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Wagner takes dig at Verisign as GoDaddy reports $310 million domain revenue

Kevin Murphy, November 7, 2018, Domain Registrars

GoDaddy CEO Scott Wagner ducked a question about how the company will react to future .com price increases during its third-quarter earnings call yesterday, but used the opportunity to take a gentle swipe at Verisign.

Asked by an analyst whether the first 7% price increase, almost certainly coming in 2020, would have any effect on GoDaddy’s gross margins (ie, will they shrink as the company swallows increased costs, or swell as it increases its own prices above 7%), Wagner said:

the last time VeriSign took a price increase the industry passed that through to the end registrant.

.com and more importantly the software around bringing somebody’s .com to life is valuable and, modestly, we’re providing the value in that relationship around taking a domain name and actually turning it into something that somebody cares about.

I’m interpreting that as a pop at the idea that Verisign enjoys the fat registration margins while GoDaddy is the one that actually has to market domains, up-sell, innovate, deal with customers, and so on.

The remarks came just a few days after Verisign, in a blog post, branded GoDaddy and other secondary-market players “scalpers”, infuriating domainers.

Wagner was talking to analysts as the market-leading registrar reported revenue for Q3 of $679.5 million, up 16.7% year over year.

Revenue from domains, still the biggest of its three reporting business segments, was $309.5 million, up 14.0% compared to the year-ago quarter. GoDaddy now has 18 million customers and over 77 million domains under management.

Overall net income was down to $13.2 million from $22.4 million, as operating expenses rose over 16% to hit $642 million, after the company invested more in marketing, development and so on. Its operating income was $37.5 million.

Contrast this with Verisign’s performance for the same quarter, reported two weeks ago.

It saw revenue about the same as GoDaddy’s domains revenue — $306 million — but net income of $138 million and operating income of $195 million.

GoDaddy and Verisign could find themselves competing before long. As part of its deal with the US government to allow it to raise .com wholesale prices once more, the government also lifted its objection to Verisign becoming a registrar, just as long as it does not deal in .com names.

MMX waving goodbye to .london? Boss puts focus on renewal profits, China

Kevin Murphy, September 26, 2018, Domain Registries

MMX’s revenue from domain renewals could cover all of its expenses within the next 24 months, if everything goes to plan, according to CEO Toby Hall.

Hall was speaking to DI this evening after the company reported its first-half financial results, which saw revenue up 22% to $6.4 million and a net loss of $14.7 million, which compared to a loss of $526,000 a year earlier.

MMX’s huge loss for the period was largely — to the tune of $11.8 million — attributable to the restructuring of an “onerous” contract with one of its gTLD partners.

Hall refuses point blank to name that partner, but for reasons I discussed last year, I believe it is .london sponsor London & Partners, which is affiliated with the office of the Mayor of London.

When L&P selected MMX to be its registry partner for .london back in 2012, I understand a key reason was MMX’s promise to pay L&P a fixed annual fee and commit to a certain amount of marketing spend.

But two years ago, after it became clear that .london sales were coming in waaaay below previous management’s expectations, MMX renegotiated the deal.

Under the new deal, instead of committing to spend $10.8 million on marketing the TLD itself, MMX agreed to give half that amount to L&P for L&P to do its own marketing.

It appears that L&P has already spunked much of that cash ineffectively, or, as MMX put it:

a significant portion of that marketing budget has been spent by the partner with minimal impact on revenues in the current year and no expectation of any material uplift in future periods

MMX seems to have basically written off the .london deal as a bad call, and now that MMX is no longer in the registry back-end or registrar businesses, it seems unlikely that the .london partnership will be extended when it expires in three years.

Again, Hall would not confirm this bad contract was for .london — I’m making an informed guess — but the alternatives are limited. The only other TLDs MMX runs in partnership currently are .review and .country, and not even 2012 MMX management would have bet the farm on those turkeys.

Another $2.1 million of the company’s H1 net loss is for “bad debt provisions” relating the possibility that certain US-based registrar partners may not pay their dues, but this provision is apparently related to a new accounting standard rather than known deadbeats threatening to withhold payments.

If you throw aside all of this accountancy and look at the “operating EBITDA” line, profit was up 176% to $661,000 compared to H1 2017.

While the loss may have cast a cloud over the first half, Hall is upbeat about MMX’s prospects, and it’s all about the renewals.

“Renewal revenue will be more than all the costs of business within 24 months,” he said. To get there, it needs to cross the $12 million mark.

He told DI tonight that “an increasing percentage of our business is based on renewals… just on renewal revenue alone we’ll be over $10 million this year”.

Renewal revenue was $4.7 million in 2017 and $2.4 million in 2016, he said. In the first half, it was was up 40% to $3.4 million.

