Tesla stock worth more than Big 3 combined?

If you’re in search of the ultimate Tesla (TSLA) bull, look no further than Trip Chowdhry of Global Equities Research. He has a $385 Tesla price target. That number’s not based on current car sales; it’s based on the notion that the world’s entire transportation ecosystem is on the cusp of a revolution. And Trip Chowdhry believes Tesla’s leading the charge.

Continue reading “Tesla stock worth more than Big 3 combined?”

How high can Amazon’s stock go?

After a surge of 15 percent, is Amazon still a buy at these high numbers? If so, how high can Amazon’s shares go? Check out stock price target on Amazon in 2012.

After reporting earnings on Thursday evening, Amazon.com’s (NASDAQ:AMZN) shares shot up $30 each – a gain of 15 percent that nearly added $14 billion (yes “billion”) to the company’s market cap in a single day of trading.

“The March quarterly results showed just enough upside in both revenues and margins to make the naysayers run for cover,” Stifel Nicolaus analyst Jordan Rohan wrote in a research note (per Businessweek).

All told, Amazon earned $130 million or $0.28 per share in the quarter ended March 31. The bad news? That was down 35 percent over the same quarter in 2011. The good news? Analysts were expecting the company to earn just $0.07 per share.

A big drop in earnings would typically send investors packing, but Amazon’s different. The company’s famously willing to forgo big earnings in exchange for investments that should pan out at some vague time in the future. The Kindle Fire is a great example. Amazon’s actually selling the device below cost out of the hopes that it will earn back that loss in digital media sales. All this has Amazon trading at a rather preposterous P/E ratio of 186.

Knowing that, is Amazon a buy at these high numbers? If so, how high can Amazon’s shares go?

Future growth for Amazon

I see several key areas for future growth at Amazon. The biggest are:

1) A mushrooming digital empire. In a statement from CEO Jeffrey Bezos, Amazon was eager to point out the thousands of ebooks that can only be purchased on the Kindle. “You won’t find them anywhere else,” Bezos wrote. “They include many of our top bestsellers—in fact 16 of our top 100 bestselling titles are exclusive to our store.”

Amazon’s in an all-out war with Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Barnes & Noble (NYSE:BKS) to lead the e-reader (and tablet) market. Taking a cut of digital downloads, after all, is what’s helped Apple generate earnings surprises for years.

Amazon’s trying to duplicate that performance with its App Marketplace and Kindle Fire book, music and video downloads. The company’s on the right track, too, with revenue from Amazon’s “media business” in North America growing 17 percent to $2.2 billion during the most recent quarter.

“One of the big reasons for that growth is because of our digital offerings,” Tom Szkutak, Amazon’s chief financial officer, said in a conference call (per the Post Gazette). “Kindle and the total digital business is growing very strong.”

Even compared with physical goods, digital goods sales are booming. Amazon claims that nine out of its top 10 best-selling products are digital goods, including Kindles, Kindle books, movies, music and apps.

We don’t know the actual number of Kindles that were sold, but Amazon did say sales for the various models of the device were up 43 percent over the same quarter in 2011.

2) The birth of an Amazon phone. We don’t have proof yet, but late last year, Citigroup analysts argued Amazon was working on developing a smartphone that should be ready to launch in time for Christmas in 2012. “Channel checks suggest the Amazon smartphone will have a 4-inch touch panel display, an 8 mega pixel camera, and adopt a Microsoft operating system,” Forbes wrote at the time.

I’d be surprised if the device ran a Microsoft OS, but I definitely wouldn’t be surprised to see some sort of smartphone for sale on the retailer’s Web site this fall. The launch of a competitive smartphone (somewhere between $140-$200) could give Amazon an increasingly-large piece of Apple’s digital pie.

3) Groceries anyone? Amazon’s re-defining the way we shop for everyday things. A number of my friends use Amazon for everything they possibly can – from deodorant to underwear and diapers. To extend this model further, Amazon could expand the grocery delivery program it has in place in Seattle.

Seattle customers can log onto Amazon Fresh and buy everything from probiotics to fresh fish from Pike Place. Shopping for everyday items like milk is almost overwhelming. Do a search for it on Amazon Fresh, and you’ll get more than 150 different results.

Speculation’s been around for more than four years that Amazon would try to roll out it’s grocery delivery service nationwide. If it happens, expect it to radically alter communities where the service is available. And expect it to add to Amazon’s bottom line.

