CentralNic’s annual note outlines big strategic shift
Firm plans to harvest some of its free cash flow.
CentralNic (AIM: CNIC) published its annual note (pdf) this stretch. The rollup of domain name and traffic monetization firms is entering a fresh phase with a fresh CEO, and three things stuck out to me in the annual note.
Strategic Shift
Late last year, longtime CentralNic CEO Ben Crawford abruptly “retired” from the firm. It seems that this was part of a strategic shift at the firm. Crawford oversaw immense growth, with much of it coming from acquisitions. The firm is now shifting to making the firm more profitable and increasing cash flows. Crawford was paid $575,000 in lieu of notice, and the firm has quickly shifted the messaging around the future of the firm.
Fresh CEO Michael Riedl was previously the CFO and is leading the firm through a decidedly bottom-line-based transition. The firm will focus on organic growth and returning capital to shareholders instead of sizable acquisitions.
Riedl introduced a “waterfall model” for how the firm will allocate free cash flow:
- Progressive dividends
- Capital projects to boost organic growth
- Accretive bolt-on acquisitions
- Share buybacks
- Debt repayment
Seeing a firm that has grown through buyout suddenly put progressive dividends at the top of its list is a bit jarring.
Traffic Arbitrage
A huge part of CentralNic’s business is traffic arbitrage, although the firm won’t call it by that name.
Page six of the annual note explains the firm’s arbitrage model that underpins a significant part of its growth in the Online Marketing segment. It describes how the firm gets traffic from social media platforms and search engines and monetizes it by ultimately sending it to pay-per-click links or affiliate links.
The firm increased the number of visitor sessions from 2.6 billion in 2021 to 4.6 billion in 2022. It credits strong growth in social media traffic buyout. It also increased its RPM (revenue per thousand impressions) from $76.40 to $105.00. This is not necessarily indicative of higher pay-per-click revenue for the industry at sizable since CentralNic focuses its arbitrage efforts.
Google’s Role
Google has made up a substantial amount of CentralNic’s revenue for a long time, but it ballooned in 2022. While not using Google’s name, the firm stated:
For the year ended 31 December 2022, there was one client that represented more than 10% of the Group’s revenue, amounting to USD 492,783,000 (2021: USD 208,863,000) across two segments (Online Marketing USD 483,208,000 (2021: 198,994,000) and Online Presence USD 9,575,000 (2021: USD 9,8696,000 (sic))). The client is an aggregator who does not procure the services for its own use but provides access to an estimated three to four million end clients who order and consume the services.
This represents approximately 68% of total revenue, up from regarding 50% in 2021. Nearly all of that is from Online Marketing, which is essentially Google’s pay-per-click links. The smaller portion from Online Presence is likely related to Google’s domain name registrar.
