Blogs about the domain industry and the various players and companies within it.

Domain Traffic Predicts Google Result

Domain Traffic Predicts Google Result

I’ve been wanting to write this article for a while now but I’ve been flat out building a new ParkLogic system. Back on the 12th of October I wrote an article on the fact that I believed that domains could be used to predict a large chunk of Google’s quarterly results. Guess what! I was right!

Escrow.com

For those of you that would like to read the previous articles these can be found at:

The Percentage of Advertising Revenues Google Pays Domainsers

Predicting Google's Quarterly Domainer Payout

In my analysis, I predicted Google’s Traffic Acquisition Cost to Network Members (of which the domain channel is a part) would be flat for Q3. I even presented the following chart predicting this number.

Prediction of Google Results

After reviewing the results presented by the Google quarterly earnings report the actual Traffic Acquisition Cost moved from 21.1% to 21.3% (ie. almost flat). This number can be seen in the below chart from the Google quarterly earnings announcement.

Google Results

What this suggests is domain data can potentially be used as a predictor of a major part of Google’s earnings PRIOR to any announcements that they may make to the market.

A word of caution. Since Google’s results are in the billions and slight perturbations in some of the numbers used to calculate the result may result in a large swing in the prediction. With any luck, I can deal with most of these factors but more time is required to determine whether the prophetic nature of domain traffic can be consistently and accurately applied to Google’s earnings call prior to the call itself.

So don’t speed-dial your broker as yet and remember that this series of articles is as much about proving how valuable domain traffic is as about playing the stock market!

Lieberman and Greenberg

Recent Comments
vanclute
I would be quite intrigued to see what other aspects of the public stock markets (or any other tradable market) might be able to b... Read More
13 December 2016
mgilmour
I think there are a lot of things that can be derived from domain traffic. The reason being is that domain traffic represents user... Read More
13 December 2016
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Interview with Stevan Lieberman

Interview with Stevan Lieberman

Stevan Lieberman is well known to the domain industry in his capacity as an intellectual property lawyer. What not many people know is he is also an investor and entrepreneur.

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In this interview Stevan shares about some of his investments and the progress he is making with his latest business - Digital Candy. I hope you enjoy watching the video as much as both Stevan and I did sharing from one side of the world to another.

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NamesCon Update Video

NamesCon Update Video

NamesCon founder, Richard Lau, provides an update on the preparations for NamesCon in 2017. Everything from his recent travels through to speakers and sponsors are covered.

Escrow.com

Attend NamesCon 2017 at a fraction of the final ticket price of $999. Register now to save big with our "AlwaysThankful" $399 promotion which ends November 16.  And in respect of Veteran's Day on November 11th, any ticket purchased on Nov 11th will result in a $200 donation by NamesCon to Veterans Village in Las Vegas. (http://veteransvillagelasvegas.org)

Greenberg and Lieberman

Recent Comments
dnalogic
Informative video, as ever. I'm sure the convention is going to be great. Just wanted to say a special thank you for the donation ... Read More
10 November 2016
mgilmour
Thank you for your kind comments and I hope that all is well with the spinal surgery....never a nice thing!
10 November 2016
dnalogic
Thanks, Michael! So far, it's all been way easier than expected or the prognosis - but when they play around with nerves, even the... Read More
10 November 2016
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Is Rightside's Strategy Showing Results?

Is Rightside's Strategy Showing Results?

The reason why I like looking at Rightside is because they are a publicly listed company with the three aspects of the domain industry; registry, registrar and aftermarket. Since my last article on the company have things improved or deteriorated and how does this reflect on the overall domain industry.

Let me say from the outset that Rightside is a nice steady business underpinned by a recurring revenue stream. In fact, they are at pains to highlight the recurring revenue model in their quarterly financial presentations. The problem with the business is they are listed on the Nasdaq and as a tech company investors expect more than the current 4% year on year revenue growth rate.

The charts below highlights where the revenue is being generated by the business. The registrar is clearly the driver with over $44m or 80% of the revenue coming from that business unit. The aftermarket has clearly come off the Chinese fuelled peak of $9.3m in Q4 last year and is now settling down at $7.8m for the quarter.

Revenue by Business Unit

The registry grew by $300K in Q2 so it will be interesting to see what the Q3 results will be. Given that Rightside banked a lot on the success of the new gTLDs the relatively lacklustre performance must be of concern.

These numbers are on the back of Registry aggregator, Donuts, offered $70m for the suite of Rightside domain extensions back in June. In my opinion it’s a gutsy move to say no to such an offer in light of the slow growth numbers. The Rightside management/board are either very sure of a significant upswing in their registry growth projections or just walked away from a great offer.

