stocks. Thanks to exchange rates and a falling dollar, even investors abroad are moving into large-cap American stocks. “Australian investors have a once-in-a-generation opportunity to get as much money as they can into overseas assets, ideally blue-chip global industrial companies,” Mike Hawkins, head of private clients at Evans and Partners, tells The Australian. “When you’re talking about those high-quality global blue-chip names, the likes of Nestle and Procter and Gamble (NYSE:PG) and Kraft (NYSE:KFT) and Unilever (NYSE:UL), you’re talking about companies that are well tapped into the growth in income and demand coming from emerging markets. We see this as a bigger story than China and India’s demand for Australia’s raw materials: the growth of the emerging-market consumer is a far more powerful and enduring theme than simply the supply of raw materials to China.” As a middle class begins to develop in emerging markets, consumers will have more disposable income for food and hygiene products. American blue chips have been positioning themselves in those markets for decades, and it could finally start paying off as the falling dollar will make their goods more affordable on Chinese shelves.

4) Platinum and palladium stocks. In the precious metals community, the focus throughout 2010 was almost exclusively on gold and silver. Gold posted gains for the year of 30 percent and silver rose 80 percent. Platinum and palladium did just as well with palladium shooting up 100 percent in 2010 and platinum rising 20 percent. The gains in platinum and palladium largely came on the heels of increasing demand from China and India where the metals are used as autocatalysts to limit pollution from cars and other vehicles. Car sales surged 32 percent in China and 31 percent in India last year. GM’s President of International Operations Tim Lee expects that growth rate to slow to 10 to 15 percent in 2011 as commodity prices rise. Still, Lee points out that the sheer size of the market in China still equates to a lot of demand. “Even 10 to 15 percent growth on such a huge base makes China a vast market,” he tells AFP. For all the talk of hybrid and electric vehicles, they still only account for 3 percent of the auto market worldwide, meaning they’ll hardly dent the growing appetite for platinum and palladium. Stricter emission standards in the U.S. should also compensate for the decreased demand for platinum and palladium as more of the metals will be used to limit emissions. ETFs offer the easiest (and safest) way to get a finger in the palladium pot. Try ETFS Physical Palladium Shares (NYSE:PALL). PALL’s up 66 percent in the past six months.

5) Wealth management in emerging economies. My fifth and final pick comes from my personal portfolio: Noah Holdings Limited (NYSE:NOAH). A wealth management company, Noah serves high net worth individuals in China. After the company’s IPO in November, shares briefly spiked 30 percent and they’ve since flat-lined around the IPO price. Heavy resistance at $16 per share indicates that the downside risk is limited, and some analysts are calling for earnings growth of 35 percent in 2011 and a target price of $22 per share. The company’s numbers are off the charts with year-over-year growth in net revenue at 210 percent. It makes sense that as the ranks of China’s wealthy swell, so too will the profits at the companies that serve them. Noah Holdings should be perfectly positioned to rake in growing profits from a brand new market.

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Could Google sink Demand Media (DMD)?

Google has tempered my excitement about investing in Demand Media, Inc. (NYSE:DMD).

A recent blog post by Google’s Principal Engineer Matt Cutts has tempered my excitement about investing in Demand Media, Inc. (NYSE:DMD). In the post, Cutts argues that “people are asking for even stronger action on content farms and sites that consist primarily of spammy or low-quality content.”

It seems to be a warning shot fired at Demand Media, Associated Content and other organizations that rely on free or low-cost freelance writers to churn out reams of content that match the keywords web surfers type into Google out the hope of generating clicks on ads. Some prominent media figures have begun arguing that Demand Media’s primary site, eHow.com, is just glorified spam masquerading as meaningful content.

“Searching Google is now like asking a question in a crowded flea market of hungry, desperate, sleazy salesmen who all claim to have the answer to every question you ask,” Instapaper developer Marco Arment writes.

Demand Media’s fully aware of the accusations, and the company’s also aware of its dependence on Google Ads as a major source of revenue. In its S-1 filing, Demand Media mentioned its relationship with Google as a “risk factor” in the company’s future.