Amazon stock price target

Analysts have a mean price target of $218.69 on Amazon’s stock (per the Orlando Sentinel). Of course, that price target isn’t tied to a date, and I feel like Amazon has a lot higher to climb.

Why? Amazon set on becoming the world’s largest retailer. Period. According to RetailNet Group, Amazon will be the world’s No. 3 retailer by 2016 (they’re currently ranked No. 21). That’ll put it ahead of all the big retailers except for two: Carrefour and Walmart (NYSE:WMT). Could Amazon ever take on Walmart? Yes, but it’s not going to be anytime soon. Walmart’s sales are forecast to hit $444 billion this year, and Amazon’s expected to hit $48 billion.

Growth will be rapid at Amazon.com, though. Sales should hit $140 billion a year by 2016. That’s triple today’s numbers. If that holds true expect Amazon stock price forecasts of $218.69 look incredibly short-sighted.



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Why Research in Motion (RIM) shares collapsed and where they’re heading next

A niche player can still make money, but it’s not going to give investors outsize gains. That’s why RIM’s shares are down more than 58 percent YTD.

It’s been bad news on top of bad news for the fabled maker of the Blackberry, Research In Motion Limited (NASDAQ:RIMM). After the market close yesterday, the company reporting earnings per share of $0.80. Analysts were expected $0.89 per share – a difference of about $47 million.

Investors have punished the stock in trading today pushing shares down 20 percent.

“I think RIM is very much at a tipping point here,” Jennifer Fritzsche, a former analyst at First Union Corp., told Bloomberg in a television interview. “(This) is the first year-over-year decline in shipments we’ve ever seen from this company. For a growth industry, that’s very atypical.”

Interviewers at Bloomberg asked Fritzsche bluntly if they thought RIM would be in business two years from now. “I think there’s a place for RIM,” she said. “But the biggest issue I have is how they’re going to be able to support essentially two operating systems: Blackberry 7 and the new system that they continue to allude to (QNX) coming possibly early next year.”

Two competing operating systems could alienate outside developers, which are essential for offering consumers a wide range of third-party apps. From games to productivity software, the availability of apps can influence consumer decisions when they’re picking out a phone. That’s part of what has made Apple’s (AAPL) iPhone so successful, and it’s becoming harder and harder for new operating systems to compete with thriving app marketplace for the iOS and Google’s (GOOG) Android.

Revenue plummeted 10 percent at RIM on sluggish sales of smartphones and tablets. Indeed, the company shipped just 10.6 million phones and 200,000 tablets. Analysts had expected the company to ship 11.8 million phones and more than half a million tablets.

Of course, much of the problem with RIM’s tablet – the PlayBook – stems from the fact that it just didn’t feel complete when it was launched. The tablet doesn’t have built-in email, calendar or contacts software, and it doesn’t run outside apps like Netflix.

Co-CEO Mike Lazaridis says that will all change next month when RIM pushes out a software update. Users will then be able to install Android apps on their PlayBooks, and that might be enough to give sales a big bump.

Still, some worry that the company’s losing relevance in a world increasingly dominated by Apple and Google. “RIM is on a path to becoming a niche player,” Ted Schadler, an analyst for Forrester Research Inc., told Bloomberg. “It has to focus on what about its products make them different or better than Apple or Google products.”

A niche player can still make money, but it’s not going to give investors outsize gains. That’s why RIM’s shares are down more than 58 percent YTD. If the company can stop shedding marketshare in the months to come, it could very well start looking like a value play. In fact, shares are currently trading at a P/E of just 3.8! Compare that to Google’s 19.6 and Apple’s 15.8. RIM just needs a product that looks ahead, not one that’s hastily thrown to market like the PlayBook.

The company has an air of panic about it right now, and that’s got investors panicking, too. If we all take a deep breath, though, it’s clear the RIM story isn’t over yet. The company still has the third most popular smartphone in the country, and it’s generating sales of more than $4 billion a quarter. They need a Hail Mary to stay afloat, but they’ve done it in the past, and I wouldn’t count them down and out quite yet.


3 reasons to invest in the 360Buy.com IPO (Jingdong Mall)

The 360Buy.com IPO could be the biggest Internet IPO since Google. Competition behind the Great Firewall is fierce, but there are lots of reasons why this stock stands out.