2016 Q2 Revenue By Business Unit

What is concerning is the Quarter on Quarter Growth rates for each of the business units. The registrar is basically flat and the aftermarket is also looking flat with a seasonal dip in Q1 for the last two years. The registry has dropped from a large initial growth rate off a small base to a much more modest level. It will be interesting to see if the uptick in Q2 is at least sustained in Q3.

Quarter Growth Rates By Business Unit

The Year on Year Growth rates also reflect the downward trends of all of the business units (registry references the left hand axis). The overall growth has decreased from 113% back in Q2 2015 to 104% in Q2 2016. It’s clear that there aren’t any massive growth prospects from the fundamental drivers of the business.

Year on Year Growth Rates

According to the July 2016 Domain Industry Brief put out by Verisign there was a global growth in domain names of 11 percent, year over year. The good news for Rightside is the registry has grown by 21% in the same period of time so they are beating the global rates. The bad news is the engine of the business, the registrar, has been basically flat with year on year growth of 0.5% (Q2 2015 vs. Q2 2016).

Below are charts for the number of domains currently in the registry (source: ntldstats.com) for .ninja, .news, .lawyer and .consulting. These four extensions were highlighted in the Rightside quarterly earnings report. As can be seen, there is a significant amount of growth but each of them has a sharp decline as end users elect not to renew the domains. Renewals are the challenge that afflicts all registries as without them the reoccurring revenue model fails.

Consulting

Layer

News

Ninja

I said this in my last blog on Rightside…..the challenge for the company is how to move investors from playing the dividend to the capital return game. I would expect that if the company paid a dividend then many of the shareholders would be scratching their heads and wondering what happened to the new gTLD unicorn promises.

So getting a “pop” off a good solid revenue base must be at the top of mind for the senior execs at the company. At the moment there doesn’t seem to be any rumblings of amazing new tech or even acquisitions coming from the Rightside camp…..but then again, it may still happen. If nothing happens then I wouldn’t be surprised if the recent surge and collapse in the share price will occur time and time again as investors buy and leave the new gTLD dream.

Share Price

Given all of the data from Rightside are the new gTLDs making headway? It's without question that some are and when you are effectively eating into a monopoly's market share there is only one initial direction and that's up.

I'm actually a strong believer in the new gTLDs....they will happen. The question that I'm constantly asking myself is when will the become mainstream? This is why as an industry Rightside is such an important company to watch as their numbers will very likely indicate whether the when has moved to now.

As always, before making any investment decisions please seek your own professional advice.

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Predicting Google's Quarterly Domainer Payout

Predicting Google's Quarterly Domainer Payout

About a month ago I wrote an article suggesting that with enough domain traffic data I could potentially predict a chunk of Google’s next quarterly earnings. After developing my financial model, I thought that I’d have a stab at Q3 2016.

The chart below reflects the quarter on quarter % change in payouts to domain owners (blue chart  - left axis) and also Google’s Traffic Acquisition Costs (Yellow line – right axis) for each quarter since Q1 2015. Since Google has not released the Q3 data yet the yellow line stops short and is replaced by my red predicted line.

Google predicted earnings

 

A couple of things I should say about the blue line. Since the line is the quarter on quarter percentage change (blue line) if everything is static then it should sit at the 100% level. This would indicate that each quarter was paid out exactly the same as the previous quarter.

Actual revenue numbers may change due to traffic volumes but if what advertisers pay and what Google passes on was the same each quarter then the blue line should sit at the 100% level. This means that when the line dips below 100% we are seeing an overall advertisers/Google payout drop for the quarter. Conversely if the line is above 100% then there is an increase in advertiser demand or Google is paying out more.

When we look at the sudden decline during Q3 then we need to ask ourselves what’s really happening here. Has advertiser demand dropped dramatically due to the summer season or has Google just paid out less? Due to the sharp decline it could be a combination of both factors....but let's dig away.

If we look at Q2 to Q3 2015 we can see that the overall payouts are relatively flat even though Google increased what it paid out to the channel by 1%. So if an increase of 1% effectively negated the seasonality factor back in 2015 when Google releases its Q3 data we should have a pretty accurate picture of seasonality….but I digress.

My goal here is to estimate what Google paid to the domain channel for Q3. Essentially the domain payouts contracted by 15% for Q3 which is actually in line with many domain investors’ expectations of the northern hemisphere summer decline. It just looks like a big drop because we came off a high rate of payouts at the end of Q2.

All things considered, I believe the Google TAC will be flat and the drop was the impact of advertiser seasonal demand. Where in 2015 this was largely negated by a higher Google payout, this time Google has passed on the pain.

I’ve drawn the red line in the chart to continue the yellow line so it will be interesting to see if I’m right or not at the end of the month when Google releases its actual quarterly earnings report.

If I am correct then I think it will be time to do a dive into more data to see what else domains can help us predict. The next port of call will be to a stock broker!

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