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Demand Media revenue growth slows on changes at Google

By Jennifer Saba

(Reuters) - Demand Media , the online content company that operates websites such as eHow and Cracked, said on Wednesday its total year-on-year revenue growth slowed to 9 percent in the second quarter to $101.1 million because of changes in the Google search engine.

During the first quarter revenue rose 17 percent.

In recent years, Demand Media has been hurt when Google adjusts its search algorithm to keep in check the quality of content that surfaces in its search results. Demand relies on high search results for its content which helps bring in advertising revenue.

Advertising revenue is tied to traffic. When more people that click on a site, Demand can charge advertisers more money. Some 36 percent of Demand's revenue comes from Google traffic referrals.

"We are dramatically improving our websites and diversifying," said Demand Media CFO Mel Tang.

"There is no silver bullet," he said.

Adjusted net income for the second quarter rose to $8.8 million, or 10 cents per share from $7.8 million, or 9 cents per share in the same quarter last year.

For the third quarter, Demand estimates that revenue will be in the range of $99 million to $101 million.

In June, the company warned that Google's changes would hurt results and it lowered it second-quarter revenue forecast.

Still, Demand is attempting to reduce its reliance on traffic and advertising and has branched out into ecommerce and subscriptions.

It made two acquisitions this year, e-commerce marketplace Society6 and video subscription craft site Creativebug.

Demand also owns a registrar business that maintains top level generic web domain names like ".actor" and ".social" that it plans to spin off early next year.

(Reporting by Jennifer Saba in New York; Editing by David Gregorio)

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