My thoughts on Tucows’ earnings note
Tucows noted nice increases in revenue and income. There are changes afoot in its business, though.
Tucows (NASDAQ:TCX) noted first quarter earnings following the market closed Wednesday. The headline numbers are:
- Net revenue up 38% YoY to $95.8 million
- Net income up 53% YoY to 3.7 million
- Adjusted EBITDA up 64% YoY to $10.4 million
Domain segment revenue increased from $50.3 million in Q1 2017 to $72.2 million in Q1 2018.
But…these numbers are a bit tricky to compare. Tucows purchased Enom on January 20, 2017, so the numbers get a bit of a lift YoY. A bigger impact was the bulk transfer of Namecheap names in January this year. Domain registrars recognize revenue over the life of a domain name registration. Transfering these names to Namecheap accelerated revenue recognition to the tune of $14.6 million.
On the cost side, it accelerated its recognization of $14.5 million in prepaid registry expenses.
This shows just how low the margin was on Enom’s Namecheap deal. Still, the firm benefited by monetizing Namecheap’s expired domain names.
Tucows CEO Elliot Noss also provided some commentary suggesting headwinds in the mobile access business Ting. When Ting came on the scene, the mobile phone business was a complete mess. Everyone hated their mobile provider, and this played in Ting’s favor. If imitation is the sincerest form of flattery, Ting is probably flattered right now. Both secondary brands and major ones have imitated some of Ting’s approach, and fewer people are looking to switch mobile providers now. It will be interesting to see how this plays out for Ting in the coming years.
I’m always a bit amused by stock analysts’ questions. I realize that they are covering lots of firms. I also realize they can ask the firm questions while not on the investor conference call. But I’m amused at how pointless some questions are while they miss more notable questions when it comes to updating their models. (I’m not channeling Elon Musk. He actually dismissed notable questions.)
For example, a big question analysts ought to be asking is what impact the price increases at Enom and OpenSRS will have on both attrition and gross margins going forward. These seem like fairly drastic price increases for some clients and need to be baked into models. Maybe the net increases aren’t that big if most domains are at resellers with high volumes. The models ought to also assume some attrition due to the price increases.
Another interesting question is what impact GDPR changes have on revenue. This is a question people ought to be asking other public registrars. Specifically, if the registrar keeps personal information out of Whois for free, what happens to Whois privacy revenue? How much money are registrars making from Whois privacy?
