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Activist investor slams Rightside over “garbage” new gTLDs, looking for blood

Kevin Murphy, March 1, 2016, 15:50:06 (UTC), Domain Registries

A hedge fund manager known for causing trouble at the companies he invests in has savaged Rightside, saying its focus on new gTLDs at the expense of its registrar business is ruining the company.

J Carlo Cannell of Cannell Capital is looking for some serious bloodletting.

He wants Rightside to cut 20% of its staff, close offices, unify its products under the eNom brand and replace two of its directors.

He’s threatening to wage a proxy war to replace the Rightside board if he doesn’t get what he wants.

He wrote a scathing letter to Rightside chair Dave Panos last month, which was published in a Securities and Exchange Commission filing today.

NAME’s registrar has become like a crazy aunt kept in the basement, one that you refuse to adequately clothe or feed, but who steadfastly spins straw into gold used to subsidize a stable of largely substandard new GTLDs such as .democrat, .dance, .army, .navy, and .airforce. Most of these new GTLDs are irrelevant and will never be sold in material volumes. NAME is holding back the growth potential of your registrar by pushing garbage extensions to a user base that quietly knows better.

NAME is Rightside’s Nasdaq ticker symbol.

Cannell revealed he owned a 7% share of Rightside last month — paying reportedly just shy of $11 million for 1,389,953 shares.

He wants Rightside to sell off “or even abandon” some of its weaker gTLDs, which “should not consume all the resources of our Company at the expense of the assets that are currently profitable”, while keeping “gems” such as .news.

His letter doesn’t pull any punches.

Cannell is perhaps best known for his widely publicized tussle with Jim Cramer, TV show host and co-founder of financial news site TheStreet.

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Comments (14)

  1. Hayden says:

    He has my proxy support, ceo needs to go

  2. BT says:

    Spot on letter. Honest. Hits where it hurts.

  3. I really admire and appreciate the (wholly correct, but most infrequent) use of the preposition ‘an’ in front of the word ‘hedge’.

    Or ‘edge as it is ‘istorically pronounced.

  4. Acro says:

    1. When did he acquire the 7% stake ? E.g. before/during/after the gTLD launch.

    2. Who are other major stakeholders that form the remaining 93% ?

    • Bankrupt says:

      Frank Schilling owns the other 93%, go figure! They should just Redirect Enom & Name.com to Uniregistry.com because they are such failures compared to what Uniregistry has accomplished in 0.000000001% of the time.

      Crazy Aunt in the Basement is a perfect analogy for Name.com! Name.com is the only dive in town to have a “Happy Hour” for pete sakes and they actually drink. There ain’t much happening @ Name.com these days except drinking and pushing worthless domains, support is an absolute joke! The website has hardly ever changed which makes NameCheap look like an Angel.

      If I had $11 Million tied up in this funny business, my wrath would be a whole lot greater than Cannell’s. Hell, you could have bought Porno.com with the money.

  5. Ryan says:

    @Acro

    F S
    Daniel Negari .xyz fame

    There have been specific mumblings on why the company is down specifically, might be a bigger reason

  6. M. Menius says:

    He got .news right. Obviously, one of the better investments.

  7. Luc says:

    So he publicly admits keeping a mentally deficient member of his family in his basement and leaving her starve in her nakedness and no one is shocked?

  8. Rubens Kuhl says:

    I think it’s too early game to define winning and losing strings. If a registry has a big hit going on, like .news, it’s possibly wiser to focus on it for now while the whole new TLDs tide is still in formation, and come back for laggards like the ones mentioned at a later date. If, one day, the .com automatism is no more, the same strings might have reasonable performance compared to the costs of running them (ICANN fees, back-end, compliance).

    And considering Donuts and Rightside have protected mark services, and those services get customer-perceived value for every TLD they block, each string contributes to that revenue line.

    • Ryan says:

      Let’s get real here, with Rightsides bankroll, all they had to do was just keep losing auctions all day, and this company could have banked some serious $$$, and assets.

      It is weird because F S, runs a competing company that does the same thing, GTLD extensions, and domain registrations, so it is kind of conflicting, as he wants his own company to really be #1, even though he has a stake in this company.

      A shakeup is needed, I hate great tech companies that have good products, and services, and overhead eats all the profits.

  9. Antony Van Couvering says:

    While it would be foolish to pour money into TLDs that aren’t (yet) working, it’s not quite so easy (or cheap) to “abandon” a TLD. You can’t just stop servicing it, you have a contract with ICANN. The obvious thing to do is to let the TLD do what it can without spending money on it, and pay the annual ICANN fee — that’s the cheapest solution. If a TLD is not performing, and especially if it’s being sold under (public) pressure, it will fetch a fire-sale price. Best to put it out in the back pasture and let it fend for itself.

    The TLDs named in this story are .dance, .democrat, .republican, .airforce, .army, and .navy. Together they account for approximately 8,800 registrations. I checked some prices at GoDaddy and they vary among the TLDs, but as registrars often typically double the wholesale price to get to a retail offering, a conservative back-of-the-envelope calculation is that Rightside is getting about $15 per registration.

    Therefore, roughly, Rightside is pulling in about $132,000 in revenue annually from these six TLDs (ignoring any premium name revenue). The annual cost in fixed fees to ICANN is $150,000, plus about $9000 ($1/name) in infrastructure (registry) costs. Do the math and Rightside is down about $27,000 a year to keep these TLDs on its roster. At some point soon the lines are likely to cross and Rightside will be at break-even or better. Compare and contrast to the cost of “abandoning” them (dealing with ICANN is not cheap) or even selling them, when they are unlikely to achieve much of a price.

    It’s perfectly possible that Rightside is spending foolish money trying to promote these TLDs. But stripped of that, they should just let them chug along. They will be a feeble contributor to the bottom line, but they will contribute, and they’ll be worth more in a sale of the portfolio than they will be in a piece-by-piece fire sale.

    Perspective is key – almost any TLD will likely cover its fixed costs in the long term, especially as infrastructure costs continue to fall. But an investor’s perspective is not always as long as the company’s.

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