Will Demand Media (DMD) Surprise This Earnings Season? - Analyst Blog

Demand Media Inc. (DMD) is set to report the third-quarter 2014 results on Nov 10, 2014. Last quarter, the company posted a positive earnings surprise of 2.9%. Let's see how things are shaping up for this announcement.

Factors to Consider

Demand Media reported dismal second-quarter top- and bottom-line figures which not only lagged the Zacks Consensus Estimate but were also down year over year. The company's top line was impacted by traffic declines and lower-than-expected sales of aftermarket domain. The company's shift from direct display advertising also impacted revenues.

Going forward, the company expects to increase its investments in LIVESTRONG and eHow content libraries that will negatively impact margins. Moreover, further decline in traffic in eHow and LIVESTRONG sites is expected to impact the company's results.

Nonetheless, the company's content solution business is expected to grow. Also, revenue addition from the Saatchi Art acquisition would help the company to lend support to its top line.

Earnings Whispers?

Our proven model does not conclusively show that Demand Media is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stands at a loss of 20 cents. Hence, the difference is 0.00%.

Zacks Rank: Demand Media's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are a few companies worth considering which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Best Buy Co., Inc. (BBY), with an Earnings ESP of +4.17% and a Zacks Rank #1 (Strong Buy).

Dean Foods Company (DF), with an Earnings ESP of +15.39% and a Zacks Rank #3.

Manchester United plc (MANU), with an Earnings ESP of +33.33% and a Zacks Rank #3.