In fact, 28 percent of Demand Media’s revenue came from Google Ads during the first three quarters of 2010. If that relationship were cut off, you can bet DMD’s share price would fall by the same amount or more.
Would that be enough to sink the company entirely, though?

That depends. If Google stopped returning any eHow.com pages in its search results, traffic to eHow.com would fall off a cliff. The company would be left relying on incoming links (aka referrals) from other sites and traffic from Bing, Yahoo! and, perhaps, Baidu. In other words, eHow.com would go from one of the most-visited Web sites in the world to having its face printed on the side of a milk carton. It would pretty much cease to be meaningful to advertisers, and that would mean they’d need to find a new business model immediately.

More likely, though, Google won’t entirely ban eHow.com. They’ll just need to find a way to return higher-quality search results without relying exclusively on the things that have worked in the past (and that’s easier said than done – after all, how can you tell “legitimate” content from a blog post or article written for a “content farm”).

In the meantime, though, Demand Media’s spreading its textual empire into foreign markets (perhaps as a hedge against a deteriorating relationship with Google), and moving closer to profitability. Enjoy it while it lasts.

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From “A” to “Zynga,” here’s an unofficial list of 23 tech companies that, according to rumors, will IPO in 2011 or 2012.

After a few terrible years for IPOs, some exciting technology companies look like they’re ready to step up to the IPO plate in 2011 or 2012. Here’s an unofficial list of 23 tech companies that – according to rumors from the Wall Street Journal and TechRice among other sources – might go to market this year or next:

star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small 58.com IPO? China’s for-profit version of Craigslist.org, 58.com’s got a robust user base. A recent browse through the site’s classified ads in Beijing showed more than 1.2 million listings for people looking for roommates – and that’s just in one city! The site ranks 34th in online traffic in China, according to Alexa.com.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small 360buy.com IPO? The third-largest online retailer in China, 360buy.com just secured a nice chunk of change from Wal-Mart. They got more than $500 million in all. As I wrote previously, 360buy.com controls 2.5 percent of the e-commerce market in China. That may not sound like much, but that’s more than 3.5 times the e-commerce marketshare enjoyed by competitor China Dangdang, Inc. (NYSE:DANG).

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star-icon-smallstar-icon-smallstar-icon-small Demand Media IPO? A content factory that uses an army of freelancers to churn out “How To” articles, Demand Media has turned the written word into a commodity on eHow.com. All told, eHow produces enough text to fill more than four English language Wikipedia’s every single year. And their so-called “evergreen” articles aren’t pegged to specific dates, so they’ve got a very long shelf-life of search-engine friendly content that’s perfectly suited for advertisements.

Update: Demand Media IPO’d on Jan. 26, 2011 under ticker symbol DMD. Check out my latest post on the company: Will Demand Media’s (DMD) stock recover from Google shock? Absolutely.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Facebook IPO? I can’t say much that hasn’t already been said about Facebook, except this: they’re the only Web-based company in U.S. that’s positioned to truly challenge Google in the coming years. As they expand into search, virtual goods, e-commerce and mobile, Facebook seems to be taking over the internet. Indeed, the site currently accounts for 25 percent of ALL pageviews in the U.S. Even with a $75 billion+ valuation, Facebook still looks cheap to me.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Groupon IPO? Groupon’s found the holy grail of online marketing: a simply way to marry coupons and local businesses. To use it, just give Groupon your email address and they send you a daily offer from a local business. If you like the offer (which is often a coupon or gift card that’ll save you 50 percent or more at a local restaurant, hobby shop, etc.), you can buy the coupon, print it out and redeem it anytime before the expiry date. The company’s already rejected a $6 billion buyout offer from Google, and they’re in the early stages of expanding into China. The only problem? Google’s got Groupon on their hit list now, and an all-out war is probably in the making.

