Company lowers guidance on weaker demand from its domain portfolio.
Web.com (NASDAQ: WWWW) reported earnings yesterday and lowered its guidance for the fourth quarter.
One of the reasons for lowering the guidance is that the new supply of TLDs is causing domain investors to dial back large purchases of existing domain names.
In prepared remarks, Web.com CEO David Brown said:
First, in the domain business, while we continue to expect the recently expanded top-level domain environment to increase our ability to sell domains over the medium to long term, the increased availability of names has had a near-term negative impact on domain-related revenue. This is primarily associated with noncore domain-related revenue such as sales of premium domain names and bulk domain sales. While not a significant part of our overall domain business, it has historically represented several million dollars of quarterly revenue. But given the current environment, we now expect minimal contribution in the coming quarter. In terms of the core domain business, as we have said consistently, it provides an attractive base of high-retention recurring revenue, generating low- to mid-single digit growth.
Web.com, as owner of Register.com and Network Solutions, sells lots of domains from its domain expiry stream. It also holds on to a lot of these expired domain names for resale in the future. These sells amount to a few million dollars a quarter. This appears to be softening as new TLDs come out.
In the call Q&A, Brown elaborated a bit in response to an analyst’s question:
Yes. Let me be crystal clear on this. It really is not a — it’s not a gTLD issue at all. We continue to sell new gTLDs. It really has more to do with some of the premium domains and even domain bulk sales that we’ve historically done. There’s a marketplace out in the U.S. and around the world that buys domains and resells them or monetizes them, and we’ve seen that market get soft. We actually commented on this in our second quarter call that we were beginning to see softness. We saw it continue to soften further. Our belief is the reason the softness is occurring is that this marketplace is looking at all of these new gTLDs coming into place, i.e., there are more options available for people and they’re kind of stepping back away, at least temporarily, to see how things settle out. We continue to believe that this market could come back. But for the sake of conservatism, we have effectively taken this revenue out of our model for the fourth quarter because we can’t predict how long this behavior is going to continue.
A couple things are likely going on here.
First, people that might by a premium domain name through a registrar channel or marketplace site might be opting for a new TLD instead. They might also not see as much premium resale domain inventory in domain search results as it gets “crowded out” by new TLDs. I suspect this accounts for only a small part of the issue, however.
The bigger part of the problem probably has to do with the bulk sales from both the immediate expiry stream as well as Web.com’s domain portfolio. This is softening for two reasons.
1. As Brown stated, some people are waiting to see how new TLDs affect the .com resale market. This wait-and-see approach is affecting short term domain resales.
2. Some of the very people and companies that were buying lots of expired and portfolio domains from the likes of Web.com are new TLD operators themselves, and they’re sinking lots of cash into acquiring and running their new TLDs. This leaves less cash to buy other domain names.
This is not the first time a company has mentioned this resale weakness based on the introduction of new TLDs. Tucows, which has a similar expired domain business to Web.com, reported weakness 18 months ago before new TLDs even came out.
jon says
or it could be domain investors are sick of the bulls**t of every single premium domain being ever in existence being recreated thru a new extenstion.
The registers are cutting their throat with theses new gtld’s just as the numbers
would indicate.
Konstantinos Zournas says
Maybe Network Solutions and Register.com have lost most of the best domains because they are 2 of the worst registrars around?
And because of that and other reasons the quality of expired domains is going down year after year?
Just a thought for the CEO.
Chris Pecic says
I agree Network Solutions is the worst registrar in history. David Brown, the CEO of web.com is a liar, crook, and a flim flam artist.
Phil M. says
Perhaps exclusively promoting new gTLD’s in their register.com funnel and not promoting premium domains contributes slightly to their lack of premium domain sales?
Just a thought.
Andrew Allemann says
I suspect most of their premium sales are through channel partners like Afternic/Sedo.
Tony says
Do you know the true story how the WEB.COM domain was obtained?
Only if you knew…
If you want the real story, I can tell you the details how it all went down that no one really remembers.
Ms. Gutowski, where are you?
Joseph Peterson says
I disagree completely with Web.com’s assessment:
“[Domain resellers / monetizers are] kind of stepping back away, at least temporarily, to see how things settle out”.
Who has stepped back? I have yet to meet anybody — whether domain investor or startup looking for a brand domain — who has curtailed domain purchases in order to wait and see how the future pans out. Of course, I don’t talk to everybody; but I’d think, if this were a general trend, that I’d encounter people from time to time who express a wish to “wait and see” before buying domains in 2014.
Here’s what’s really going on:
1. A significant percentage of domainer spending that would in previous years have gone to aftermarket purchases of .COM and other domains that Web.com sells has instead gone to speculative hand registrations in new TLDs.
Money is being diverted to registries and registrars other than Web.com that cater to bullish nTLD curiosity. Hundreds of thousands of nTLD domains have been purchased by domain speculators, and those dollars cannot be spent on .COMs from Web.com.
This purchasing activity includes some bad bets and already some disillusionment (which will show up in 2015 and 2016 drops). So the shift in spending is not (on its face) any evidence that mainstream consumers or even domain investors have fundamentally changed their habits. But we’ve been bombarded by speculative investment opportunities week after week after week. All those new TLDs will soak up money and dry up the wholesale market for pre-existing domains. At least, they will while each new TLDs is fresh and absorbent.
2. There’s a second-degree effect also. Whatever percentage of domainer spending has gone toward nTLD speculation in 2014 rather than investment in established domains, that money has seen much less of a short-term return on investment. Compared to past years, those funds are locked into assets that mature much more slowly.
Turnover on nTLD domains in the aftermarket is minimal right now compared to what it would be for a similar cash investment in domains more familiar to retail buyers — domains which also have greater consensus in valuation among wholesale domainers, which aids liquidity. Investors in new TLDs (including me) will point out that nTLD purchases are long-term investments. For the most part, the retail market isn’t ready to pay what they may be worth. And whether it ever will be is an open question.
What am I getting at? Suppose for the sake of argument that 25% of domainer spending in 2014 has been locked up in .VENTURES and .GURUs. In past years that 25% of wholesale spending would have generated a greater short-term ROI, which would in turn fuel reinvestment in the wholesale domain market.
Few domainers expected liquidity to fall off so sharply, even while we have been — as a group — tying up a large percentage of market spending power in perishable commodities with the worst kind of short-term liquidity: nTLD domains.
When money flows from domainers to registries and registrars but fails to generate profit from short-term flips, the wholesale domain market has less to spend. Simple.
Getting back to the comment from Web.com’s CEO, it’s not wholesale domain buyers have been “stepping back away”. Rather they’ve been jumping in with both feet.
Adam says
“It really is not a — it’s not a gTLD issue at all.” and then “the reason the softness is occurring is that this marketplace is looking at all of these new gTLDs coming into place” then . . .it is a new TLD issue
I think the softness comes from poor sales platforms to sell those names, maybe a poor sales force, etc. This revenue could easily be shored up. There is no softness from my vantage.
John says
Parking income keeps going down. That’s why.
Chris Pecic says
David Brown, the CEO of web.com is a clown and an empty suit.
Chris Pecic says
David Brown is as dishonest as Hillary Clinton.