Tucows - Business Prospects For Domain Registrars

Business Prospects For Domain Registrars

On February 17, 2008 "Seeking Alpha" published an article by Alistair Croll critiquing the business models of domain registrars and asserting that despite the huge growth in internet sites, domain registrars like GoDaddy, Network Solutions, and Tucows face hard times. "Two of the major sources of revenue for these companies are premium domains and hosted services. And both are under attack," said Croll. "ICANN wants to end domain tasting. Google’s eating away at hosting margins," Croll added. "Some — like Tucows, wholesaler eNom, and Go Daddy’s Wild West Domains wholesale business — are better positioned to weather the storm by focusing on resellers and local ISPs."

Croll was not entirely negative and highlighted some areas that could be profitable with opportunities for growth. "There’s still money to be made from premium domains," said Croll. "Tucows, for example, has a name auction service that sells expired names to the highest bidder. These previously active names have a known traffic history, so when they expire it’s easy to know whether they’ll generate money without tasting."

On February 20, 2008 Tom Millitzer wrote on WHIR that Tucows has almost $80 million in liabilities on its books and it would take almost 10 years to pay it back at the current EBITDA, not including interest. Millitzer says that Tucows is based on a deferred revenue business model and that the bulk of their liabilities time out every year. "Financially speaking there are not many firms like Tucows. They sell millions of little things, sort of like Coca Cola. However, those little things are domain names, selling for let's say $12," said Millitzer." Since they are paid 'up front' for a specific period, usually one year, the revenues for these are recognized at $1 per month, not the $12 when the transaction occurred. Sort of like cash vs. accrual accounting."

In the RBC Capital Markets Growth Conference held on October 27, 2008 Noss disclosed that Tucows had "been through nuclear winter of 2002" and that their management team has been through tough times before but that they see the next one or two years as a "great opportunity to derive value from our own stock" by buying back stock if it remains underpriced.