Tucows yesterday reported an 11% increase in revenue for 2016, driven partly by an acquisition, but warned that its more recent acquisition, eNom, may be shrinking.
The company reported revenue for 2016 of $189.8 million, up from $171 million in 2015. Net income was up 41% at $16 million.
For the fourth quarter, revenue was up 9% year-on-year at $48.8 million. Net income was down 9% at $2.8 million.
In a conference call, executives linked some of the growth to the April 2016 acquisition of Melbourne IT’s reseller business, which added 1.6 million domains to Tucows’ DUM.
While Tucows also operates its Ting mobile phone service, the majority of its revenue still comes from domains and related services.
In the fourth quarter, revenue was $30 million for this segment. Of that, $23.1 million came from domains sold via its wholesale network and $3.8 million came from Hover, its retail channel.
CEO Elliot Noss noted that the acquisition of the eNom wholesale registrar business from Rightside last month made Tucows easily the second-largest registrar after GoDaddy, but made eNom sound like a neglected business.
“The eNom business is a flat, potentially even slightly negative-growth business in terms of gross margin dollars,” he told analysts.
eNom’s channel skews more towards European and North American web hosting companies, which are a growth challenge, he said. He added:
We acquired a mature retail business and associated customers which for the past few years has been more about maintaining and servicing eNom’s existing customers as opposed to growth. It has not been actively promoted and as a result has a flat to declining trajectory. It’s something we don’t intend to change in the short-term, but as we look under the hood and get a better sense of the platform as we will with all of the operations, the long-term plan might be different.
The acquisition was “overwhelmingly about generating scale and realizing cost efficiencies”, Noss said.
Tucows paid $83.5 million for eNom, which has about $155 million in annual revenue and is expected to generate about $20 million in EBITDA per year after efficiencies are realized.
ICANN lifer Becky Burr is to replace Bruce Tonkin on the ICANN board of directors when his term expires in November.
She’ll take the seat reserved for the Contracted Parties House of the Generic Names Supporting Organization, following a vote by registries and registrars a few weeks ago.
Tonkin, CTO of Aussie registrar Melbourne IT, has held the seat for the last nine years. He’s limited to three consecutive three-year terms under ICANN bylaws.
Burr, a lawyer by trade, is currently chief privacy officer at TLD registry Neustar, a position she has held since 2012.
Before that, she was a partner at the law firm Wilmer Hale.
But way back in 1998, in a senior role at the US National Telecommunications and Information Administration, she was one of the key people responsible for ICANN’s creation under the Clinton administration.
Canadian registrar Tucows has acquired the reseller network of Australian rival Melbourne IT for up to $6.5 million.
The company said the deal will “add hundreds of resellers and approximately 1.6 million domains under management to Tucows’ OpenSRS wholesale domain business.”
Melbourne IT said that the low-margin business was a “drag” on the performance of its core business as a retail registrar focused on small and medium sized businesses.
The price, the Aussie company said, will be between AUD 8.1 million and AUD 8.5 million, depending on exchange rates. That’s as much as $6.5 million.
Tucows did not disclose the price, saying it was “immaterial”.
DomainsBot, which powers the name suggestion feature on most major registrar storefronts, has unveiled a significant update designed to make selling new gTLD domains easier.
The company reckons its new technology will soon be promoted from a follow-up sales tool, rolled out if a customer’s first choice of domain is not available, to “replacing the availability check” entirely.
“The idea is to be at the heart of the process of promoting new gTLDs,” CEO Emiliano Pasqualetti told DI.
The idea is pretty straightforward: a customer types a word into a search box, the service suggests available domain names with conceptually similar TLDs.
While it may not be perfect today, it was pretty good at finding appropriate TLDs for the keywords I tested.
And Pasqualetti said that under the hood is a machine learning engine that will make its suggestions increasingly more relevant as new gTLD domains start to go on sale.
“It tries to predict which TLD we need to show to each individual using a combination of their query, their IP address and as much history as we can legally collect in partnership with registrars,” Pasqualetti said.
If, for example, customers based in London show a tendency to buy lots of .london domains but hardly ever .rome, Londoners will start to see .london feature prominently on their registrar’s home page.
“We learn from each registrar what people search for and what people end up buying,” he said.
Some registrars may start using the software in their pre-registration portals, increasing relevance before anything actually goes on sale, he said.
My feeling is that this technology could play a big role in which new gTLDs live or die, depending on how it is implemented and by which registrars.
Today, DomainsBot powers the suggestion engine for the likes of Go Daddy, eNom, Tucows and Moniker. Pasqualetti reckons about 10% of all the domains being sold are sold via its suggestions.
Judging by today’s press release, registrars are already starting to implement the new API. Melbourne IT, Tucows and eNom are all quoted, but Pasqualetti declined to specify precisely how they will use the service.
It’s been widely speculated that Go Daddy plans to deploy an automated “pay for placement” system — think AdSense for domains — to determine which TLDs get prominence on its storefront.
Pasqualetti said that’s the complete opposite of what DomainsBot is offering.
“We’re relevance for placement,” he said. “We want to give every TLD a chance to thrive, as long as they’re relevant for the end user.”
According to Pasqualetti (and most other people I’ve been talking to recently) there are a lot of new gTLD applicants still struggling to figure out how to market their TLDs via registrars.
There are about 550 “commercially interesting” applied-for gTLD strings in the DomainsBot system right now, he said. New gTLD applicants may want to make sure they’re one of them.
Next week, the company will reveal more details about how it plans to work with new gTLD registries specifically.
Corporation Service Company has acquired Melbourne IT’s flagship digital brand management service for a ridiculously expensive AUD 152.5 million ($157m).
The shock news takes Melbourne out of the high-margin defensive registration and brand monitoring market, leaving it as a basic domain registrar focused on small businesses.
For CSC, the deal leaves it with a considerably strengthened hand in the DBS space, which is poised to benefit from the massive influx of new gTLDs over the next few years.
It also means that all of the over 100 new gTLD applications Melbourne was supporting as a consultant will now be managed by CSC.
The price of AUD 152.5 million is far more than Melbourne IT could have hoped to ask for, equal to almost its entire market capitalization of AUD 160 million.
Melbourne has had a rocky time on the markets of late, and had previously disclosed that it was looking to sell off some units in order to appease shareholders and rationalize its business.
But DBS was considered a core business, bigger now than Melbourne’s regular domains business, and likely not for sale. CSC’s high-premium offer was too good, it seems, to be responsibly refused.
“While this was not a business that we had specifically earmarked for sale, given the value creation provided by the transaction, this was an opportunity which could not be ignored,” CEO Theo Hnarakis, said in a statement.
The deal follows the sale of MarkMonitor, a key Melbourne competitor, to Thomson Reuters last July. When it comes to brand protection in the domain name space, it’s a big boy’s game nowadays.
Melbourne will remain a domain registrar with over four million names under management.
The DBS business was formed in 2008, largely as a result of Melbourne’s purchase of Verisign’s brand services division for $50 million.