M+M turns $22m profit into $10m loss

Minds + Machines today reported a 2015 loss of $10 million and further outlined its “transformative” restructuring and China strategy.
It’s the second full year of operating results M+M has posted since its first new gTLDs went live, and they’re not encouraging.
Revenue for accounting purposes was $6.3 million, but the cost of sales was $6.2 million, leaving gross profit of just $101,000.
Factoring in $12.1 million of operating expenses, a $7.9 million gain from losing new gTLD auctions, and other expenses, the total loss before tax was $10 million.
That’s compared to the $22 million profit M+M reported for 2014, a number entirely reliant on $33.7 million of auction loss payments.
The company also reported its “billings”, a line item that does not use the accounting method of deferring revenue across the life of a domain and is therefore more in line with incoming cash.
Billings for 2015 were $7.9 million, compared to $5 million in 2014. Gross profit under that measure was $1.7 million, but the $12 million of operating costs still made the company very unprofitable.
Ignoring the auction benefits in 2015, which will not last forever, it’s pretty clear that M+M was a company spending much more operating new gTLDs than it was making from them.
COO/CFO Michael Salazar said in a statement:

However, billings of $7.9 million for the year were simply not of a sufficient scale to cover the associated cost of sales ($6.2 million) and operating expenses ($12.2 million), which combined reached $18.4 million for 2015. Similarly, the $0.6 million savings achieved in the period by the decisions mid-year to stream-line the existing operational set-up were not of a magnitude to have any material impact in the year under review. That said, forfeited cost of sales and operational expenses as a result of the 2015 cost-cutting decisions will amount to $2.7 million in 2016

It’s perhaps little wonder that activist shareholders, apparently not prepared to play the long game, threw out half of the board and key senior executives during the period.
Former PR man Toby Hall took over as CEO in February, replacing co-founder Anthony Van Couvering, and announced earlier this month that M+M is dumping its registrar and back-end registry businesses.
Its registrar customers have been sold to Uniregistry, and it will outsource its registry back-end to Nominet, to save costs.
Salazar said that the two deals will lead to $2 million in savings, but won’t be complete before the fourth quarter. It seems unlikely they’ll have a great impact on 2016 numbers.
Headcount has been reduced from a peak of 61 to 43 at the end of the year, and is expected to drop further to 25. Salazar said this will save it $4.7 million a year.
Even with these cost reductions, M+M will still need to essentially double its revenue in order to hit operating profitability, it seems.
The company is pinning some of its growth hopes on .vip, which it expects to do well in China. It launches May 18.
Hall said in a statement that M+M would not follow the lead of competitors (Famous Four Media springs to mind) by offering first-year registrations for free to build market share. He said:

Based on the enquiries received during Sunrise and feedback gained through our two recent marketing trips to China, it is clear that there is genuine interest in the domain both within and outside of China. As a result, we will not be using a year-one freemium approach to simply inflate year-one registrations. Instead, we intend to be keenly priced to ensure margin to ourselves — and registrations — as well as protect the integrity of the domain. The volume we anticipate to be generated through keen pricing will then support the sales of our premium names in this domain.

The company also plans to invest in its .law sales team, because billings for that gTLD have been behind expectations.
M+M had $34.6 million in the bank and eight outstanding contested new gTLD applications at the end of the year.

Windfalls still biggest money-spinner for M+M

Minds + Machines is still pulling in most of its cash from one-time new gTLD auction defeats, according to its latest trading update.
The company yesterday reported billings for 2015 of $7.92 million, up from $5.03 million in 2013.
But the company brought in $9.15 million by pulling out of private new gTLD auctions, where the winning bid is shared among the losers. That’s down from $37.5 million in 2014.
“Billings” is the money make at the point of sale, rather than audited revenue which is recognized over the life of the registration. Revenue numbers will come in April.
For the fourth quarter, sales of both premium and standard-fee names were up.
Premium names were up 215% at $1.52 million, which standard name billings were up 184% at $2.66 million.
The company said its registry business ended the year with 278,523 names under management, a 158% increase on year-ago numbers.
M+M met or beat its “key performance indicator” targets in terms of average revenue per name (both standard and premium) and sales growth.
However, the Chinese market boom caused it to miss its market share KPI.
It blamed missing the low end of its 3% to 5% new gTLD market share target by half a percentage point on the rapid growth of China.
The money being pumped into domain names from China in the second half of last year tends to favor the budget end of the new gTLD market, where names can be picked up for cents, whereas M+M’s TLD mix is skewed a little higher.
M+M said last week that it plans to open an office in China soon.

Endurance splashes out $1.1 billion on Constant Contact

Endurance International is to acquire email marketing company Constant Contact for $1.1 billion.
The $32-a-share cash offer, a 23% premium on Constant Contact’s Friday closing price, has been approved by both boards.
Endurance counts registrars BigRock, Domain.com and ResellerClub among its portfolio of brands, which also includes hosting companies HostGator and BlueHost.
The company said the deal will push its annual revenue to over $1 billion for the first time.
Endurance has acquired over 40 companies in its history, according to CEO Havi Ravichandran, who described M&A activity as a “core competency”.
The deal, which is subject to regulatory and shareholder approval, will be funded with debt.
The company today reported a third-quarter loss of $15.4 million, about double its year-ago loss, on revenue that was up 18% to $188.5 million.

