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Why Neustar paid $109 million for .Co and what it means for new TLDs

While the circumstances behind Neustar’s acquisition of .CO Internet were unique, it bodes well for operators of new TLDs.

NeustarNeustar announced yesterday that it is paying $109 million to acquire .CO Internet, operator of the .co domain name.

It’s a big price tag, and here’s how it breaks down:

* $68 per currently registered .Co domain

* 5x current annual revenue run rate

* 6.5x current annual revenue run rate when you account for Neustar losing $4 million a year it was getting paid as the backend registry for .Co.

These are some healthy numbers that are good news for new TLD applicants when it comes to valuation. Let’s dig in some more to figure out what this may mean for TLD owners.

First, let’s consider the earnings multiple. We don’t know how much .Co was netting each year, but I do know they spend a lot of money on marketing. A lot. Super Bowl ads, multiple conference sponsorships per week, marketing deals with registrars. It’s extensive, although probably a smaller percentage of revenue than it was early on.

Somewhat unique to .Co, which also needs to be factored in, is that it has to pay the Colombian government for each registration. The fees are more than what a registry pays ICANN, but as a ccTLD .co has more flexibility than new TLDs.

Also, that $4 million revenue reduction Neustar will face buy purchasing its customer is also a $4 million reduction in the acquired company’s expenses. It nets out.

Neustar can look at this two ways. The current earnings multiple might be really high, but the company might be able to harvest the revenue stream by dialing back.

This is a relevant point for smaller registries. If you have three TLDs with a total of 75,000 registrations with a wholesale of $15 each, three staff members, and spend $500,000 on marketing each year, you’re not making much money. But another registry can acquire you and strip out the costs through economies of scale and suddenly you’re worth more.

It’s also worth pondering for a moment how existing “portfolio” registries are valued. Minds + Machines Group Limited (MMX) (formerly known as Top Level Domain Holdings) has a market cap of about $200 million. It has yet to launch any of its TLDs. It’s all on the promise of future registrations.

Next, let’s take a look at the specifics of this acquisition and why it might be unique compared to selling a registry a few years down the road.

Neustar is in a pretty desperate situation to grow revenue right now. It is facing the prospect of losing a contract that makes up half (yes, half) of its revenue.

So it needs to acquire revenue producing companies now. That may be the situation in the future but we don’t know for sure.

It definitely played in .Co’s favor in 2014. After all, there’s a very limited supply of registries to acquire. That’s going to change five years from now. There will be more supply, and that could push down valuation.

The acquisition also brings Neustar needed marketing expertise ahead of the launch of new TLDs.

A final thing to consider: which technical registry provider a new TLD applicant signed with may play a role in valuation and acquisition down the road. It will be easy for Neustar to integrate .Co. It’s already running the backend. I envision registries making lots of offers to their TLD operators. Working with a more acquisitive one will play in the favor of certain TLD owners.

Any way you spin it, even if you think this was a unique circumstance, the Neustar acquisition of .Co looks like good news to new TLD applicants. Now they just need to find a way to grow their registration base in this competitive environment.

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  1. Kevin M. says

    “”Neustar announced yesterday that it is paying $109 million to acquire .CO Internet, operator of the **.com** domain name.””

    Maybe they sold .co because that dang ‘.com’ thing everyone keeps typing in instead!!! lol Andrew!

  2. Ryan says

    I think the real research number would have been how many nameservers hard parked addresses. Given those figures on a standard financial statement, they do not mirror those of other tech companies sold. They obviously factored in their best days are behind them, and growth will slow down. I am seeing some domainers shedding some of their .co’s for greener pastures. I really don’t see to much .co domains during my travels within North America, or on highways, and billboards.

  3. Rubens Kuhl says

    Not being under ICANN policies is a tremendous advantage for ccTLDs. As Mason Cole mentioned in his recent article, there are lots of regulatory hurdles making new gTLDs harder to sell than gTLDs. When compared to ccTLDs then, it is even worse.

    So I don’t see new gTLD registries as the next takeover target; they will only be bought before dropping out, at bargain pricing. But .me could be a good takeover target, and since Afilias is already their back-end, the likely buyer.

    • Andrew Allemann says

      Many of the disadvantages are in this startup phase and will be worked out in the coming years.

      Don’t get me wrong, I think it will be difficult for new TLDs to do what .co did (ccTLD benefits, less competition at the time), but if they get up to the same # of registrations I don’t think they should be valued less than a ccTLD.

  4. Domenclature.com says

    “These are some healthy numbers that are good news for new TLD applicants when it comes to valuation. Let’s dig in some more to figure out what this may mean for TLD owners” – DNW

    The part above is non-sequiter as covered by Andrei at DomainTips.com.

    The only thing .CO have in common with New gTLDs is WWW.

    Perhaps http:// as well. But that’s it. They are completely different animals.

  5. john says

    In Internet Marketing there is a concept of “sucker list”. It is the monetization behind “chain letter” emails and many “free download” offerings. The list of people known to have paid for a type of offer, is valuable to other people looking to make similar offers.

    You can refer to it as customer acquisition or whatever… just noting the colorful language used in marketing, when direct marketing is the goal.

    What would the .co customer base be worth when viewed as a prospect list for selling additional TLDs? At a cost of $68 per registered domain (whatever it is as cost per customer or “lead”), I suspect it isn’t a crazy price.

  6. Steve says

    .co is the country code for Columbia. What happens if the government of Columbia doesn’t want to renew the contract and decides to administer the extension itself? It looks like it is up for renewal in a few years.

    “On May 7, 2010, a resolution was issued by the Colombian Government, which states that “.co is a public asset in the telecommunications sector, the administration, maintenance and development of which shall be planned, regulated and controlled by the State, through the Ministry of Communications.”

    ” On July 29, 2006, Law 1065 of 2006 was enacted by the Colombian Government stating that the Ministry of Communications is responsible for administering registration services of the .co ccTLD and it may award a 10-year contract to private parties to handle it in accordance with the law. The agreement was to be renewable for one term only..”

  7. Domainer Extraordinaire says

    “These are some healthy numbers that are good news for new TLD applicants when it comes to valuation.”

    You can’t compare a .com typo tld to any of the new tlds. The renewal rates are going to be way lower for the new tlds, drastically effecting the valuation.

  8. Domainer Extraordinaire says

    Andrew i tried to quote you above “These are some healthy numbers that are good news for new TLD applicants when it comes to valuation” and it didn’t work. Can you fix it?

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