In what’s shaping up to be the largest U.S. Internet IPO since Google, Inc. (NASDAQ:GOOG), the Amazon of China, Jingdong Mall has announced plans to go public. Jingdong publishes 360Buy.com, the 120th most-visited Web site in the world. That’s a far cry from Amazon.com (NASDAQ:AMZN), which is ranked by stats-tracking company Alexa.com as the 15th most-visited Web site in the world. 360Buy’s got momentum on its side, though, and that makes me bullish on the stock. Here are three reasons you should consider investing in 360Buy.com when the company IPOs next year:

1) Growth potential. China’s internet population (at 485 million+) exceeds the entire population of the U.S., and that number is expected to triple to 1.5 billion by 2015. That will make the leading e-commerce site in Asia an international powerhouse. Amazon.com currently gets 6.8 times as much traffic as 360Buy.com. But I wouldn’t be surprised to see 360Buy.com overtake Amazon. Not only will the China’s internet population dwarf that of the United States, but the country’s still in the early stages of e-commerce adoption. Last year, online sales in China rose 77 percent (per FT.com).

2) Not to be confused with Taobao.com. Taobao may get significantly more traffic than 360Buy.com, but it’s important to note that they have different business models. Taobao’s a consumer-to-consumer e-commerce site that’s more akin to eBay than Amazon. While eBay garnered more traffic than Amazon in the early years of the Web, that trend has since reversed itself. Expect the same pattern to unfold in China as consumers turn to the Web not just for hard-to-find items and collectibles but for everything from jackets to diapers and laptops (all of which 360Buy.com offers).

JingDong is, indisputably, the largest business-to-consumer e-commerce site. And it’s purest competition comes in the form of E-Commerce China Dangdang, Inc. (NYSE:DANG). DangDang, which IPO’d to much fanfare in December, has since lost nearly 75 percent of its share price amid a rash of accounting scandals at several Chinese firms.

3) Revenue giant. Revenue at 360Buy.com is expected to hit $4.4 billion in 2011 (per RenaissanceCapital). That’s not much when compared with Amazon’s $40 billion, but it blows away DangDang.com, which will likely do somewhere in the neighborhood of $400 million.

Already, 360Buy.com processes some 300,000 orders per day from 25 million registered users. If the site can maintain its handhold at the top of China’s retail market, it should reward investors nicely in the years to come.



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Why do companies go public?

Here are the Top 3 reasons companies go public. Nearly 100 companies held IPOs last year, but why exactly did they take the plunge?

Every month or so, a high-profile technology company makes headlines with an IPO (or initial public offering) of stock. By doing so, those companies are transforming themselves from private corporations to public corporations. That transformation costs millions of dollar and brings with it a whole lot of intense scrutiny from the media and investment community. It also threatens to change the corporate culture of a company and fixate it on short-term rather than long-term results. And yet, nearly 100 companies held IPOs last year (excluding ADRs, REITS, limited partnerships and a few other categories). Why did they take the plunge? Here are the Top 3 reasons companies go public:

1) Boatloads of cash. When a company goes public, it’s actually trading equity for cold hard cash – and lots of it. Just how much money is at stake? That depends on the company’s profitability and prospects for growth. Russian search engine operator Yandex (NASDAQ:YNDX), for example, raised $1.3 billion on May 25 in exchange for 16.2 percent of the company’s equity.

After an IPO, a company’s free to use that cash however it sees fit, and it never has to repay a penny (not a bad deal, eh?). Most companies use that money to pay down debt, acquire new businesses or invest in future growth. Often, companies do all three. The catch is, the company must release detailed quarterly financial records that adhere to strict standards set by the SEC. Investors then use that financial data to determine whether or not that company is a good investment.

2) Brand awareness. Since it costs so much (typically between $10 million and $30 million a year, per SFGate.com) to satisfy the accounting and legal costs associated with being publicly-traded, most companies prefer to take the easy route and remain private. Companies that do decide to go public get boatloads of press, consumer awareness and exposure for new products. Because it’s so difficult to go public, the act in itself lends a new level of cachet or prestige to a brand. All told, BusinessWeek lists just 33,000 public companies around the world.

3) Playing with the big dogs. The world’s largest private company (according to Forbes) is Cargill. The agribusiness company logged estimated sales of $109 billion in 2009. Compare that with Exxon Mobil Corporation (NYSE:XOM), which regularly tops lists of the largest public companies in the world. Last year, XOM’s sales exceeded $430 billion – nearly four times as much as Cargill’s 2009 sales.

