GoDaddy’s aftermarket business continues to grow, and analysts need to understand how it works.
An analyst asked GoDaddy about its domain name aftermarket business on this week’s GoDaddy earnings conference call. GoDaddy credits increased aftermarket revenue for growing its topline domain name revenue and it’s important for analysts and shareholders to get an understanding of how the business works.
Aftermarket revenue is not like domain name registration revenue. Domain registration revenue is recognized over time and is recurring. If a registrar sells a domain for $12 this month, it will recognize $1 of revenue per month for the next year. More often than not, that domain will be renewed so the one registration continues to contribute to revenue for a long time.
But when GoDaddy sells a domain for $10,000, the best it can expect the next year is to get a standard renewal fee. It also recognizes the full amount upfront.
While aftermarket revenue is good revenue, analysts that are modeling GoDaddy’s business need to separate out what is recurring and what is not.
After the call, I contacted GoDaddy’s investor relations group to get clarity on GoDaddy’s answer provided during the conference call. Here’s the takeaway: the aftermarket business contributes mid-single digits to GoDaddy’s total revenue. Last quarter the company had revenue of $652 million, so if you assume about 4%-6%, that gives a number of about $25 million to $40 million in aftermarket revenue for the quarter.
GoDaddy’s domain revenue was $305 million, so roughly 10%-15% of domains revenue comes from the aftermarket.
The GoDaddy aftermarket has three main revenue sources:
1. Domains that GoDaddy has purchased for resale. Think Mike Berkens’ portfolio, Donuts’ portfolio, etc. that it has purchased and are now part of NameFind.
2. Expired domain names. This includes both domains expiring on GoDaddy’s platform as well as partners that send their inventory to GoDaddy.
3. Afternic and AfternicDLs sales.
The company counts revenue differently for each bucket depending on if it takes on the risk. Investor relations noted:
“[Domain aftermarket sales can be] recognized as either gross or net, depending on the set of circumstances with that partner. Each partner’s arrangement governs whether or not we take the risk of loss in the sale or we’re merely facilitating the sale. If we are placing any warranty/guarantee on the sale (assuming risk of loss) we’ll recognize the sale on a gross basis, scenarios where we’re facilitating the sale…we’ll record net.”
GoDaddy books the full amount of revenue if it sells a domain from its own portfolio. If it sells a domain investor’s domain through Afternic for $10,000, it only recognizes the $2,000 commission it earns.
Give GoDaddy credit for its smart approach to growing the aftermarket. As I mentioned earlier, Aftermarket revenue is good revenue, it’s just very different from what the company makes from domain registrations.
Mark Thorpe says
Good breakdown, Andrew.
I still think there is a lot of gray area with GoDaddy’s expired domain process though, especially domains that are registered at GoDaddy and have expired.
Not enough transparency IMO.
Also, domains registered at GoDaddy go into auction too soon. 20 days past expiration and you could lose your domain.
You have a longer timeframe at other domain registrars to renew your expired domain.
joe styler says
Actually you have a minimum of 30 days to renew your domains.
Mark Thorpe says
But a GoDaddy expired domain name goes to auction before 30 days and if the domain receives a bid, there is a chance you could lose your domain name.
Joe Styler says
No you have a minimum of 30 days to renew your domain regardless of if a domain is at the auction or not.
Mark Thorpe says
Expired GoDaddy domains shouldn’t be allowed to go to auction until after 30 days.
jennifer says
a more interesting post would be just how many domains TRULY Go Daddy has actually sold for $10,000 recently? The domain industry is a complete bust right now it seems but yet everyone is still wanting to tout big numbers but domainers no the gig is up! No money in sales, no money in parking anymore and all the good names are gone, and like everything else all the valuable assets are owned by like 5 people in the industry. Now even registrations are down with the big registrars almost all showing losses now likely across the board likely because of Google’s new changes. You hear everything under the sun except the truth being talked about while the biz goes down in flames. Having said that GoDaddy is a much improved company recently, and is definately playing it smart but the industry in general needs help. The biggest problem I see in the aftermarket marketplace is that domains are being WAAY overvalued until the market has become completely stagnet. Everyone thinks they are sitting on “Gold” and in most cases it’s a pile of Sh*t instead! Rick was right years ago when he called this publicly, and wisely got out.
Reza Sardeha says
Even in the aftermarket there are more liquid and recurring models availble. As matter of a fact, end-users with limited budget even prefer those models. So the aftermarket is about to become more liquid as we can get more startups and small businesses activated on the secondary market rather than the primary market which has very thin margins.
Increasing the top line by becoming an active portfolio holder in the secondary market was a smart move. With Godaddy’s purchase power it’ll be interesting to see which other big portfolio’s they’ll acquire and if they become active in buying smaller portfolio’s as well.
Robert McLean says
Gray area?
Assuming ownership of expired domains, by registrars, is predatory, criminal conflict of interest.
Criminal.
Robert says
I 100% agree.