MMX’s acquisition of porn domain specialist ICM Registry, which has renewal fees of over $60 per year, will certainly help the company towards its 2018 goal in the second half. ICM only contributed two weeks of revenue — $250,000 — in H1.

Remarkably, and somewhat counter-intuitively, the company is also seeing renewal strength in China.

Its .vip gTLD, which sells almost exclusively in China, saw extremely respectable renewals of 76% in the first half, which runs against the conventional wisdom that China is a volatile market

Hall said that .vip renewals run in the $5 to $10 range, so apparently TLD volume is not being propped up by cheap wholesale renewal fees. The TLD accounts for about 30% of MMX’s renewal revenue, Hall said.

About 60% of .vip’s domains under management are with Chinese registrar Alibaba. The biggest non-Chinese registrar is GoDaddy, with about 3% of the namespace.

More exposure to China, and specifically Alibaba, is expected to come soon due to MMX’s repurposing of the 2012-logic gTLD .luxe, which is being integrated into the Ethereum blockchain.

MMX said last week that some six million (mostly Chinese) users of the imToken Ethereum wallet will in November get the ability to register .luxe domains via imToken and easily integrate them with their Ethereum assets.

The announcement was made at the Alibaba Cloud Computing Conference in China last week, so you can probably guess imToken’s registrar of choice.

MMX rejected three takeover bids before buying .xxx

MMX talked to three other domain name companies about potentially selling itself before deciding instead to go on the offensive, picking up ICM Registry for about $41 million.

The company came out of a year-long strategic review on Friday with the shock news that it had agreed to buy the .xxx, .adult, .porn and .sex registry, for $10 million cash and about $31 million in stock.

CEO Toby Hall told DI today that informal talks about MMX being sold or merged via reverse takeover had gone on with numerous companies over the last 11 months, but that they only proceeded to formal negotiations in three cases.

Hall said he’d been chatting to ICM president and majority owner Stuart Lawley about a possible combination for over two years.

ICM itself talked to four potential buyers before going with MMX’s offer, according to ICM.

Lawley, who’s quitting the company, will become MMX’s largest shareholder following the deal, with about 15% of the company’s shares. Five other senior managers, as well as ICM investor and back-end provider Afilias, will also get stock.

Combined, ICM-related entities will own roughly a quarter of MMX after the deal closes, Hall said.

ICM, with its high-price domains and pre-2012 early-mover advantage, is the much more profitable company.

It had sales of $7.3 million and net income of $3.5 million in 2017, on approximately 100,000 registrations.

Compared to MMX, that’s about the same amount of profit on about half the revenue. It just reported 2017 profit of $3.8 million on revenue of $14.3 million.

There’s doesn’t seem to be much need or desire to start swinging the cost-cutting axe at ICM, in other words. Jobs appear safe.

“This isn’t a business in any way that is in need of restructuring,” Hall said.

He added that he has no plans to ditch Afilias as back-end registry provider for the four gTLDs. MMX’s default back-end for the years since it ditched its self-hosted infrastructure has been Nominet.

The deal reduces MMX’s exposure to the volatile Chinese market, where its .vip TLD has proved popular, accounting for over half of the registry’s domains under management.

It also gives MMX ownership of ICM’s potentially lucrative portfolio of reserved premium names.

There are over 9,700 of these, with a combined buy-now price of just shy of $135 million.

I asked Hall whether he had any plans to get these names sold. He laughed, said “the answer is yes”, and declined to elaborate.

ICM currently has a sales staff of three people, he said.

“It’s a small team, but their track record is exceptional,” he said.

The company’s record, I believe, is sex.xxx, which sold for $3 million. It has many six-figure sales on record. Premiums renew at standard reg fee, around $60.

With the ICM deal, MMX has recast itself after a year of uncertainty as an acquirer rather than an acquisition target.

While many observers — including yours truly — had assumed a sale or merger were on the cards, MMX has gone the other route instead.

It’s secured a $3 million line of credit from its current largest shareholder, London and Capital Asset Management Ltd, “to support future innovation and acquisition orientated activity”.

That’s not a hell of a lot of money to run around snapping up rival gTLDs, but Hall said that it showed that investors are supportive of MMX’s new strategy.

So does this mean MMX is going to start devouring failing gTLDs for peanuts? Not necessarily, but Hall wouldn’t rule anything out.

“Our long-term strategy is ultimately based around being an annuity-based business,” he said. He’s looking at companies with a “strong recurring revenue model”.

About 78% of ICM’s revenue last year came from domain renewals. The remainder was premium sales. For MMX, renewal revenue doubled to $4.8 million in 2017, but that’s still only a third of its overall revenue (though MMX is of course a less-mature business).