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star-icon-smallstar-icon-smallstar-icon-small Hulu.com? A streaming video site with backing from media heavyweights like News Corp. (NASDAQ:NWSA), Walt Disney (NYSE:DIS), and NBC Universal, Hulu claims to be operating at a profit with 2010 revenues around $260 million. The company’s biggest competitor is streaming giant Netflix, Inc. (NASDAQ:NFLX), which now has a market cap of $9.6 billion.

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star-icon-smallstar-icon-smallstar-icon-small Jiayuan IPO? The leading online dating site in China, Jiayuan’s the 55th most-visited site in China, and it boasts at least 25 million members. The company makes money by charging for memberships (about $6 a month for a “Diamond Membership”), selling virtual currency and other romantic add-ons. Jiayuan has attracted capital from New Oriental Education & Technology Group (NYSE: EDU) among other investors.

Update: Jiayuan shares started trading on May 12, 2011 under ticker “DATE” on the NASDAQ. Check out my latest post on the company: Jiayuan.com IPO: 3 reasons to invest in Chinese dating site.

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star-icon-smallstar-icon-smallstar-icon-small LinkedIn IPO? A social networking site for professionals, LinkedIn boasts more than 90 million members from around the world. The company lacks the sex appeal of some of the other tech IPOs on the docket, but it does seem like its network might be easier to monetize than, say, Twitter, since it can capitalize on hiring solutions, advertising aimed at professionals and premium landing pages.

Update: LinkedIn IPO’d on May 19, 2011 under ticker symbol “LNKD.” Check out my latest post on the company: 3 reasons NOT to invest in LinkedIn IPO.

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star-icon-smallstar-icon-smallstar-icon-small LivingSocial IPO? The biggest and most well-known Groupon competitor, LivingSocial offers daily deals from local and national retailers. LivingSocial got a big boost when it announced that Amazon.com, Inc. (NASDAQ:AMZN) was investing $175 million in the company. Soon after, LivingSocial offered its members a $20 Amazon gift card for just $10, and they netted both companies more than $13 million up front in the deal.

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star-icon-smallstar-icon-smallstar-icon-small Nuomi IPO? An ultra-deep discount coupon site, Nuomi’s fighting for attention in what will soon be a very crowded market. Still, they’ve got decent ownership in Oak Pacific – the parent company of “China’s Facebook”: RenRen. And they’ve got a decent idea: do as Groupon does. The company sells coupons online for a limited time. At least one theater owner who partnered with Nuomi was thrilled with the results: “I’d say this is a miracle,” producer Lei Zile told the Global Times last July. “I’ve talked to older producers about this and they all said it was a miracle in the history of stage plays. 100,000 tickets were sold in one day. You could call it encouraging.”

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star-icon-smallstar-icon-smallstar-icon-small Pandora IPO? An online music streaming site, Pandora grew out of the Music Genome Project, which attempts to categorize music based on more than 400 variables. Using that information, Pandora can build “custom” radio stations after you’ve entered a song or band that you like. The site’s enjoyed a big surge in popularity with wider-spread adoption of smartphones that allow streaming music anywhere, anytime. Despite the fact that Pandora shelled out more than $30 million in royalties in 2009, the company still managed to make its first profit that year, netting some $50 million. In 2010, profits were estimated to be around $100 million largely on the strength of premium ad-free streaming accounts and partnerships with car manufacturers that are installing Pandora direct from the factory.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Qunar IPO? An online travel booking site in China, Qunar’s Web traffic is pacing Ctrip.com’s (NASDAQ:CTRP). Both companies operate in the same niche, but Ctrip’s more well known in the West since its IPO came in 2003. Since 2003, shares in Ctrip have risen more than 750 percent. Competition in the sector seems to be heating up as Tencent Holdings, Ltd. (HKG:0700) recently invested in 17u.com, another Chinese travel site that’s currently a distant third behind Ctrip and Qunar.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Renren IPO? A glaring example of the copyright issues that plague China, when RenRen.com launched in 2005 as XiaoNei.com, the site looked like it was an official Facebook product. It even identified itself as “A Mark Zuckerberg Production” at the bottom of its pages. After getting bought out by Oak Pacific Interactive in 2006, the company’s since tried to carve its own niche – and its done well. RenRen.com currently has more than 160 million registered users in China, and it’s the country’s 16th most-visited site.