Going public gives companies a competitive advantage for a number of reasons. Most importantly, they have access to more capital, and they can get that capital for cheaper than their private counterparts. In addition, public companies are no longer subject to SEC rules that limit private companies to fewer than 500 shareholders. That means public companies can offer bigger pools of employees equity stakes. That gives them a powerful tool to recruit and retain the top talent in their respective industries.

Because public companies have access to more cash, they can also buy out competitors and start-ups, using acquisitions as a tool to fuel growth. Since Google, Inc. (NASDAQ:GOOG) went public in August of 2004, for example, the search engine has acquired more than 85 other companies as it expands into new areas, buys new revenue sources and speculates on up-and-coming technologies. Smart acquisitions help bolster bottom lines for public companies that are eager to keep their shareholders happy. And the larger those companies get, the more acquisitions you’re likely to see.



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Yandex IPO: 3 MORE reasons to invest in the ‘Google of Russia’

Yandex earned $134 million last year on revenue of $440 million. That fact alone gives it a boost over other high-profile tech IPOs like LinkedIn, which is forecasting a net loss in 2011.

I’d recommend waiting until volatility dies down after Yandex’s first few days of trading, but I’m convinced the long-term prospects for the company look good – at least as long as the political situation in Russia remains stable.

Late last month, I laid out 5 reasons to invest in Yandex stock, and now that Yandex’s IPO date (NASDAQ:YNDX) is upon us and shares are set to start trading today (on May 24, 2011), I’d like to offer a few more bullish arguments for the “Google of Russia.” Here are three MORE reasons to invest in the Yandex IPO:

1) More than Russia. Yandex dominates the Russian search market, but the search engine’s actually headquartered in The Netherlands. Yandex also operates in Ukraine, Kazakhstan and Belarus, and the company has an English-language version of its search engine (Yandex.com) in alpha testing right now.

While Yandex.com is nowhere near as fast or comprehensive as Google, it does have some interesting features. For example, when browsing through search results, you can hold down the CTRL key and hit the left or right arrows on your keyboard to move to the next or previous page of search results (just make sure your cursor isn’t in the search box to activate the function).

Currently, the Ukrainian version of Yandex (Yandex.ua) is the sixth most-visited site in the Ukraine, the fourth most-visited site in Kazakhstan (Yandex.kz) and the fifth most-visited site in Belarus (Yandex.by), according to stats from Alexa.com.

2) The Wild Wild Web. Just 43 percent of Russians currently have Internet access, per InternetWorldStats. Compare that with the more mature Internet market in the U.S. where 77 percent of the country has Web access.

To reach the maturity of the U.S. market, web access in Russia will need to rise nearly 80 percent in the coming years. That would exponentially drive up the number of pageviews served up by Yandex and increase the site’s advertiser base. Last quarter, Yandex served ads for 127,000 advertisers in Russia. That’s up more than 35 percent year-over-year, according IPO documents the company filed with the SEC.

3) Buyout by Google? One of the more interesting arguments for Yandex shares is that the company could be a potential acquisition target. Yandex owns more than 65 percent of the search market in Russia while Google controls just 20 percent of Runet searches. Russia’s booming online ad growth could bolster Google’s bottom line for years to come.

“If I were Google and looking to grow my Russian presence, that would be one of the options,” Uralsib analyst Konstantin Chernyshev told Reuters last week. If any company has deep enough pockets and a strong enough interest in acquiring Yandex, it would be Google (the same company that acquired social search engine Aardvark last year, and dropped $3.1 billion to buyout online advertising company DoubleClick in 2007).

If nothing else, we can take solace in the fact that Yandex is actually profitable. The company earned $134 million last year on revenue of $440 million. That fact alone gives it a boost over other high-profile tech IPOs like LinkedIn, which is forecasting a net loss in 2011. Tech may indeed be in another bubble, but companies like Yandex should be able to weather the turmoil when the bubble pops. It’s all about the rubles, after all, and Yandex has proven it can pull them in.



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Millennial Media IPO: The future of mobile advertising?

If Millennial does indeed have an IPO, here are three reasons to consider buying in.

The rumors have been confirmed. Kind of. A fresh report from Bloomberg cites two un-named sources that claim Baltimore-based Millennial Media, Inc. is in talks with several banks regarding a possible IPO. Millennial’s managed to carve out its own niche in the face of intense competition with heavyweights, Google Inc. (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL), and they’ve had quite a bit of success.

