Tucows expects fast contribution from eNom, which has booked losses at Rightside.
Domain name and communications company Tucows (NASDAQ:TCX) didn’t plan to acquire two domain name businesses over the past year, but the opportunities were too good to pass up.
On a conference call Friday, Tucows CEO Elliot Noss explained that these two opportunities fell into its lap:
I want to be clear, however, that these two transactions should not be seen as any change in our view of M&A or our overall capital allocation strategy. These were simply individual, opportunistic transactions that presented themselves at attractive valuations and which represented excellent uses of capital. While there may be additional opportunities in the coming years, eNom was a singular opportunity.
If you look at the numbers, these deals certainly seem like good uses of cash. Tucows expects $2 million per year in gross contribution from the Melbourne IT deal and ultimately thinks the eNom deal will contribute $20 million cash to EBITDA. It expects about $15 million in 2017 before all of the excess costs are worked out of the business.
In a report filed with the SEC today, Rightside
reported that its eNom business had an EBITDA loss of $7.0 million for the first nine months of 2016. Update: I misread the table in Rightside’s SEC filing. The eNom business was actually profitable.
Noss expects significant costs savings by bringing its OpenSRS domain reseller platform and eNom under one roof. The cost savings will come from having one set of overhead for finance, human resources and office space.
Of course, Tucows also took out its number one competitor with the transaction. It will no longer have to duke it out with eNom when it comes to convincing resellers to use its system. Its main competition will be Endurance International Group’s ResellerClub. GoDaddy also has a reseller platform, but it has traditionally been marketed as a turnkey system that’s not as easy to integrate into existing hosting platforms.