Can Demand Media (DMD) Surprise This Earnings Season?

Demand Media Inc. DMD is set to report fourth-quarter 2014 results on Mar 5. Last quarter, the company posted a positive earnings surprise of 20.0%. Let’s see how things are shaping up for this announcement.

Factors to Consider

Demand Media reported tepid third-quarter results, wherein revenues compared unfavorably on a year-over-year basis, primarily due to lower revenues from Content & Media.

Going forward, declining traffic and the company’s shift from direct display advertising to lower margin Marketplaces revenues are likely to negatively impact margins. Moreover, further decline in traffic in eHow and LIVESTRONG sites is expected to affect the company’s results.

Nonetheless, revenue addition from the Saatchi Art acquisition would support the company’s 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 67 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.

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:

Global Partners LP GLP, with an Earnings ESP of +75.00% and a Zacks Rank #2 (Buy).

H&R Block, Inc. HRB, with an Earnings ESP of +103.57% and a Zacks Rank #3.

Otonomy, Inc. OTIC, with an Earnings ESP of +1.54% and a Zacks Rank #3.

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