Update: RenRen went public on May 5, 2011. Shares have collapsed more than 30 percent since then. Check out my latest post on RENN: RenRen IPO: 5 things you don’t know about ‘China’s Facebook.’

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Sunity IPO? A Chinese version of Zynga, Sunity Online Entertainment Ltd. makes Web-based games and will soon start launching mobile apps, according to the AP. The company racked up $9.54 million in revenue in 2010, up from $8.25 million in 2009. Sunity generates 52 percent of its revenue from Qihang (QHG) – a subscription-based cards and chess game, according to Gaming-Hub.com. Another 8 percent of the company’s revenue comes from Han Dynasty Game (HDG) – a free Chinese mythology role-playing game that makes money off the sale of virtual goods.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Skype IPO? Skype’s VoIP services offer businesses and individuals a free or low-cost way to make international calls, host video conferences and shares files online. With the company’s recent $100 million acquisition of mobile video streaming service Qik, it’s clear Skype’s getting aggressive about making a push into the smartphone market.

Update: Microsoft acquired Skype on May 10, 2011 for $8.5 billion.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Taobao IPO? It’s unclear whether or not Taobao will IPO in 2011 or 2012, but it is, hands down, my favorite stock on this list. Taobao controls 75 percent of the e-commerce market in China with it’s psuedo-eBay-style site. There, consumers can buy products from other consumers or businesses at auction or at set prices, although auction-style buying seems to have fallen out of favor on the site. Credit Suisse analysts expect the e-commerce market to more than quadruple in China by 2015, and Taobao will easily be the biggest beneficiary of those gains. They seem to have seen the writing on the wall, too, as the company’s investing $3 billion to $4.5 billion into a warehouse network that will make shipping throughout China more efficient.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Taomee’s 61.com IPO? A Chinese social networking site aimed at children and parents, 61.com has some 20 million users ages 6 to 14, and Forbes reported revenue projections of more than $30 million in 2010. The subscription-based site lets kids hang out in virtual worlds (the Seers for the boys and the Moles for mixed-gender users), and parents are invited, too.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Tudou IPO? While they may be playing second fiddle to Youku.com, Inc. (NYSE:YOKU), video streaming site Tudou.com gets nearly as much traffic. The site’s ranked by Alexa.com as the 11th most-visited Web site in China. Youku.com’s ranked as the 10th most-visited site. Youku’s spectacular November IPO could foreshadow another buying frenzy in Tudou even though its unclear when or how either company will get profitable.

Update: Despite an ongoing legal battle between Tudou’s CEO and his ex-wife, the company appears to be moving closer and closer to an IPO. Check out my latest post on the company: Tudou IPO: Is Tudou stock a buy?

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Twitter IPO? Microblogging site Twitter still isn’t profitable, but it looks like it’s getting serious about making money after staggering valuations put the company’s market cap around $3.7 billion. Twitter appointed its former COO Dick Costolo as CEO late last year, and Costolo’s tasked with ramping up revenues. A report out yesterday by online research firm e-Marketer Inc. estimates the company will generate $150 million in ad revenues in 2011 and $250 million by 2012. I’ve also blogged in the past about what I see as Twitter’s secret key to making money.

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star-icon-smallstar-icon-smallstar-icon-small VANCL IPO? An up-and-coming online clothing retailer in China, Vancl.com’s got excellent pedigree in site founder Chen Nian who sold his last project, Joyo.cn, to Amazon. Vancl.com’s focus on clothing has helped it capture nearly 30 percent of all online clothing sales in China, and the company expects its warehouse space to triple by the end of the year. Last year’s sales at Vancl were expected to be up more than 300 percent, according Businessweek.com.