Despite owning just 6.8 percent of the market, Millennial’s ranked as the third-largest mobile ad company in the country. If Millennial does indeed go public, here are three reasons to consider buying in:

1) Phenomenal growth. The mobile advertising market is one of the latest and greatest gold rushes in Tech Bubble 2.0. IDC estimates that the U.S. mobile ad market was worth $877 million last year, and it expects revenue to exceed $1 billion in 2011. The market’s dominated by Google and Apple, but there’s plenty of pie to go around. Millennial’s revenue tripled in 2010, and the company grew its market share by 1.4 percent to capture 6.8 percent of all mobile-ad revenue in the U.S. They’re not doing it with lightweight, fly-by-night advertisers, either. They’ve inked ad deals with some of the most recognizable brands in the world including Lexus, McDonald’s and Ikea. All told, Millennial’s network reaches more than 91 million unique U.S. mobile users every month. That’s roughly 30 percent of the entire population in the U.S.

2) Partnerships. Google and Apple dominate the mobile advertising space thanks to some prescient acquisitions. In Google’s case, the company dropped $700 million to buy AdMob last year. Apple also ponied up an undisclosed sum for the Quattro Wireless ad network last year. That leaves Millennial as the last indie standing, and the company’s already been in talks with potential suitors (Microsoft, anyone?). Indeed, the biggest threat to a Millennial IPO is the possibility that a Microsoft, Yahoo! or AOL might swoop in and make an offer for the company that’s just too good to refuse.

3) Local campaigns. The most intriguing facet of mobile advertising is the ability to target Web surfers based on where they’re accessing the Web from. Indeed, 42 percent of the ads Millennial served last quarter were targeted locally. That was a jump of 24 percent in a single quarter! The appeal is obvious: serve someone an ad for a burger when they’re driving or walking by your restaurant, and you’re a lot more likely to get them through your front door.

All told, Millennial’s ad network reaches consumers on more than 5,500 mobile devices in over 250 countries and territories. Advertisers are taking notice, and they’re doing it most specifically in a handful of industries: restaurants, automotive and finance. Here’s where Millennial showed the biggest year-over-year growth in revenue between Q1 2010 and Q1 2011:

That’s the sort of growth that’s given Millennial valuation estimates near $1 billion. Expect that valuation to keep growing, too, as smart phones cannibalize traditional cellphones. Millennial’s in a sweet spot, and I suspect investors wouldn’t mind buying shares in the company and going along for the ride.



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LinkedIn IPO date and stock price set: Is it a buy?

No one’s quite sure how investors will react to the debut of an U.S.-based social networking site, and that might be what scares me the most.

LinkedIn is set to IPO on the NYSE on Thursday, May 19, 2011, under ticker symbol “LNKD.” It will be the second social networking site to start trading on the Big Board this month after the so-called “Facebook of China,” RenRen.com (NYSE:RENN), went public on May 5.

It appears LinkedIn has piqued investor interest. The company raised its offer price $10 yesterday from a range of $32-$35 per share to $42-$45 per share. LinkedIn, which targets white-collar professionals, has displayed some impressive growth. Revenue doubled last year to $243 million and membership ballooned around the world to more than 90 million.

Nonetheless, some investors are worried we’re in the midst of Tech Bubble 2.0, and I’m inclined to agree. Here are three reasons to consider holding out before you buy shares in LinkedIn:

1) LinkedIn’s peers. There aren’t many social networking sites that are public, so we don’t have much to go on. In fact, there’s really just one other social networking Web site that trades on U.S. stock exchanges, and that’s China’s RenRen.com. RenRen IPO’d on May 5, and shot up 29 percent in its first day of trading. Not even two weeks later, investors have pushed the stock down 30 percent to $12.73 – a figure that’s below RenRen’s IPO price. If we’re looking for track records in the social networking space, here’s one that says “stay the hell away” (in the short-term, anyway).

2) Steep valuation. Consider this: LinkedIn’s latest valuation puts it at 17 times last year’s revenue. That’s a rather staggering figure when we compare it against other more established tech titans:

  • AOL, Inc. (NYSE:AOL): 1x 2010 revenue
  • Apple Inc. (NASDAQ:AAPL): 12.5x 2010 revenue
  • Google, Inc. (NASDAQ:GOOG): 6x 2010 revenue
  • Microsoft Corporation (NASDAQ:MSFT): 3.5x 2010 revenue
  • Netflix, Inc. (NASDAQ:NFLX): 6x 2010 revenue
  • Yahoo! Inc. (NASDAQ:YHOO): 17x 2010 revenue

Yahoo’s rich valuation is thanks in no small part to it’s rather cunning investments in Chinese tech companies (see my post Three reasons to buy Yahoo! Inc. (YHOO) in 2011).

