Shares of domain name company Tucows are down over 15% in early trading after announcing earnings.
Domain name company Tucows reported lower than expected revenue growth for the second quarter of 2007. Its shares (AMEX: TCX) are down $.20 to $1.01 USD on the news as of this morning.
“We delivered solid financial performance in the second quarter, which benefited from the sale of a block of 2,500 domain names from our portfolio,” said Elliot Noss, President and CEO of Tucows. “Consolidation in the domain name industry, the ramp-up in the sales cycle for our new email service and disappointing Google ad revenues resulted in weaker year-over-year revenue growth than we would have liked. Our overriding objective is to drive strong long-term growth and we have recently taken several steps in this regard, including the recent launch of our new email platform, the launch of our Premium Domains service and subsequent to quarter end, the acquisition of ItsYourDomain.
Two of Noss’ comments are discouraging. First, part of its upside in the quarter was from the sale of a domain portfolio for $3M. This is equivalent to a company selling off revenue-producing assets. This is a smart move if the price is right, but eliminates the revenue potential of those assets. Second, it appears that Tucows domain name parking revenue with its partner Google (NASDAQ: GOOG) came in below expecations.
Also this morning, Tucows announced changes to its wholesale customer pricing model. The new price for .com domains will be $9.20. Beginning September 1 this will include domain whois privacy services.
Noss refers to this new lower pricing as making a “significant investment” in its business, which basically means Tucows is cutting into its margins in order to grow. Tucows faces pricing pressure from lower cost rivals. The new pricing is roughly equal to that of GoDaddy, the world’s largest domain name registrar.