Report forecasts strong opportunity for new top level domain applicants.
B. Riley & Co analyst Sameet Sinha issued a report today estimating that new TLDs should go “from Zero to $500MM in Three Years”. The report also initiates coverage of Rightside with a buy rating and a $15 price target. The stock currently trades for about $10.
I reviewed the lengthy report and spoke with Sinha this afternoon. In general, I think it’s a good overview of the domain name industry and state of new top level domain names. Of course, the big question is if the assumptions underlying his projections are correct.
Here’s a chart that summarizes the projections:
(Note that the domains/gTLD line is actually a quarterly number, so focus on the “Number of new domains sold” line for the annual one to understand the total domains sold in the forecast.)
Underpinning the forecast is an assumption that a gTLD will sell about 28,000 domains annually and settle down to 18,000 in 2015 before rising to the 25,000 level in 2016 as more generic domains are launched.
It also assumes downward pressure on annual registration pricing, dropping from an average price of $37 retail this year to $22 in 2016. Renewal rates also play a big role in the model.
It’s really difficult to predict average domain registrations per domain, and we haven’t even hit a year yet. But at least the first batch is trending for well below 28,000 names in the first year, barring increased awareness. You can also argue that the domains that sell the most registrations will be the less expensive ones. As for renewal rates? That’s anyone’s guess as this point. Numbers used in the model are drawn from existing TLDs, but they could be drastically different for new TLDs.
Sinha forecasts that new TLDs will account for 20% of domain name registration revenue by 2016.
I’d describe the report as bullish, but putting numbers on where new TLDs will be a year or two from now is a very tough call. I’ve previously spoken to an analyst at another firm who was bearish on new TLDs given early registration numbers. Only time will tell.
jon says
fools and their money soon depart!
drake says
Time to fire that analyst lol.
Dot com wins. Flawless victory
Robbie says
Ask who hired the analyst in the first place, 100000 stock picking analysts go check how many are right, guys who have been in this industry are clueless on gtlds some analyst is going to get it right?
MichaelBlend says
Another guesstimate is we end up with a runrate of 12mm domains by the end of 2016 at $15/name. So $180mm. Maybe 60% margins gets you to $108mm profit. That gets you to $1B-$1.2B of value in the overall new gTLD industry, growing 20-25%/year. Seems reasonable
Robbie says
Most of these domains are being given away for free, I am seeing many lowering their prices as well, if they are going up against .com, the pricing will come down, hard, and fast. Along with competing against 1000’s of different extensions. Good luck maintaining pricing. I am still getting 4-5 figure offers on .com’s while .co sits unregistered.
Joseph Peterson says
Highly suspect — not only the assumptions but the way the prediction is framed.
9,190,814 additional nTLD domain registrations during 2015 … Plus or minus what? Without a margin of error, how can investors appraise their risk? With only one growth model, how can it be evaluated against alternative predictions?
#1
Do we have any strong evidence to believe that registration volume acts more or less as a constant linear multiple of the number of nTLDs for sale? This model seems to take for granted that
Domain Registrations =
Roughly Constant Number of Registrations per nTLD
x
Number of New gTLDs Available
So if there are 122 new gTLDs, then there will be 3.6 million new domains registered in a given year.
And if there are 649 new gTLDs, then there will be 16.4 million new domains registered in a given year.
That’s great news for Donuts and other registries! All they need to do is launch 10 times as many TLDs and they’ll sell 10 times as many domains.
Is that credible? An equally tenable mathematical model would begin with a constant buyer demand, divided among a rising supply of nTLD options. According to that competing model, registrations per TLD would decline as more TLDs are introduced. Looking at the falloff since .GURU already this year, I believe that hypothesis deserves to be considered.
#2
Apart from supply diluting demand, what about buyer fatigue?
Is it reasonable to extrapolate high renewal rates such as 70% from established TLDs like .COM and .ORG? I think not.
Someone who purchases a .UNKNOWN for speculative purposes or for fear of being left behind by progress will look around in 2015 or 2016 and find that rationale less convincing. A speculator won’t see as many sales for his .UNKNOWN as he had hoped for. And a domain industry outsider won’t see all his neighbors building on .UNKNOWN; so the initial panic to stay ahead will probably subside somewhat. These considerations affect the renewal decision.
