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

Why Rightside is a Good Long-Term Investment

Why Rightside is a Good Long-Term Investment

In a previous article (click here) I wrote about some of the challenges that I believed that the publicly listed company, Rightside, was facing in the short-term. In particular, I explored the registry business as a reflection of the entire new gTLD space.

Now let’s take a look at the Rightside registry, now from a quarterly targets perspective but from a more long-term point of view. If the business unit can sustain the most recent quarter on quarter growth rate of 26% then in the long-term the registry business will just print money.

Escrow.com

As the following chart shows, a consistent 26% growth rate will mean the registry business will eclipse the registrar business and leave it behind. At the end of 2018 (which is only just over 3 years away) the business will be doing around $50m per quarter.

Rightside Registry

The great part about this is the cost base doesn’t scale with the revenue. Adding additional records to a database isn’t a big problem once the servers and software has been developed. To date, Rightside has been sensibly focused on expanding the distribution channels for its own TLDs and partnering with companies such as Donuts to supply registry services.

If the latest growth rate in ngTLDs is sustainable then the Rightside registry will very quickly become the largest business unit in the company. In my previous article I indicated that Rightside was a great company without any sizzle……although the registry looks exciting there’s still the risk that the growth rate falls off.

If the rate of grown falls back by 50% to 13% then the revenues at the end of Q4 2018 drop dramatically to $11.8m per quarter. Remember that globally the sales of new domains is running at around 6.5%.

I still believe that there is an opportunity for Rightside to purchase a business or develop a complimentary business over the next few years that can augment all of their business units. More importantly, it needs to be one that will get the market excited and interested in playing with the stock for capital value. This will then ease some of the pressure of the management team and allow them to take a longer-term view of the business.

I would remind everyone that I do not own any Rightside shares and that if you are considering to invest in anything that you seek professional advice before doing so.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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New gTLDs - It's not if, it's when

New gTLDs - It's not if, it's when

A number of domain owners have come to the misconception that I don’t believe in the new gTLDs. This couldn’t be further from the truth! What I’m wrestling with is the when not the if the new gTLDs take-off.

In the last 12 months there has been a lot of growth off a small base with the new gTLDs. According to ntldstats the numbers have grown from around 3.6m to just over 10m so far this year. This is around 270% growth this year (off a small number compared to the incumbents) and pretty good when you consider it wasn’t long ago when there were none. Yes, I know these numbers have to be taken with a grain of salt.....but let's ignore that for the time being.

Escrow.com

The number one problem for the new gTLDs isn’t the initial flurry of sales and trying to hit yet another quarterly target. The problem is getting accepted by society as a means to navigate the Internet. Most people have been scripted to automatically type in .com or their ccTLD extension. To change this behaviour is going to take time.

You also can’t compare the new gTLDs to the early days of .com. They’re completely different. When .com was released, it and a handful of other extensions were all that you could get. It was a case of a limited supply and a massive latent demand fueled by billions of dollars of investor funds and media hype.

If you tried to compare .club to the early .com rush you would say that it’s not growing fast enough. But this would be a completely wrong conclusion. Dot Club is ultimately competing against 1,000+ other extensions all vying for a slice of the domain market....let alone the entrenched players. To already have 348,000 plus registrations is nothing short of phenomenal.

Just for the record, I picked dot club as an example because they do an amazing job at marketing and in my opinion will be one of the winners in the new gTLD registry race. I didn’t pick them because they sponsor the my blog!

What all of this is telling me is that the growth rates for the top ten new gTLDs are impressive but the bottom 690,000 are lagging behind. Is it their product, their marketing or something else?

I’ve heard people say that the registries should spend a lot more on marketing….in my opinion, this is really muddy thinking. The registries are selling a low value item and crossing their fingers that renewals in future years will yield them an ultimate return on their investment. Besides, if you’re tackling a global marketing anything less than about $100m for a marketing budget is not enough. The fact they are spending anything is a real miracle.