So while Hall refused to rule out looking at buying up “struggling” gTLDs, I get the impression he’s not particularly interested in taking risks on unproven strings.

“You can never say never to any opportunity,” he said. “If we come across and asset and for whatever reason we believe we can monetize it, it could become an acquisition target.”

The acquisition is dependent on ICANN approving the handover of registry contracts, something that doesn’t usually present a problem in this kind of M&A.

MMX could announce acquisition this week

New gTLD registry MMX could announce plans to be acquired as early as this week.

The company told the markets last week that its delayed 2017 financial results would be announced in “early May”, along with the “conclusion of the strategic review” it has been teasing investors about for almost a year.

The “strategic review”, announced last May, is exploring “how MMX can participate in a broader industry consolidation” including acquisition or merger.

MMX said last week that “constructive discussions continue to progress”.

It has previously described the duration of the negotiations, initially slated to close last September, as “frustrating”.

Unlike AIM-listed rival CentralNic, which has confirmed it is in reverse-takeover talks with KeyDrive, MMX has not revealed which potential buyer(s) it has been talking to.

MMX, also listed on AIM, has a market cap of £69.3 million ($94.3 million) today.

In January, it informally reported that its 2017 billings are expected to be around the $15.6 million mark, allowing the company to hit operating profitability for the first time.

The company runs 25 new gTLDs solo and five more in partnerships with other companies, but by far and a way the best volume performer is .vip, which accounts for well over half of its registrations largely due to its resonance in China.

.com adds 5.5 million names, renewals back over 70%

Kevin Murphy, April 30, 2018, Domain Registries

Verisign reported first-quarter financial results that reflected a healthier .com namespace following the spike caused by Chinese speculation in 2016.

The company Friday reported that .com was up to 133.9 million domains at the end of March, an increase of 5.5 million over the year.

The strong showing was tempered slightly by a further decline in .net, where domains were down from 15.2 million to 14.4 million.

Over the quarter, there was a net increase of 1.9 million names across both TLDs and the renewal rate was an estimated 74.9%, a pretty damn good showing.

Actual renewals for Q4, measurable only after Verisign announced its earnings, were confirmed at 72.5%, compared to a worryingly low 67.6% in Q4 2016.

In a call with analysts, CEO James Bidzos confirmed that the turnaround was due to the surge in Chinese domainer speculation that drove numbers in 2016 finally working its way out of the system.

In Q1, the cash-printing company saw net income of $134 million, compared to $116 million a year earlier, on revenue up 3.7% at $299 million.

Bidzos told analysts that it’s “possible” that the company may get to launch .web in 2018, but said Verisign has not baked any impact from the contested gTLD into its forecasts.

MMX profitable as acquisition talks drag on

Kevin Murphy, January 29, 2018, Domain Registries

New gTLD registry Minds + Machines became profitable as an operating company for the first time in 2017, the company announced on Friday.

MMX saw billings of $10 million in the second half of the year, compared to $5.6 million in the first half, as domains under management grew 67% to 1.32 million.

Billings is a measure of sales, rather than the more formal measure of revenue for accounting purposes.

Renewals accounted for $5.6 million of billings in the year, which “for the first-time has exceeded fixed operating costs which have been reduced to below $5.5 million for 2017”.

The company’s bottom line will also boosted by $2.1 million due to MMX losing the .inc and .llc new gTLD auctions.

MMX also provided an update on its “strategic review”, a code word for the “acquisition by or sale/merger of the Company” that it announced last May.

The company said “the longevity of the discussions has been at times frustrating” but that it hopes to have something to announce by the time it reports its formal 2017 results in April.

MMX had originally hoped to have concluded these talks before last September.

Radix says it’s profitable after making $12 million this year

Kevin Murphy, December 13, 2017, Domain Registries

New gTLD stable Radix said today that it expects to top $12 million in revenue this year.

The company also told DI that it is currently profitable.

Radix, which counts the likes of .site and .store among its portfolio of nine active gTLDs, said revenue so far for the calendar year has been tallied at $11.7 million.

The company said that more than half of revenue came from “non-premium domain renewals”, an important metric when considering the long-term health of a domain business.

Recurring revenue of non-premiums was almost twice as much as new registrations, Radix said. Only $1.76 million of revenue came from premium sales (14%) and renewals (86%).

The US accounted for just under half of revenue, with Germany at 14.4% and China, where .site was fully active for the whole year and four other TLDs were approved in October, coming in at 7.7%.

Radix is a private company, part of the Directi Group, and has not previously disclosed its financials.

Assuming apples-to-apples comparisons are valid (which may not be the case), its figures compare favorably to public competitors such as MMX, which expects to report 2017 in the same ball-park despite having more than twice as many gTLDs under management.