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star-icon-smallstar-icon-smallstar-icon-smallstar-icon-small Yandex IPO? My second-favorite stock on this list, Yandex.ru is likely among the least well-known of the stocks, too. Expect to hear a lot more about Yandex if the company IPOs on the NASDAQ. The leading search engine site in Russia, Yandex claims revenue spiked by 43 percent to $410 million last year. Google holds the No. 2 slot in Russian search engine usage and the American search company posted revenue of some $69 million in Russia in 2009. Yandex.ru is the most-visited site in Russia and the 25th most-visited site in the world, per Alexa.

Update: Yandex IPO’d on May 24, 2011. Check out my latest: Yandex IPO: 5 reasons to invest in Yandex stock.

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star-icon-smallstar-icon-small Zhenai IPO? A Chinese dating site, Zhenai.com claims more than 26 million registrations as of August 2010. While the site gets far less traffic than its biggest competitor Jiayuan, Zhenai adds a human touch to the matchmaking process by having trained matchmakers help users find the best possible matches.

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star-icon-smallstar-icon-small Zynga IPO? An online game maker, Zynga’s most famous for its iPhone and Facebook apps Farmville and Cityville. The company boasts a market cap of $5.8 billion on SharesPost. Sound like a lot? At least Zynga’s not having much trouble making money. Zynga likely generated revenue of more than $500 million last year, Lou Kerner, an analyst at Wedbush Securities, tells Dealbook. That’s up from about $300 million in 2009. That’s not bad, especially since Kerner estimates the company has profit margins of some 20 percent.

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Three reasons to buy stock in Demand Media’s IPO (DMD)

Demand Media, Inc., isn’t profitable yet, but that doesn’t mean they won’t be in the future. Here are three reasons to consider buying stock in Demand Media’s IPO.

You might not have heard of Demand Media Inc. (NYSE:DMD), but you’re probably familiar with the company’s Web site eHow.com. eHow.com harnesses the power of some 13,000 freelancers from around the world to crank out “How To” articles on just about everything – literally.

The company uses search algorithms to figure out what people are searching for online, then they tailor “How To” articles at those searchers. Some recent titles on eHow.com? “How to fix a wet laptop” and “How to make green bean dog treats.” Enticing, right?

eHow has basically turned content into a commodity by cranking out one million articles a month. That’s the equivalent of four English-language Wikipedia’s every year, according to company founder and CEO Richard Rosenblatt. Demand Media sells the articles it produces to other media outlets or it publishes them on eHow.com where the company can reap long-tail advertising revenue presumably for decades into the future.

Demand Media isn’t profitable yet, but that doesn’t mean it won’t be in the future. Here are three reasons to consider buying stock in Demand Media’s IPO:

1) Highly targeted content is extremely valuable to advertisers on the Web. Think about it, if you’re landing on a Web page that’s titled “How to make green bean dog treats,” we can make some logical assumptions about you. Namely, you’re a dog owner who likes giving your dog exotic (and possibly expensive) treats. If I were a manufacturer of high-end dog treats, that’s precisely the sort of page where I’d want my company ad to appear. I’d be willing to pay a decent amount to get my ad there, too.

2) Content as a commodity. I spent a few weeks writing as a Demand Media freelancer last year until I started running out of topics that I could intelligently cover. One of the things I noticed about the freelancing process at Demand Media was the company’s dogged insistence on making sure the content I produced would remain relevant for years – perhaps even decades – to come. Since content on the Web never really goes away, Demand Media pays the upfront cost to have the article produced (a mere $15), and they could – in theory – be making money off that article for the next 100 years. It’s like a legal pyramid scheme that just might be minting cash a someday.

3) International expansion. Demand Media plans to use the cash it raises during the IPO to fund “international expansion, sales and marketing, as well as general purposes,” according to the Wall Street Journal. As the company expands into foreign-language markets, it should be able to exploit years of server logs to see which of its English-language articles have been the most visited and/or profitable. By focusing on those first, they’ll be able to quickly ramp up earnings in brand new markets.

Not convinced? Here are a few reasons to AVOID buying stock in Demand Media’s IPO.

Demand Media’s ticker symbol: NYSE:DMD.

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