3) Bad timing? Earlier this week I penned a piece titled Stock market crash looming on horizon? The gist? Darkening clouds seem to be gathering on the horizon for the broader stock market. Commodities have crumbled in recent weeks, defensive stocks including healthcare and blue chips are on the rise and inflation’s starting to cut into the pocketbooks of consumers. Shares in speculative companies like LinkedIn could get hit the hardest in the event of a major downturn in the markets.

Not buying my arguments? Convinced LinkedIn stock is going to start strong and shoot for the moon? Check out my post 3 reasons to buy LinkedIn shares during IPO, which outlines the bullish case for the company. If you’re looking for more reasons to stay away, I can indulge you there as well with my post: 3 reasons NOT to invest in LinkedIn IPO.

The fact of the matter is, we’re in uncharted waters. No one’s quite sure how investors will react to the debut of an U.S.-based social networking site. That might be what scares me the most. Investing isn’t about having a “hunch” a stock will do well; it’s about picking companies with strong profits and even better prospects for the future. LinkedIn’s got great prospects, but it’s clear we won’t be seeing profits anytime soon. That makes buying shares a gamble – particularly on LinkedIn’s first day of trading.



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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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Brightsource IPO: 6 reasons to invest in solar giant

Here are 6 reasons to invest in the Brightsource IPO, a solar start-up based in Oakland, Calif., with truly massive ambitions.

BrightSource Energy filed for a long-awaited IPO last week. The company has made several huge bets on a fledgling form of solar power, and they’re hoping investors will help finance the costs. Here are 6 reasons to invest in the Brightsource IPO:

1) Betting on solar thermal. Brightsource’s technology has more in common with traditional power plants than the solar panels most of us are familiar with. The company plans to cover swaths of desert land with giant, computer-controlled mirrors that will concentrate sunlight on a “solar receiver.” That receiver will heat water, which will, in turn, power steam turbines to generate electricity.

2) Revolutionary scale. Brightsource has the land and ambition to truly revolutionize the way California gets its power. As it stands, California gets just 1 percent of its power from the sun, according to GreenProphet.com. If Brightsource is able to develop all 110,000 acres of its land throughout the Southwestern U.S., it has the potential to supply 13 percent of California’s energy needs every year.

3) One word: “Ivanpah.” BrightSource broke ground on its massive 392-megawatt Ivanpah Solar Electric Generating System in October. The project’s scale is daunting. When construction wraps up in 2013, Ivanpah should nearly double the amount of commercial solar thermal electricity produced in the U.S., and it’ll yield enough juice to power more than 140,000 homes in California.

The project is currently on hold pending a U.S. Fish and Wildlife Service review of the complex’s threat to an endangered desert tortoise. Brightsource is optimistic, though, that the delay won’t threaten Ivanpah’s 2013 target completion date.

4) Heavyweight investors. You can often judge the quality of an investment by who laid down cash early, and Brightsource has gotten some ringing endorsements. NRG Energy, Inc.’s (NYSE:NRG) chipping in $300 million for the Ivanpah project, and Google’s investing another $168 million. Even the U.S. Department of Energy’s in the game. The agency is guaranteeing $1.6 billion in loans to Brightsource to see Ivanpah through completion.

5) By way of executive order. When California Governor Arnold Schwarzenegger signed Executive Order S-14-08 in 2008, the solar industry went mainstream overnight. The rule stipulates that California must get 33 percent of its energy from renewable resources by 2020. Better yet, the requirement doesn’t count nuclear power and hydroelectric power as “renewable.” That means the push for solar and wind energy is greater in California than anywhere else in the country. Solar producers like Brightsource are big winners in the deal.

6) The bottom line. Brightsource has a long way to go before it’s profitable. The company generated just $13.5 million in revenue last year. It spent $71.63 million during that same period, per Reuters. Still, there’s a lot of work in the pipeline that could add up to big profits down the road. All told, the company “has $4 billion of revenue opportunity for us through sales of our systems,” most of which will come through 14 power purchase agreements California energy companies PG&E and SCE. Brightsource won’t be rolling in the green anytime soon, but barring any other tortoise-related problems, its future definitely looks bright.



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