So what are most of the registries doing? Really simple, they’re growing, maybe not as fast as they might want to but the growth is still there. So my guess is that many of them are keeping their cash in the bank as they effectively buy time to become profitable. The ones that can't stretch the cash will fall by the wayside (ie. be sold) and the ones that reach profitability effectively have a license to print money. It really doesn't cost that much to update an entry in a database....so costs per unit sold trend towards zero. Verisign proved that this model worked and in the case of the new gTLDs they just need time.

So now I want to put my domain investment hat on to decide whether to invest or not. Here’s my challenge, other than through blind luck in a market that is saturated in supply it’s really unlikely that I’ll pick up the right domain now that I will sell for a fortune in the years ahead. So I’m waiting….

I’m waiting for the general public to start using them, not the odd showcase. I’m waiting for my kids to use them and my wife to tell me about a new website she’s just been to that happens to use a new gTLD. At that point in time I’ll have done all of my analysis, picked what I believe is the right extensions and buy in big time. Up until then, it’s a bit of a crap shoot.

In a market where there is a massive excess in supply there is no rush to buy. Just be patient and wait….let the market settle down and see what happens to the different registries. Do your own analysis and pick off what you believe will be winners. After all, what’s the point in investing in an extension if the registry is sold to someone else and they change some of the rules about your investment?

It will be really interesting to see what happens over the next 12 months and how many of the new gTLDs get picked up by people in some of the underdeveloped countries. They haven’t been born and bread on .com so it is likely to be a bell-weather of the future of the Internet.....so my advice, look to the newbie Internet users and how they navigate to help guage the timing for your investment.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Cybrands
We have a project that's the potential to take nearly all gtlds to mass-adoption level. Project is here: taglinc.com Several re... Read More
20 November 2015
mgilmour
Congrats! I'll have to check it out.
20 November 2015
mgilmour
That can be true....but the real question is when will they "come of age"?
20 November 2015
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The Rightside Challenge and the New gTLDs

The Rightside Challenge and the New gTLDs

Rightside, a publicly traded registrar/registry, released their quarterly earnings statement this past week and it made really interesting reading. What I found fascinating was the picture that was being played out in the domain sales space and how it reflected on the new gTLDs.

Rightside Share Price

The Rightside share price (chart above) has suffered at the hands of investors as they struggled to come to grips with the new gTLD phenomenon. The slide down from a height of $15.85 per share as ICANN dragged its feet was momentarily bolstered by the April quarter results from actual release of a number of extensions. Right now, investors are still wrestling with the potential financial windfall from new gTLDs as the share price now languishes at $7.63.

Escrow.com

It’s difficult for any business to try and communicate to all of the stakeholders the benefits of a strategy that may suddenly have an extended time horizon. This looks to be the case with the capital markets, Rightside and the new gTLDs…..but is there a glimmer of sunshine coming through the cloudy sky? Let’s begin to unpack this…

In the previous quarter’s report there were a couple of slides that really leapt out at me. The first one showed that back in Q2 2015, 83% of revenue was subscription based and that 74% of domain registrations were being renewed. It also helps that the average revenue per domain is continuing to trend upwards. These figures are underpinning a very healthy business that is continuing to grow quarter on quarter as the Rightside team executes the business plan.

Financial Model

According to the Q2 report the target revenue growth is 9-15% in 2015. I crunched some numbers and it looks like they’re currently (ie. Q3 2015) at about 13% above Q4 2014 so it looks like they are going to hit the top end of the growth target…..all good news for investors!

Despite the good news of hitting targets I thought that it would be a worth digging further into the numbers to see what was going on. If we are to look at the revenue graphs you’ll notice that both the Registrar and the Registry are very slowly trending upwards to the right.

Revenue by business unit

The Aftermarket is actually pretty flat….which is surprising given the level of cash recently being injected by Chinese investors into the domain space. It will be interesting to see if there is an uptick in the Aftermarket space in the next quarters report.

Given the renewal rates, the registrar numbers weren’t too surprising. A large number of domains produces a lot of money in subscription revenues. What did catch my eye was the registry growth.

There seems to be a huge amount of money being pumped into the new gTLD space and yet the actual revenue numbers seem to be quite small. Yes, the business unit is just over a year old but even still, I would have thought that there would have been an initial kick up in actual revenue.