Price is very significant when considering whether or not to renew domains within a portfolio. .COM remains a $10 decision. Most of the new TLDs — and some portfolios contain dozens or hundreds of them — cost $30 or $60 … or even hundreds or thousands of dollars for the better domains.
.COM and .ORG enjoy high renewal rates because their subjective value is reinforced by exposure to them everywhere in daily life. Moreover, they’re cheap to maintain. A company can renew 1,000 domains for $10k. But renewing 1,000 domains in the new TLDs will seem less justifiable (without moral support from one’s neighbors) and would put a company back $50k at least.
#3
Mistaken identity.
It’s also questionable whether the demographics for .COM registrants and for new gTLD domain registrants are at all comparable. I suspect that the percentage of domain speculators (especially new, poorly funded domain speculators) is much higher for nTLDs than it would be for .COM.
New domainers amassing .UNKNOWNs will drop domains much more quickly than registrants who have purchased a single .COM or .ORG for actual use.
And did this study count dubious registrations by .XYZ and the registries when setting its base line for 2015 and 2016? If so, then that should be enough to discredit everything else.
…
Maybe the new gTLDs will outperform even these bullish projections. Maybe they won’t. But I’m not sure these projections ought to be relied upon.
JZ says
if there are more jokers like .xyz, go crazy i suppose its a possibility but otherwise, no way. its taken 25 years for all domains just to get to 250mil. there is no way these new tlds alone will amount to 500 mil in 3 years or even 15…
JZ says
I see its $500 million, not 500 million domains…even still i highly doubt it.
RC says
I am starting to build new websites using new Tlds.
All thats needed is we start building sites and getting them out there in mass.
It seems people are not doing this or keep being negative about it because they are afraid that .coms will lose value. (i expect they’ve spent hundreds of thousands on .com portfolios)
I say scrap .coms and lets start expanding.
I wanted Londonproperties.com and was quoted a ridiculous amount. so instead purchased London.Properties, same as Londonmenus.com, instead i purchased Menus.London
Come on people, its time for at least where we can buy great domains and reasonable prices.
JZ says
you’re Com Laude?
Raider says
gTLDs to hit $500 million in 3 years? Yeah I can believe that, only domainers are stupid enough to keep registering these for another 3 years.
Ian says
This looks to be a very bullish outlook, especially by hypothesizing that renewal rates will be at 65%-70%. I really wouldn’t expect it to be that high.
Phil Buckingham says
Assumptions assumption s. 3.5 m registrations by the end of 2014 . thats pushing it. renewals at 65% – 70 % . That is far too high . many of these TLDs will fail because they DONT even get to 30% renewal rate where we feel a “typical” gTLD business model will be viable and sustainable . Forecast should be based on only open TLDs . let says 500 launch . lets say 50% with fail by beg of 2016 . 2016. So base forecasts on 250 viable / sustainable TLDs , renewal rate of £30 . Average price of $15 new TLD ( double a .com ?) Switching costs/ opportunity costs from a .com will be critical . Much more realistic . Recalc please Sameet. However I would still agree on gTLDstock.buy
dotdude says
Here’s a recent development. To see the future of these new extensions, one only needs to check out eNom and eNom Central home page’s. eNom is the second largest registrar in the world, AND part of Rightside group who has released numerous new gTLDs. They must not be doing well since their new campaign is HUGE lettering saying: .COM – .NET “Your new web address is a click away”. GoDaddy’s homepage doesn’t mention any extension examples at all now! Their total focus is pushing $1 dollar a month domain packages which new gTLD’s are EXCLUDED and not mentioned. That’s the reality.
Raider says
Have you ever tried Registering one of these gTLD’s at Godaddy? you have a drop down menu where you have to scroll through most of them to find the one your looking for, and it’s usually buried at the bottom,, What happens when ICANN releases hundreds more? I think Registrars will have no choice but to use A-Z links in a directory, and if they do that, a lot of TLD;s will go unnoticed, much like they are right now.
Jay says
I agree with the above comments I think if you have a great .com hold onto it the value is only going to increase over time.
Domains are my new stocks;)
ryken says
Now it looks like Sameet did a pretty good job of estimating gTLD numbers. I know you had a later article where he raised his guidance. Unfortunately there were no end of 2015 estimates in that article. I’d think he is now under that guidance. However it appears his standards of error for a stock picker are far smaller than the average experienced domainers.