DomainTools Blog

A few weeks ago, during the Tucows fourth quarter and year-end 2007 results conference call, Tucows President and CEO, Elliot Noss, made reference to the fact that Tucows has been building up an extensive portfolio of domain names over the past few years. He promised to provide some transparency into those domain holdings in the coming weeks. Just today they released details about the size and makeup of their domain name holdings, including a list of 100 “Gems” of the Portfolio. You can read more about the about the Tucows Portfolio online as they are starting to open up about the domains.

Tucows commented,

“Our strategy to acquire expiring domain names differs from that of some other large Registrars who have focused on domain name auctions. Tucows believes that there is substantial value in holding on to these domain names, both in terms of monetization through pay-per-click advertising, but also in terms of the resale or lease of high-value domains to individuals and businesses that understand the intrinsic value of a high-quality domain name.”

My take on all this is, Tucows is building real value. Once main-stream investors factor in how much the Tucows portfolio is worth, the price of Tucows stock should rise accordingly. However, I think the stock is well under-valued and will stay that way for a while. Main stream investors are always late to the game. The market cap on Tucows is currently at $50MM, almost an all-time low. In the 2001 bubble Tucows reached just over $15 a share, it is now down to $0.68 a share. If Tucows continues buying up valuable domain names at registration prices I can see the value of the company doubling in the next 2 years. However that is only my opinion and “no” I don’t own any shares of Tucows.

I started to browse their portfolio using some DomainTools magic and they have some killer domains: SkateBoarders.com, Francisco.com, Marker.com, COO.com, Hardy.com, Liberals.com, Macy.com, Marlin.com, Nickels.com, Rhea.com, Coward.com, Crochet.com, GreyMarket.com, GoldenRetrievers.com & Retrievers.com.

Tucows has acquired ItsYourDomain.com (an ICANN Accredited Registrar) for US$10.35 million in cash for IYD with the opportunity for IYD to realize a further US$1.05 million based on specific targets. The registrar is said to have around 700,000 domains under management. Our internal figures from Name Intelligence put it at 695,699 domains. I am sure there are some .NAME and .MOBI we are not counting (Our internal stats are only off by 4301 domains). This means Tucows paid about $16.29 per domain under management. ItsYourDomain does about US$7 million in yearly revenue and between US$1 and $2 million in adjusted net income. This means that each domain brings in about $1.42 to $2.85 in adjusted net income per year. ItsYourDomain sold for between 5.7X and 11.4X. We can average that and say it sold for 8.5X.

Stick with me here, it is about to get good. If the total Tucows ends up paying is $11,400,000 and we also know that ItsYourDomain has 0.728 percent of the marketshare. That would mean that all registrars combined are worth $1,565,934,065.93 ($1.5 Billion). ItsYourDomain is a good measuring stick because it is a reseller or wholesaler of domains. That is a registrar that does not offer a lot of extra services.

Registrars are worth a minimum of $1.5 B according to this sale. Network Solutions just sold for a rumored $900 Million and they only had about 6.6 Million domains. That would have put a value on all the registrars in the market at about $129,626,962,408.18 ($129 Trillion). Network Solutions is a retail registrar with some of the highest margins in the industry. So this is Apples and Oranges here but the ratio is 12:1000. I think Tucows got an excellent deal! If they can convert a few of these customers into higher margin customers they are doing a good thing. Everyone is likely to be raising their rates when Verisign adjusts there prices up in October. So that will be a good time to earn a little bit more from the ItsYourDomain customers.

If you look at this from the GoDaddy angle, Tucows would be willing to pay $317,696,703.30 for GoDaddy. I figure GoDaddy is worth at least $1 Billion. So Tucows got a 2/3 off deal on ItsYourDomain.

The founders of ItsYourDomain, James McKenzie & Ted Cucci, will be running their new venture Network Merchants. Tucows will also be a customer of the company. Tucows’ plans appear to be to integrate the entire company inside Tucows. Employees will be kept on for a transition period of 90 days and will then join the founder’s at their new venture.

Here is the Video of Elliot Noss (CEO of Tucows) talking about the purchase.

A few ex-tucows employees started working on their top secret startup last year and they have just moved it from secret to beta. The site is called Shared Reviews.com. Brilliant domain – I already know what the site is about before I get there. The site allows people to write reviews and get paid $2 per review. This startup is doing something that Amazon should be doing, paying people to write reviews, but I am not sure $2 moves a lot of people to write reviews. I’m not sure what the right model should be, but I think they should pay people based on the quality of the review. It may take 10 minutes to write a review, and in that case $10 an hour is good for minimum wage.

We were not able to see any reviews yet, but they promise those are coming. This seems like a super stealth startup. Not a lot is being shared but they promise it will make more sense this summer as everything comes online. Meanwhile, anyone can start writing reviews and get paid for it.

The ICANN meeting in Lisbon has started and there are a lot of issues being discussed. Elliot Noss, the President & CEO of Tucows, posted on their corporate blog an article titled “Questions to Ask Before You Pick Your Domain Name Registrar”. The ten bullet points that he covers are good questions that should be asked and, we would say, continued to be asked every year. The registration process changes over time and so do the policies of registrars, registries, and ICANN.

The important summary of the article is that a user should know how a domain expires at the registrar and how they get the domain back if it expires. It can be time consuming and is now getting increasingly difficult and costly to retrieve a domain past expiration. The next thing to consider is how portable the domains are – can you unlock them and move them? The transfer policy can be different at every registrar. Always use a registrar that offers the ability to auto-renew with a credit card or funding source. The user should be able to stop auto-renewal if they don’t want to hold on to a domain name, because some names are junk and aren’t worth renewing. Word of mouth about the registrar is good to check – ask people you trust or read blogs or news groups that discuss the registrar.

1. What is your primary business model?
2. Do you make transfers as easy as the rules allow?
3. Do you allow for easy locking/unlocking?
4. Do you make it easy to opt-out of auto-renewals?
5. Do you tie domains to your services?
6. Do you offer Whois privacy? What are your privacy policies in general?
7. What are your policies on compliance issues like litigation, ownership disputes and WDRP?
8. How easy is it to contact you?
9. What happens when my domain expires?
10. Are you a registrar or reseller?

The article is a good read and is heavily detailed about registration issues.

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