Quarter on Quarter Growth Rates

The second chart shows the quarter on quarter growth rates for the three business units. In this case the registrar is very flat and typically growing at around 2-3% per quarter….although this does aggregate up to 7.6% for Q3 2015 compared to Q4 in 2014. It’s only a smidge above the annual 6.5% growth rate for the entire domain registration space but shows that Rightside is slowly gaining market share rather than losing it.

The Aftermarket is more volatile with swings from 85% of the previous quarter to 116% since Q4 2014. The business unit is doing $7.8m on average for the three quarters in 2015 which means that it is 90.3% of Q4 2014 or exactly line ball if you compare the first three quarters of 2015 vs. the last three of 2014.

What is incredible is the change in growth rate for the registry business. There has been a sharp reduction in quarterly growth from a high of 250% to a current level of 26% per quarter. It is early days for this business unit and some volatility is expected. Consideration must also be given to these figures being off a low starting base.

This registry result would be a great result for an established business but it poses a number of questions about what is happening in the new gTLD space. More than half of the Rightside Q2 report was dedicated to explaining what new gTLD’s are to investors. This makes it very clear that Rightside is putting a LOT of eggs in the new gTLD basket.

For example, there’s even a slide that poses the typical investor hockey stick scenario. It essentially says, the whole world is the market for the new gTLDs….if only we get a small slice of this big pie we will win big time! I must admit that I really don’t like these types of slides as they come across as being quite silly (slides 13 and 15 of Q2 presentation – see below).

Market Size

From the chart below the incumbents have not been able to secure the “new market opportunity” and it’s very unclear whether the new gTLDs are going to be able to either. As the market matures, I wouldn’t be surprised if the new gTLDs end up settling into a growth rate of around 6-8% per annum which means the aspiration of the “new market opportunity” will largely remain untapped.

Market Size

The fuel for the new gTLDs to secure massive growth has to be found in the sales and marketing budget, in the case of Rightside its $2.6m for the last quarter. When we’re talking about changing human behaviour on a global basis I would have thought that this budget would have had to be much, much larger. The next couple of quarters will really provide a good solid picture of the new gTLD space and whether it’s going to take off or not…..it will be interesting to see.

The problem is that the markets want Internet companies to have mega-unrealistic growth rates that they can fall in love with. They want the next dropbox or snap chat that they can madly invest in and then dump after they’ve made a capital killing on the ride up.

Here’s the challenge for Rightside….it’s a good solid business with sustainable revenue into the future. No problem at all with that….BUT….it looks and feels like a mature long established company in the mining or industrial sector that is selling widgets to other businesses. Great business but really boring.

The impression is that Rightside has looked to the new gTLDs as the sizzle that would get the market excited about them….it’s early days yet but don't think this is going to pan out quickly enough for the company. Eventually, the investors will come in and hack the expense line to pieces (ie. fire lots of people) to get the profits up since their returns are unlikely to come from capital growth.

In my opinion, what Rightside needs to do is speculate by buying a few bleeding edge innovative companies. Off the back of their good solid revenues they need a nascent technology in the domain space that is uninhibited by growth constraints. A technology that doesn’t need to convert the masses or do corporate deals that take years to come through. This is the sizzle that will get the market excited enough about the share price so that investors will once again play the capital game.

I get the feeling that if the investors give Rightside enough time then the company could become one of the great flagship in the domain space. Only time will tell whether the management team will be sucked into the vortex of quarterly targets or are given the space to revolutionise the entire domain industry with a fresh sense of vision. This will be an exceptionally difficult task but given the team line-up there is a good chance they could pull something like this off.

Just to make it very clear, I’m actually still quite bullish about the new gTLD opportunity for domain investors. What I do believe is that it’s going to be a 5-7 year time horizon for any investment to yield reasonable returns. The Rightside numbers have reinforced this perspective and my personal position of “keeping my powder dry” and waiting for the most opportune moment to invest.

I should say that I do not own any shares in Rightside and would recommend that you seek professional advice prior to investing in any company.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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mgilmour
You could be right on that.....I was looking at a possible way forward with the existing team. Acquisitions, like name.com is a po... Read More
16 November 2015
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ICANN Dublin

ICANN Dublin

Once again I’ll be heading off overseas to meet up with a gathering of individuals that are entirely immersed in the world of domains. This time my trek leads me to the fair land of Ireland and a people that seem to sing their words rather than speak. This is a fact that my wife absolutely loves about the Irish!

