Investing in domain names

[Mark Jr.]

Do you have a recommended registrar for newer TLDs?  I note that for the new TLDs, initial and ongoing renewal prices vary greatly, so the prices matter way more than just paying $10-15 for the old ones. 

 

Is there a place to read about how the new TLDs are priced?

 

I'm not aware of any thing about the new TLD pricing per se. They are a lot more expensive than .com / .net etc (registrar wholesale cost on a .com or .net is about $8.50 or thereabouts) on the new tlds they run from $40 or higher.

 

This is because most new TLDs will fail over the long run, I think the operators know it, and the basic play is to make as much money as possible in the initial sunrise (which is even more expensive) and landrush phases.

 

For specifics if you google the TLD you want you'll probably see adds for the rars who are running specials with the best deal (just make sure you actually get the advertised price, registrars are famous for bait-and-switch google ads that advertise a low price in the search result and than the signup process upsells you six-ways-to-sunday and your final checkout is about 100X more expensive.

 

I wrote a couple of articles on the new TLDs:

 

Who will be the big winners and losers of the new TLDs?

http://www.domainnamenews.com/editorial/big-winners-losers-tlds/9646

 

Do you really need yourname.BLARGH?

http://blog.easydns.org/2014/03/28/the-new-tlds-are-here-email-guru-holdings-blah-blah-blah

 

[Mark Jr.]

Oh boy, I can't believe I missed this thread until today. Now you guys will never get me to shut up about this.

 

Let me help you...  ;D

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/vrsn-verisign/  - the Verisign thread

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/dmd-demand-media-11074/  - the Demand Media thread

 

Thanks, I will check out those threads.

 

Briefly: Verisign has a moat. It isn't as wide as it used to be, but it's there. In practical terms they will probably run .com for a long time, although IIRC their annual 7% price hike which was baked into the contract was striken down last year (I could be wrong on that, 'cause my wholesale price on .com and .net still went up), they still have the ability to raise prices and .com will be the dominant domain for at least a decade.

 

I'm not following them too closely tho. After the GFC, like around 2010 or so, they were trading at a single digit P/E, but I never picked any up (actually I had a bit for awhile, nothing huge and I sold fairly early on in the run)

 

If they ever get cheap again they may be worth looking at (basically I think nothing is cheap right now, hence selling Tucows)

 

Demand Media - never understood why anybody would want it. If you were compelled to invest into the space, with Tucows sitting right there actually making money, buying back shares, why buy Demand? Just buy Tucows instead and now you get Ting as part of the package. Doesn't make any sense.

 

Godaddy, like Demand Media, will not cheap, is losing money, doesn't pay a dividend or buy back shares and will use the proceeds of their forthcoming IPO to pay out the PE firms.

 

Again, doesn't make sense to me.

 

If you *must* be invested into the public domain companies, buy Tucows and Verisign - ideally next time they get cheap.

 

My 0.02

[ItsAValueTrap]

What do you think about NAMEV and eNom?  (I've written about them at http://wp.me/p1mOGr-UV )

 

Though I do agree with you that nothing is particularly cheap.

 

Demand Media - never understood why anybody would want it.

It's probably because most of the people who own it don't understand it?

[Mark Jr.]

What do you think about NAMEV and eNom?  (I've written about them at http://wp.me/p1mOGr-UV )

 

NAMEV ended up being the Rightside spin-out right? So Demand put eNom into Rightside.

 

Most of your comments in that article are accurate, some minor qualifiers - I have a long mixed history with whois privacy - we used to not sell it, now we do but we sell with that caveat that you can really screw yourself with it. Godaddy has made it part of their business model that they use whois privacy to make it an insurmountable headache to transfer out (the price usually resets from 1.99 to 9.99 in concert with this) - also - whois privacy costs the registrars nothing. There is no COGs on it, it's all margin.

 

Anyhoo, your comments on Demands business model are spot on, I wrote about it on WVI here:

 

Not Needing Google. The Web version of a "wide moat"

http://webvalueinvestor.com/value-investing/not-needing-google-the-web-version-of-a-wide-moat/

 

Also, Network Solutions (along with Register.com) got rolled up into Web.com (WWWW).

 

Rightside and WWWW both  have enormous investments into the new TLD space, Tucows on the other hand, while enabling their resellers to registers all thenew TLDs, did NOT pile in and throw a tonne of money into becoming any new TLD registries. This was very smart IMHO as I think most of the investments into new TLD registries will be written off over the years. The Tucows approach was to let their competitors get distracted by the new TLDs and they would concentrate on their own stuff.

 

[usdtor05]

Mark Jr.

 

When looking at Rightside, they have a projected $28M of "aftermarket and other" revenues that are primarily made up of advertising on domains they own and buying/selling domains. The cost structure from this business is not broken out from the costs of its domain name services biz. We have an "estimate" of what we think the margins should be on the DNS business, but don't know how we should think about contribution margin on the "aftermarket and other." Do you have a sense for what the margins would be on this type of aftermarket business?

 

Thanks.

[Mark Jr.]

Mark Jr.

 

When looking at Rightside, they have a projected $28M of "aftermarket and other" revenues that are primarily made up of advertising on domains they own and buying/selling domains. The cost structure from this business is not broken out from the costs of its domain name services biz. We have an "estimate" of what we think the margins should be on the DNS business, but don't know how we should think about contribution margin on the "aftermarket and other." Do you have a sense for what the margins would be on this type of aftermarket business?

 

Thanks.

 

Hey, sorry for the delay replying. Their revenues are probably a combination of 1) PPC revenues (ads on the parked domains) - which are in secular decline across the entire industry, 2) aftermarket sales of domains based on PPC (domains with cashflow) - which are also in secular decline - multiples coming down as PPC dives, the business model looking less attractive and 3) aftermarket sales of "brandable", and "generic" domains - which are not nearly as lush as they used to be (names that used to go for xx,xxx now go for high x,xxx, etc)

 

So I haven't read the docs, but that 28M will be under relentless downward pressure.

 

The good news is their costs are near nil per domain - they are mining their expiry stream so each domain simply costs them the wholesale cost of a domain with their respective registries (something like $8.25 for .com, 6.25 for .net, somewhere around there)

 

So whatever that channel does yield, it's nearly pure profit. Which is always nice. (I'm speaking in general terms, I have NOT reviewed the NAME filings at all)

 

- mark

 

 

[Ham Hockers]

Short and sweet. Also has Ben Edelmen near the end (I presume the same Harvard prof who had the Chinese delivery ruckus a month or two ago)

 

http://www.npr.org/blogs/money/2014/04/16/303735386/episode-532-the-wild-west-of-the-internet