Credit card hack cost Web.com millions

Web.com is taking a $1 million per-quarter hit to its revenue as a result of August’s hacking attack.
It also incurred $400,000 in consulting, legal and credit monitoring fees in the third quarter as a result of the breach, CEO David Brown told analysts last night.
Some 93,000 credit card numbers were stolen during the attack, a small portion of its 3.3 million customers.
A number of customers jumped ship as a result of the attack, moving their domains elsewhere, which increased Web.com’s churn rate.
“Due to the subscription nature of our business, in the fourth and subsequent quarters we expect the breach will have about a $1 million negative impact on revenue per quarter due to the shortfall from Q3,” Brown said.
It added 15,000 customers in the quarter, lower than the 21,000 it added in Q2.
Net income for the quarter was $6.1 million, reversing a $3.4 million loss in the year-ago period, on revenue that was basically flat at $136.8 million, compared to $137.4 million a year ago.
In response to an analyst question, Brown also commented on the success, or lack thereof, of the company’s new gTLD business. He said:

That continues to be positive, but we’re not doing back-flips here. It’s not that positive. We think it’s good for the market, good for consumers and businesses to have more choices. But they’re not flying off the table. .com and .net and the original extensions still are the force in the marketplace. But as we see more gTLDs and as the market understands them and see the opportunity, we continue to believe that this will be a positive trend. But at this point, it’s not moving the needle in our business or likely in anyone’s business.

Web.com owns registrars including Network Solutions and Register.com.

M+M lays off dozens in focus on S&M, promises profit next year

Minds + Machines has outlined its plan to refocus its business on sales and marketing, which has already resulted in a couple dozen job losses, as the latest stage of its profit runway.
The new gTLD company also outlined plans to return about half of its cash reserves — mostly obtained by losing new gTLD auctions — to its shareholders.
For the first half of the year, the London-listed company reported an EBITDA loss of $1.2 million, compared to income of $5.7 million a year earlier, on revenue that was up to $3.6 million from $113,000 in the comparable 2014 period.
The company said it is “committed to achieving its stated goal of crossing over into profitability in 2016” and blamed high operating costs for the loss, but said it has been restructuring to help it return to profit.
M+M said its headcount has been reduced from 58 to 44, but that it has added ten jobs in sales and marketing, which seems to indicate at least 24 people recently lost their jobs.
The bottom line was also affected by the fact that most of the company’s cashflow to date has been generated by auction losses, and there were more of those last year than this.
The company hit three of its six “key performance indicator” targets — domains under management market share, premium sales growth and standard sales growth — but fell short of the other three.
Average revenue per name for premiums was $184 versus a $200-$225 target, and average revenue per standard name was down from $28 to $10, largely due to a deep discount promotion for .work domains. Higher prices for soon-to-launch .law could increase the average, M+M said.
The company also announced that it will spent £15 million ($23.1 million) of its cash reserves on a share buyback.
That’s almost half of the $48.3 million is has in the bank. This time last year, M+M’s share price peaked at 12p; it’s currently at 8.55p.
The price saw a spike in May, shortly before then-chairman Fred Krueger was asked to resign by the board. Krueger has since sold off the majority of his substantial shareholding, despite explicitly saying that he would not.

Retail sales see CentralNic over double revenue

CentralNic saw a huge 171% increase in revenue and a tripling of billings in the first half of the year, based on its newly acquired retail business and the sale of premium names.
For the six months to the end of June, the London-based firm saw revenue of £4.4 million ($6.8 million) compared to £1.6 million ($2.5 million) a year earlier.
It moved into profit during the period, netting £287,000 ($442,000) after tax compared to a loss of £599,000 in the 2014 period.
CentralNic broke down its numbers into segments, showing that its new business areas were responsible for most of the growth, while the core registry business was relatively slow.
Registry was up 13% to £1.6 million ($2.5 million).
The new registrar business, which is lead by its $7.5 million Internet.bs acquisition, leaped from £180,000 to £1.8 million (£2.8 million), while its premium name sales business was £1.1 million compared to a negligible £50,000 a year earlier.
The company noted in a statement that Google was the first “megabrand” to use a .xyz domain name and expressed optimism that this may increase awareness of new gTLDs in future.
CentralNic is the second-largest new gTLD back-end, as measured by registration volume, largely due to its .xyz contract.
It also acts as back-end for .online, which left the blocks very quickly earlier this month, racking up over 57,000 names so far.

New gTLDs steal $5 million from Web.com’s top line

Top registrar Web.com is seeing disappointing revenue from its domain business due to new gTLDs.
The “increased availability” of names has taken a chunk out of the company’s premium domain sales, CEO David Brown told analysts on the company’s third-quarter earnings call yesterday.

While we continue to expect the recently expanded top-level domain environment to increase our ability to sell domains over the medium to long term, the increased availability of names has had a near-term negative impact on domain-related revenue. This is primarily associated with non-core domain-related revenue such as sales of premium domain names and bulk domain sales.

As a result, the company has reduced its full-year 2014 revenue guidance from between $576 million and $579 million to between $566.7 million and $568.7 million
The company blamed about half of the reduction — about $5 million — on softness in its domain name business.
Brown explained that the new gTLD environment has seen domain investors exercise much more caution when it comes to buying premium names and buying names in bulk:

We’ve seen that market get soft…. The reason the softness is occurring is that this marketplace is looking at all of these new gTLDs coming into place, there are more options available for people and they’re kind of stepping back away, at least temporarily, to see how things settle out.

He said the company expects the market to come back after the uncertainty has passed.
Web.com yesterday reported third-quarter net income of $33.9 million, up from $29.3 million a year ago, on revenue that was up to $137.4 million from $125.2 million in 2013.
The company, which owns brands including Register.com and Network Solutions, announced a $100 million share repurchase at the same time, to prop up the inevitable hit its stock was to take.
Its shares are trading down 25% at time of publication.