The nonexistent profits Demand Media lied about

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- Demand Media CEO Richard Rosenblatt has been insisting for years that his company is profitable. But it isn't. Never was, in fact.

When the online content company filed its initial public offering last Friday, Demand revealed that it is more than $6 million in the red so far this year. Last year, it posted a net loss of $22 million -- which came on the heels of a $14 million loss in 2008 and a nearly $6 million loss in 2007.

As the Wall Street Journal pointed out Thursday, that flies in the face of consistent claims to the contrary. Rosenblatt said Demand Media was "highly profitable" in a March 2008 VentureWire interview. Three months later he told the Los Angeles Times he was expecting a "healthy profit." An October 2009 USA Today interview cast the company as "profitable" -- and earlier this year, at the Twiistup conference, Rosenblatt elaborated on that to call his venture "profitable since we started." Demand executives reiterated that claim in a Fortune story last month.

Asked Thursday about that stark discrepancy, Demand Media representatives declined to comment, citing the "quiet period" they've entered following their IPO filing.

Privately held companies don't need to disclose their finances to the world like publicly traded businesses do. We're left to take their word for it when they claim to be profitable -- but no one truly knows what's lurking under the hood until they opt for a public offering of their stock.

That's why investors pounce on IPO filings: They shine a light on how emerging companies are faring.

Demand Media's filing was especially noteworthy because it's among the first of a new wave of closely watched, venture-capital-backed technology companies to file for a public offering.

It's not the only one that has talked an impressive game. Pandora founder Tim Westergren told CNNMoney.com earlier this year that the ad-supported Internet radio company turned its first profit in the fourth quarter of 2009, and will remain profitable this year.

Zynga CEO Mark Pincus, who has rounded up an eye-popping $500 million from venture capitalists, said late last year at a Startup@Berkeley conference that the social gaming company was profitable before it started raising money.

Groupon founder Andrew Mason claims his two-year-old coupon company turned a profit within its first six months.

Business networking site LinkedIn -- widely rumored to be making plans to go public -- has been profitable since 2007, founder Reid Hoffman claims.

Two of the tech field's most closely watched trailblazers -- Facebook and Twitter -- have stayed mostly mum about their financial condition.

Facebook founder Mark Zuckerberg casually told Fortune way back in 2005 that his venture was "already profitable," but more recently executives have downplayed the company's profit projections. Operations head Sheryl Sandberg told the Guardian last year that the company was on track to be "cash-flow profitable" in 2010 -- which isn't the same thing as actually showing net income.

Meanwhile, Twitter is still pecking around for a business model that will generate sustainable revenue. It hasn't started throwing around any talk yet about the "p" word.

So which tech Silicon Valley stars are really in the black? We won't know for sure until the IPO filings hit.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,919.59 80.85 0.48%
Nasdaq 4,527.51 19.20 0.43%
S&P 500 1,981.60 9.86 0.50%
Treasuries 2.41 0.02 0.75%
Data as of 1:28am ET
Company Price Change % Change
Apple Inc 100.53 1.37 1.38%
Bank of America Corp... 15.45 0.00 0.00%
Intel Corp 34.34 -0.07 -0.20%
Microsoft Corp 45.33 0.50 1.12%
Facebook Inc 75.29 0.00 0.00%
Data as of Aug 19

Sections

Two months after Dov Charney was fired as CEO, he's still at the company, collecting his full base salary amid early signs of a turnaround. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

When hairdresser Mark Bustos isn't cutting the hair of fashion designers and real estate moguls, he's traveling around the world giving free haircuts to the homeless. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.