It’s the second big impairment charge from the acquisition.
Endurance International Group (NASDAQ: EIGI) has taken another big impairment charge related to its 2014 acquisition of BuyDomains for $45 million. In its latest quarterly filing, the company stated:
During the three and six months ended June 30, 2019, the Company recognized an impairment charge of $17.9 million relating primarily to premium domain name intangible assets acquired in 2014, which was recorded in cost of revenue in the consolidated statement of operations and comprehensive loss. The impairment resulted from recent market conditions that have adversely impacted cash flows from these assets, and these market conditions are expected to continue. The Company valued its premium domain name assets based on discounted projected cash flows from these assets using a discount rate of 11.6%, which resulted in an impairment of $16.2 million. The balance of the impairment charge was primarily related to developed technology intangible assets associated with the premium domain business which were valued using a relief from royalty approach.
This isn’t the first big impairment charge for the acquisition. In 2017, it took at $13.8 million impairment charge.
Endurance CEO Jeffrey Fox mentioned last week that the premium domain business is trending weaker for the company.
Rob Monster says
Here is my thesis of how the accounting works on these deals:
1. Buy a great portfolio.
2. Amortize over 15 years
3. Sell off the cream of the portfolio in years 1-3.
4. Take out the trash with a single write-down.
5. Gradually drain the milk as cash-neutral or better.
The result is ~10 years of GAAP compliant results that are accretive to earnings, and one bad year.
Follow the cash — it usually tells the story that EBITDA does not always catch.
Great Analysis, obviously you know what you are doing.
I wonder what Mike Mann has to say about this
That’s the whole point of buying large portfolios. It’s a tax scheme. You can write down large parts of the portfolio to offset the big ticket sales that you make. No brainer.
David T Michaels says
Endurance International Group experienced a huge drop in domain parking revenue for the 3 months ending June 30, 2019 over the 3 months ending June 30, 2018:
$31,528,000 vs $32,901,000,
and an increasing (loss) in net income from domain parking:
($20,130,000) vs ($2,892,000).
There was even a $8,189,000 loss in gross profit in for the 3 months ending June 30, 2019. That means that EIGI needs to be at the Affiliate Summit this weekend get better affiliate programs to promote. And they should hire teams of content marketers to manage groups of properties.
Relying on domain parking is an unsustainable business model.
Andrew Allemann says
These numbers don’t make sense
David Michaels says
Maybe they include the cost of domain renewals, including some expensive gTLDs.
They are straight off the latest quarterly filing.
Andrew Allemann says
You’re looking at revenue and earnings from the entire domain segment, not domain parking. Domain parking is a very small portion of that.