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Endeavour is an interesting word and one that until recently many domain owners may have forgotten exactly what an endeavour actually is. Why do I say this? For the past few years the domain industry has been awash in a bath of cash that has been largely generated from traffic and topped up with a few sales.
 The GFC (Global Financial Crisis) stepped in and quite quickly smashed the house of cards and the cashflows that were used to sustain a lifestyle of Pina Coladas vanished almost overnight. So rather than take the limo to the next bar many domainers found themselves having to actually do “stuff”. Stuff such as setting keywords, templates, changing nameservers to hunt down the best options for a domain, investigating building out etc.....all of this requires real work and takes real time.....so much for the passive income!
The rules of business 101 began to be applied and many of us discovered that living off revenue is not the same as living off profit. If you end up drinking your revenue then you’ll soon discover that come re-registration time there isn’t any cash left in the bank.
Over the last 12-18 months many domainers have been running around selling domains in order to pay for registrations on domains that actually produce profits. There have been a number of fantastic buys available for distressed portfolios. I believe that what’s really occurred in all of the buying and selling is a fundamental industry shift from a revenue to a profit mentality.
As I’ve already stated revenue is almost useless if it is equally matched by an equivalent amount of expenses. For example, let’s imagine that I’m selling a portfolio of domains that is doing $100K per year in revenue and yet the registrations for these 10,000 domains amounts to roughly $100K.
The industry standard for valuing domains is multiples of revenue so I ask for 2 times revenue which is $200K. Unless the buyer drops the majority of the domains then they are going to lose their shirt! This means that when purchasing domains an important metric to look at is the yield (ie. free cashflow) per domain which is the revenue less all costs (ie. profit per domain). In my contrived example the profit per domain is $0 if you paid $100K for the portfolio let alone the asking price of $200K.
Given that this is the case what we then need to examine is the distribution of what percentage of the revenue comes from what percentage of domains. This will then help assess as to whether it’s possible to increase the profit on the portfolio by dropping the a lot of the domains. It also is a possible indicator on the financial risk associated with the profolio.....more on this in an another article.
In the next article we’ll take a look at an example of what is likely to be occurring to domainers right now that raised cash to purchase assets in the form of equity.
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