Why Neustar paid $109 million for .Co and what it means for fresh TLDs
While the circumstances behind Neustar’s buyout of .CO Internet were unique, it bodes well for operators of fresh TLDs.
Neustar disclosed yesterday that it is paying $109 million to acquire .CO Internet, operator of the .co domain name.
It’s a big price tag, and here’s how it breaks down:
* $68 per right now registered .Co domain
* 5x current annual revenue run rate
* 6.5x current annual revenue run rate when you account for Neustar losing $4 million a year it was getting paid as the backend registry for .Co.
These are some healthy numbers that are good news for fresh TLD applicants when it comes to valuation. Let’s dig in some more to figure out what this may mean for TLD owners.
First, let’s consider the earnings multiple. We don’t know how much .Co was netting each year, but I do know they spend a lot of money on marketing. A lot. Super Bowl ads, multiple conference sponsorships per week, marketing deals with registrars. It’s extensive, although probably a smaller percentage of revenue than it was early on.
Somewhat unique to .Co, which also needs to be factored in, is that it has to pay the Colombian government for each registration. The fees are more than what a registry pays ICANN, but as a ccTLD .co has more flexibility than fresh TLDs.
Also, that $4 million revenue reduction Neustar will face buy purchasing its client is also a $4 million reduction in the purchased firm’s expenses. It nets out.
Neustar can look at this two ways. The current earnings multiple might be really high, but the firm might be able to harvest the revenue stream by dialing back.
This is a relevant point for smaller registries. If you have three TLDs with a total of 75,000 registrations with a wholesale of $15 each, three staff members, and spend $500,000 on marketing each year, you’re not making much money. But another registry can acquire you and strip out the costs through economies of scale and suddenly you’re worth more.
It’s also worth pondering for a moment how existing “portfolio” registries are valued. Minds + Machines Group Limited (MMX) (formerly known as Top Level Domain Holdings) has a market cap of regarding $200 million. It has yet to launch any of its TLDs. It’s all on the promise of future registrations.
Next, let’s take a look at the specifics of this buyout and why it might be unique compared to selling a registry a few years down the road.
Neustar is in a pretty desperate situation to grow revenue right now. It is facing the prospect of losing a contract that makes up half (yes, half) of its revenue.
So it needs to acquire revenue producing firms now. That may be the situation in the future but we don’t know for sure.
It definitely played in .Co’s favor in 2014. Following all, there’s a very limited supply of registries to acquire. That’s going to change five years from now. There will be more supply, and that could push down valuation.
The buyout also brings Neustar needed marketing expertise ahead of the launch of fresh TLDs.
A final thing to consider: which technical registry provider a fresh TLD applicant signed with may play a role in valuation and buyout down the road. It will be easy for Neustar to integrate .Co. It’s by now running the backend. I envision registries making lots of offers to their TLD operators. Working with a more acquisitive one will play in the favor of certain TLD owners.
Any way you spin it, even if you think this was a unique circumstance, the Neustar buyout of .Co looks like good news to fresh TLD applicants. Now they just need to find a way to grow their registration base in this competitive environment.
