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All domain investors should read this analysis

by — Uncategorized 7 Comments

Invest in domain names, not lottery tickets.

Green box with black letters 'outliers' with a white circle outside the box.

I’ve been thinking about this for a long time, but Michael Sumner wrote it better than I could have. So you should read this.

Most of the top sales you read about on DNJournal or see people brag about are outliers. Even Mike Mann’s. In fact, Sumner has data about how Mike Mann prices his portfolio.

News flash: most of his domains are priced at $10,000 or less.

Tweeting about top sales creates a distorted view of the market. Yes, we all have that great story about turning nothing into lots of money. But in the grand scheme of things, these are outliers. You don’t want to make a business plan based on outliers.

 

CentralNic’s gutsy acquisition will transform the company

by — Domain Parking 1 Comment

Domain monetization will be a big part of CentralNic’s revenue and profit story going forward.

Picture of scale with wooden blocks on the left spelling Risk and a bag of money on the right

Last Friday, CentralNic (London AIM: CNIC) announced it is acquiring Team Internet AG for $48 million, $45 million of which will be paid in cash.

CentralNic has been rolling up smaller domain name companies with a focus on domain registrars and the occasional registry. Last year it made its boldest acquisition, picking up KeyDrive for $55 million, much of which was in equity and an earnout.

The Team Internet acquisition should be viewed as even bigger. It is hugely transformative and CentralNic’s riskiest deal to date. Like most risky transactions, it also has potential upside.

First, consider the numbers. Team Internet had $66.7 million revenue and $10.6 million adjusted EBITDA in the 12 months ending June 2019. During the first nine months of this year, CentralNic as a whole had revenue of $77.1 million and adjusted EBITDA 13.1 million.

Team Internet will be a massive part of CentralNic’s revenue and profit story going forward.

Beyond the numbers, Team Internet is a very different business than the subscription businesses CentralNic has acquired in the past.

Team Internet is a domain monetization company, i.e., domain parking. Its two main brands are ParkingCrew and Tonic.

Ask any domain investor and they will tell you that domain monetization has had its ups and downs, and mostly downs. In fact, Tucows (NASDAQ: TCX) recently sold off its domain portfolio partly due to changes in domain parking.

CentralNic tacitly acknowledges these changes in its releases about the acquisition. First:

“Team Internet experienced an increase in revenues in the year ended 31 December 2017 due to the collapse of a competitor.”

That competitor was Rook Media, which also owned DomainSponsor. Word is that it collapsed virtually overnight after Google pulled its ad feed.

Second:

“Due to an industry-wide policy revision for the long-term health of the online advertising ecosystem in summer 2018” revenues declined at Team Internet around that time.

I believe that policy revision was related to email monetization, but there have been so many policy revisions that I’ve lost count.

Both of these point to changes Google made. For all of the movement to alternative monetization channels, the domain parking business still relies on Google.

Domain parking companies have played a bit of a cat and mouse game with Google since the beginning of domain parking. Parking companies push the limits, Google clamps down. Push the limits, Google clamps down. Push the limits…

Go too far, get dinged with clawbacks. Or the collapse of your business.

This, combined with changes in consumer behavior and the online advertising market, has had a significant impact on the value of domain traffic.

Team Internet’s Tonic service goes around Google with zero-click monetization. Instead of a parked page with ad links, Tonic sends domain visitors directly to an advertiser’s website.

In theory, the business delivers great value to advertisers and sends visitors to relevant sites. Unfortunately, the business is a boon for bad actors. It’s difficult for zero-click companies to keep the bad guys out. Zero click traffic often bounces between multiple redirects. Even if the monetization company approves the destination URL, the scammer can easily redirect it further.

Combine the risks of Google, zero-click, and domain traffic arbitrage and you have a lot of risk. This probably explains the relatively low multiple CentralNic is paying for the business: just 4.5 adjusted EBITDA.

If Team Internet delivers for CentralNic (i.e., no surprises in the next few years) then this could be a huge win for CentralNic. If it doesn’t, CentralNic will have a mountain of debt to pay off.

It’s a gutsy acquisition.

CentralNic buys Team Internet for $48 million

by — Domain Parking 1 Comment

Consolidation continues as CentralNic buys major domain traffic company.

CentralNic logoFrom speculation to reality in 24 hours.

