Demand Media’s plans for an initial public offering are moving forward. The timing of the IPO, however, is being held up by looming questions about the company’s accounting practices, according to AllthingsD.com.
The big issue is whether Demand—which has a vast network of freelancers producing thousands of articles for the Web—is, or will be, profitable given its current costs and revenue projections. That’s not as simple a question as one might think.
Per AllthingsD.com, Demand is employing some atypical accounting practices when it comes to listing its expenses for content. In a new filing to the Securities and Exchange Commission, the company is making the argument that costs tied to producing its content should be spread out over five years, rather than be recognized in the year they were incurred.
The heart of the argument is that Demand believes its content lives longer than that of other publishers. Demand claims its articles, often of the “how to” variety, don’t go stale like news stories do.
If Demand is not permitted to account for its content costs in this extended time period, its profitability potential would be hindered, the company warned in its SEC filing, “changes from the five year useful life we currently use to amortize our capitalized content would have a significant impact on our financial statements.”