So after a short hour or so visit to Dubai and twenty-four hours in a flying tin can I’ll arrive in Dublin. After surveying the conference agenda, the first thing that has struck me about ICANN is the crazy number of acronyms. I’m a programmer and also a private pilot and let me assure you that ICANN has managed to surpass even these two noble pursuits with the number of abbreviation they inflict on everyone.

Escrow.com

A classic example is on Sunday. I’m trying to work out whether I should go to the GAC, ICG, RySG-CEO TLDs, GNSO or ALAC sessions? Of course there is always the ccNSO or ccNSO SOP or BC-BRG as options as well. Seriously???? It looks worse than my kids texting their friends!!! I must admit that there is one session that looks particularly good…..”lunch break” J

So why am I going to be attending ICANN? It’s really simple, ICANN is a place where business gets done. It’s full of potential ParkLogic clients and the information that you can pick up from talking to individuals is nothing short of brilliant.

Like any organisation, it will take some time to get to know the ropes but this isn’t my first and I know a lot more people who attend ICANN than I did a few years ago. It will be great catching up with them to find out how many of the rapid changes to the Internet over the last 12 months are impacting their own businesses.

In the meantime, I’d better go and pack otherwise I’ll miss my flight….see you all there!

Cheers!

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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Edgevaderpro
Looking forward to seeing you. Again!
18 October 2015
mgilmour
We were like ships passing in the night......need to catch-up at NamesCon :-)
28 October 2015
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Sneak Preview of ParkLogic Next

Sneak Preview of ParkLogic Next

At the recent Domain Conference in Fort Lauderdale, ParkLogic released a sneak preview of what we are calling “ParkLogic Next”. We will be publishing a series of short videos featuring different aspects of Next over the weeks leading up to Namescon in January. It's something that we're really excite about!

Escrow.com

About 18 months ago, we made the big decision to rebuild our entire platform and infrastructure from the ground up. This was one of the best decision that we have ever made. With nearly a decade of accumulated knowledge and experience from extracting the full value from domain traffic we are on the cusp of releasing what we believe is a ground breaking domain platform.

We had a number of goals in designing Next:

  1. Informative – you can now view different aspects of your data at the click of a button. Everything from Excel like filters to adding trend lines are at your fingertips.
     
  2. Actionable – you can make decisions from the data before you.
     
  3. Fast – we don’t want clients to have to wait for extended periods of time for their data.
     

With these three goals in mind we have now released a video outlining some of the features of the Next dashboard. The entire dashboard has been built by accessing our own API which empowers clients to also easily integrate their own variation of the Next platform into their own systems. There is no custom secret code....everything is in the API and accessible to clients.

Putting everything into the API is an important principle. It means that larger customers, registrars and registries can easily integrate Next into their own brandable interface. It also provides a huge amount of flexibility for domain investors who like both an online interface and one that allows them to get under the numbers.

A number of the features of the dashboard include:

  • Adding trend lines at the click of a button
  • Being able to see all of your data via a slider snapshot
  • Instantly move data from a chart to a table for more detailed analysis
  • View the breakdown between mobile and desktop traffic
  • View top referrers, geo-split data and what domains made up a days data
  • Excel like filter functionality to zoom in on the data that interests you.
  • Everything exportable to a CSV file
     

During the next months we will be continuing to extend the Next dashboard and the underlying functionality that will make it the most advanced domain management interface in the world. We hope that you enjoy the first short video giving a glimpse of ParkLogic Next.

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Michael Gilmour has been in business for over 32 years and has both a BSC in Electronics and Computer Science and an MBA. He was the former vice-chairman of the Internet Industry Association in Australia and is in demand as a speaker at Internet conferences the world over. He has also recently published his first science fiction book, Battleframe.

Michael is passionate about working with online entrepreneurs to help them navigate their new ventures around the many pitfalls that all businesses face. Due to demands on his time, Michael may be contacted by clicking here for limited consulting assignments.

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