MMX revenue slips despite domain growth

Kevin Murphy, September 26, 2017, Domain Registries

MMX today posted a smaller loss for the first half of the year, despite managing to grow domains under management and hit some important financial milestones.

The new gTLD registry formerly known as Mind + Machines, which announced a few months ago that it’s looking to be acquired, reported an H1 loss of $526,000 compared to a loss of $1.9 million a year earlier.

Revenue and billings were both down due to the lack of any big launches in the period; H1 2016 had benefited from the strong launch of .vip in China.

Revenue, which is recognized over the duration of the domain registrations, was $5.3 million compared to $7.4 million in 2016. Billings, a measure of cash sales, were $5.6 million compared to $8.1 million.

Despite these dips, MMX is happy enough that the “quality” of its revenue is getting better.

The company said that revenue from domain renewals more than doubled to $2.4 million and represented 45% of revenue. A year ago, it was 15%.

As another measure of the health of its business, it also said that its renewal billings was greater than its operating expenditure for the first time, after cost-cutting.

Domains under management went into seven figures for the first time, to 1.1 million. That was up from 821,000 at the start of the year.

It processed 318,000 new registrations in the six months, compared to 452,000 a year earlier (when .vip’s launch provided a boost).

CentralNic extends XYZ deal until 2032

Kevin Murphy, September 7, 2017, Domain Registries

CentralNic and XYZ.com have extended their registry services pact for the next fifteen years, according to CentralNic.

Announcing its first-half 2017 financial results today, CentralNic said the back-end contract has been extended until 2032.

It’s an unusually long duration for a registry services contract, which are usually much more likely to run about five years.

It even lasts 10 years beyond the expiration of XYZ.com’s own ICANN contracts (though renewal of these is a near-certainty).

The deal covers all .xyz domains, as well as all of the other TLDs in XYZ.com’s portfolio. That currently includes the likes of .rent, .storage and .college.

CentralNic said it “will receive a fixed fee based on the volume of .xyz registrations and subscriptions managed” under the new deal.

In a statement to the markets, CEO Ben Crawford said the relationship “has been updated to normalise the Company’s revenues and profits going forward.”

I believe the previous contract contained a per-domain component, which exposed CentralNic’s revenue to .xyz’s erratic pricing-influenced growth trajectory.

.xyz’s zone file has shrunk by a whopping four million domains since this time last year, causing it to lose the crown of highest-volume new gTLD, due to it offering free or almost free domains that expired without renewing after a year.

However, CentralNic disclosed that the proportion of its own wholesale transaction volumes that were renewals (rather than adds and transfers, I assume) was 18% in the first half, up from 2% in the same 2016 period.

For the six months ended June 30, the company had overall revenue of £10.6 million ($13.9 million), up 18.5% year over year.

Its net loss after tax was £619,000 ($810,000), down from £1.3 million. At the EBITDA level, profit was £1.4 million ($1.8 million) compared to $900,000 in H1 2016.

While I still stubbornly think of CentralNic as primarily a registry play, in fact the company now gets about three quarters of its revenue today from its retail registrar division, which contributed just shy of £8 million to the total in H1.

Instra, the Australian registrar it acquired at the end of 2015, contributed £5.83 million.

The wholesale division, registry back-end services — contributed £1.82 million to revenue and £450,000 to EBITDA in the half.

That’s despite CentralNic being the back-end for six of the top 20 new gTLDs by volume — .website, .space, .tech, .site, .online, and .xyz

If we tally up the number of domains in only those six TLDs, we get to about 4.2 million, per their zone files.

The company’s third reporting unit, Enterprise, contributed £800,000 ($1 million) in the half, of which £360,000 ($471,000) came from premium domain sales.

Endurance losing founder-CEO next week

Kevin Murphy, August 16, 2017, Domain Registrars

Endurance International, the parent company of registrar brands including Public Domain Registry, BuyDomains, Domain.com and BigRock, will see its founding CEO resign next week.

The company said this week that Hari Ravichandran will be replaced by Jeff Fox, most recently chair of customer relationship management software vendor Convergys, on August 22.

Endurance, which makes about 12% of its revenue from domain registrations, had disclosed Ravichandran’s plan to move on back in April, when it was characterized as an effort to move the company to the next stage of growth.

But it comes in the context, as the company has acknowledged, of an ongoing Securities and Exchange Commission investigation into its 2015 acquisition of Constant Contact.

The SEC probe has been going on since at least December 2015.

Endurance is also facing flattening top-line growth — revenue of $292.3 million, up 1% on last year, in the second quarter — and deepening losses.

Fox was CEO of Convergys from 2010 to 2012. He is also principal of The Circumference Group, his own investment/advisory firm.