Online content manufacturer Demand Media Inc. made money for the first time in the fourth quarter.
It posted earnings of $1 million in the final three months of 2010, compared with a loss of $3.9 million in the prior year.
But the positive results turned into a loss for accounting purposes because of preferred stock that converted to common shares as part of Demand Media's initial public offering of stock last month. Factoring in that conversion, Demand Media lost $7.6 million, or 54 cents per share. That conversion formula won't affect Demand Media's future results.
Revenue totaled $73.6 million, a 33 percent increase from the prior year's $55.5 million.
In extended trading Tuesday after the release of results, shares lost 48 cents, or 2.1 percent, to $22.40. In regular trading earlier, it closed at $22.88, up 1 percent.
Demand Media, which is based in Santa Monica, assigns roughly 13,000 freelance writers to produce stories about frequently searched topics and then sells ads alongside the content at its own websites, including eHow.com and Livestrong.com, and about 375 Internet other destinations operated by its partners. They include the National Football League and Gannett Co.'s USA Today, the nation's second-largest daily newspaper.
The search-driven approach to generating low-cost articles has caused some journalism purists to deride Demand Media as a "content mill," but Wall Street seems to love the idea so far.
Demand Media's stock has already surged more than 30 percent from its IPO price of $17, leaving the company with a market value of nearly $1.9 billion.
That market value was about $400 million higher than The New York Times Co., whose flagship newspaper has won more than 100 Pulitzer Prizes and employs some of the top-paid reporters and editors in the world.
The disparity reflects a steep downturn in revenue at the Times Co. and other major newspaper publishers during the past four years as the less expensive and more convenient alternatives on the Internet siphoned advertising revenue away from their print editions. The shift has been devastating for newspapers because online advertising hasn't generated nearly enough income to replace the revenue that has evaporated from print.
But most newspapers are still earning money, something that, until the latest quarter, Demand Media hadn't done since its inception four years ago. The company had accumulated losses of $53 million through the third quarter. The $1 million fourth-quarter income is higher than the upper range of Demand Media's forecast in a regulatory filing last month.