Domain name industry rollup CentralNic (London AIM: CNIC) is acquiring online advertising company Team Internet AG for $48 million.

$45 million of the purchase price will be in cash (with $3 million deferred), funded with a bond offering. This will bring its net debt to $76 million. CentralNic already raised €50 in a bond issue earlier this year.

Team Internet operates two businesses: domain parking company Parking Crew and direct traffic business Tonic, which deals in a lot of zero click traffic. The company grossed $66.7 million of revenue and $10.6 million of adjusted EBITDA in the 12 months ending June 2019.

Team Internet montizes over 20 million domains. CentralNic believes that domain parking could be bundled with 30% of domain registrations, and notes that the group has 18.6 million domains under management.

It would seem that the advertising revenue Team Internet generates is more susceptible to swings than CentralNic’s core subscription revenue businesses. Indeed, CentralNic notes that Team Internet’s revenue has dropped due to “an industry-wide policy revision for the long-term health of the online advertising ecosystem in summer 2018.” However, “As a result of a series of innovations and continuous improvements, Team Internet has returned to growth in Q3 2019 and is expected to do so going forward.”

The domain parking business has to reinvent itself every couple of years as a result of policy changes, browser changes, and other influences on the market.

The acquisition gives CentralNic exposure to the zero click market, which has a lot of bad actors and malfeasance. Keeping control of zero click will be critical to its long term success. It could also include exposure to arbitrage, which is somewhat fickle.

It will be interesting to see how this plays out.

 

 

ICA asks ICANN to block .Org private equity deal in damning letter

by — Policy & Law 29 Comments

Group calls out ICANN’s “terrible blunder”.

Logo for .org domain, featuring a blue circle with white letters spelling ORG

Internet Commerce Association is asking domain overseer ICANN to block the sale of the .Org registry to Ethos Capital.

It sent a damning letter (pdf) to ICANN today that states what many observers are thinking. In part:

Surely you can now appreciate the terrible blunder that you have made. Crucial policy decisions that have billion-dollar ramifications and which affect the stability of the Internet must be the subject of robust Board involvement and not left to ICANN staff.

If you were led to believe that removing price caps on .Org domain names was a sound approach because the registry would remain in the hands of a nonprofit foundation, you have clearly been misled. If you were led to believe that despite being the effective owner of the .org registry, you were somehow forced to let your service providers tell you how much they can charge, instead of the other way around, you have been led astray. If you have been told that .Org does not have market power within the nonprofit sector, you have been led astray. If you have been told that competition from other gTLDs will constrain .org prices, you have been led astray.

Section 7.5 of the registry agreement between Public Interest Registry and ICANN states:

Except as set forth in this Section 7.5, neither party may assign any of its rights and obligations under this Agreement without the prior written approval of the other party, which approval will not be unreasonably withheld.

The question now is: would it be reasonable for ICANN to withold approval of the transfer of the .org registry agreement?

ICANN has a history of wimping out in fights. But given the blowback it is getting and will get for many years from this deal, it might be one of those times it steps up.

The letter concludes:

If your miscalculation of awarding a perpetual, no-bid agreement – lacking any price caps whatsoever – was premised on the registry remaining in the hands of an organization serving the public interest, the pending sale to a private equity firm should cause you to reconsider your approach. Fortunately the purported sale of the .Org registry affords you an opportunity to withhold approval, terminate the Registry Agreement in respect of any consummated transaction, and put the contract out for competitive bid.

Where is the ICANN Board when it comes to safeguarding the interests of nonprofit registrants?

Mailchimp launches website builder

by — Services 1 Comment

Company that started as an email marketing platform is entering a crowded field.

Screenshots of websites built with Mailchimp's new website builder

These websites were build with Mailchimp’s new website builder, currently in beta.

Mailchimp is the latest company to get into the website builder game, taking on companies such as GoDaddy (NYSE: GDDY), Wix (NASDAQ: WIX), Squarespace and Weebly.

The company started as an email marketing platform but is expanding to become an all-in-one online marketing platform. It offers landing pages and online marketing as well.

Now it is introducing its own website builder in beta. It’s free to use, and paid Mailchimp customers can connect a custom domain name to their website. Mailchimp is also reselling domains through Tucows to allow customers to register domains through their Mailchimp account.

Here’s my question: when does Mailchimp rebrand as Chimp and buy Chimp.com?