Bought BuyDomains, and why the price might make sense — Why Endurance
BuyDomains is a natural fit for Endurance, and you need to look at more than price-per-domain to understand its value.
Endurance International, a $2.1 billion (market cap) rollup of hosting and domain name firms, disclosed this morning that it purchased BuyDomains from NameMedia.
The tie-up makes sense for Endurance, which is generally considered the #2 domain name registrar in terms of domains under management. It will now be able to sell its massive client base a premium, high-margin product. BuyDomains will also be another client buyout channel for Endurance’s web presence services.
“One thing we continue to do is look for opportunities for our clients to get online in a thoughtful way,” Endurance EVP Brian Unruh told Reglike today. “We’ve been attracted to the BuyDomains team and business [for awhile].”
The buyout includes a portfolio of nearly one million domain names, the two BuyDomains storefronts (BuyDomains.com and DirectDomains.com) and associated intellectual property. The intellectual property is essentially the data and algorithms that BuyDomains uses to decide which domain names to register and acquire, and at what price.
Both firms are based close to each other in Boston, and the BuyDomains team will move in with Endurance shortly. BuyDomains will be run by Jason Miner, who has been the COO of NameMedia.
Although the one million domains that came as part of the buyout have value to Endurance, the firm does not plan to start acquiring other domain portfolios.
“Endurance is not going to turn into an acquirer of portfolios, but the BuyDomains business will continue to acquire domains,” Unruh stated.
Endurance disclosed the buyout in combination with two other acquisitions, totaling $77 million. On the investor conference call this morning, Endurance executives stated that at least one of the other firms was very modest, so BuyDomains probably makes up a sizable chunk of the $77 million. [Update: Endurance paid $44.9 million.]
Is that a good price?
Assume, for a moment, that the entire $77 million was for BuyDomains. With 950,000 domains (based on nameserver records), that comes out to regarding $80 per domain.
That might seem like a low valuation for a firm that regularly pays more than $80 to acquire domain names at auction and has a median sales price that hovers around $1,200-$1,500 per domain. But remember, the firm doesn’t sell 100% of its domain portfolio each year.
Suppose the firm sells 2% of its portfolio each year at a $1,000 average price. That would be $19 million in revenue. Then you need to subtract regarding $7.5 million in annual renewal fees, plus the overhead of running the business, and some portion of continual domain buyout costs. Suddenly, a price tag of less than $77 million makes sense. Granted, we don’t know the actual price and metrics, but the point is that you can start to make a case for a valuation at multiple price points below $77 million.
The latest official numbers available regarding the firm were disclosed in NameMedia’s 2008 amended S-1 filing. In 2007, the NameMedia’s marketplace business (which excludes domain parking) had an EBITDA of $16.848 million. Remember, that includes the Afternic business of selling third party domain names, which NameMedia sold to Endurance competitor GoDaddy last year.
(Also from the S-1: NameMedia paid $72.5 million plus some equity for the BuyDomains business in 2005.)
On its investor conference call today, Endurance executives stated the acquisitions have an EBITDA in the mid-single digits. That can be a good deal for a public firm as a buyer, and also a good deal for a private firm as a seller. Especially one with slowing growth.
From NameMedia’s perspective, it by now sold off its Afternic business. Only the BuyDomains business remained, and its investors were surely looking to close out the investment.
