Surge in ad rates drives organic growth at CentralNic.
Domain name and online advertising rollup CentralNic (London AIM: CNIC) reported earnings for the first nine months of 2020 today.
Due to major acquisitions, CentralNic’s revenue grew 118% to $168.5 million year over year. The company reckons that revenue grew 17% organically during the period if it had owned the acquired businesses last year.
Much of the growth is thanks to increasing ad rates at Google.
In order to understand Google’s impact on CentralNic’s revenue, it’s important to understand CentralNic’s three segments:
- Indirect – Revenue from the reseller registrar channel, registry services provider (e.g., providing the backend for .XYZ), and running the .sk country code. Revenue in this segment was up 51% to $63.5 million, mostly due to two acquisitions. It was up 8% ($4.9 million) on a pro forma (organic) basis.
- Direct – Revenue is generated from sales to end consumers such as small businesses, i.e., retail. Revenue was down 9% year over year to $31.1 million, but some of this was due to rejiggering segments. CentralNic says it was down 2% on a pro forma basis. (It’s worth noting that CentralNic recognizes revenue for domain registrations in both its reseller and retail channels upfront rather than over the life of a registration. This is different than most publicly traded domain name companies.)
- Monetization – Monetization revenue is mostly from the Team Internet business that CentralNic acquired at the end of the last year. On a pro forma basis (assuming it owned the business last year), it grew 39% to $72.9 million in the first nine months of 2020.
Monetization is the biggest segment, and it’s basically a new segment at CentralNic this year.
The increased revenue in 2020 isn’t due to more traffic (that’s up only 2%); it’s because of a higher RPM. RPM stands for Revenue Per Thousand and measures how much revenue is received per 1,000 views. It’s up a staggering 36% this year.
This means that increased ad rates have driven about $19 million of CentralNic’s $25 million organic growth this year.
Take out the increased RPM and the monetization segment is up only $1.2 million so far this year.
Almost all of CentralNic’s monetization revenue comes from Google, which provides ads for its parking pages. In the first nine months of 2020, 92% of CentralNic’s monetization revenue ($66.9 million of $72.9 million) was from Google.
This is both good news and bad news.
It’s great that Google is paying more. There’s reason for optimism that rates can go higher: RPMs continued to grow in Q3 and certain ad market segments are still depressed right now due to Covid. A return to normalcy sometime in 2021 could drive segments such as travel higher, increasing RPMs even further.
But ask any domain name owner and they’ll tell you that depending on Google for so much revenue can be a double-edged sword.