Domain registrar fights currency fluctuations; down economy.
Tucows (AMEX: TCX) reported a third quarter loss of $71,000 today.
Despite a difficult environment, our third quarter revenue growth was driven by the strong performance of our OpenSRS Wholesale Services, primarily domain registration,” said Elliot Noss, President and CEO of Tucows. “A number of factors, including weakness in our email business and the general economy putting downward pressure on advertising has dampened our cash flow in 2008. In addition, the significant strengthening of the Canadian dollar during the quarter negatively impacted net income by over $1 million compared to the third quarter last year. As a result, while we still expect 2008 revenue and net income to grow compared to last year, we now expect cash flow from operations for 2008 to be lower than last year.
I just finished listening to the question & answer portion of the earnings conference call and here are a few of the details:
– Margin from domain registration was adversely affected because “bigger” customers accounted for more domain registrations, and big customers have lower prices
– CEO Elliot Noss said startup costs for Butterscotch.com were nominal, although it meant adding a few extra people to payroll.
– Tucows has finished most of its divesting (including the recently announced Afilias sale). Given the current state of the economy and domain names, the company doesn’t foresee major domain portfolio sales in the near term.
– For domain sales, the company is “definitely seeing softness in the long tail direct navigation business”, but it doesn’t see the same softness in “brandable” domains. There’s softness in purchases from domain professionals because these professionals are negatively impacted by lower domain parking revenue.
– The ability to sell domain names through auction channels is limited right now because of lower auction results compared to 12-18 months ago, but Noss sees this coming back as the economy turns around.
– Domain brokers yield the most direct leads for purchases of Tucows’ domains