Ought to GoDaddy acquire .Org?

Other firms ought to now circle .org, and GoDaddy is one of them.

There’s a lot of consternation regarding Ethos Capital’s proposed takeover of the .org registry. It will move from a non-profit entity that’s out to help organizations to one that is profit-motivated.

It’s also clouded by the involvement of former ICANN CEO Fadi Chehadé in Ethos’ bid.

The door is open for a white knight. A firm with deep pockets can come in and offer terms that are better than Ethos’. The terms would be better in two ways:

1. More money.
2. Setting up a contractual price limitation with ICANN.

A number of businesses would pay more than what Ethos’ is paying. Based on what Internet Society CEO Andrew Sullivan stated on this webcast the prior week, it seems that Ethos put strict time constraints on Internet Society to get this deal through, making it difficult to shop it. I also assume ISOC didn’t want the fact that it was selling .org to go public ahead of a deal was consummated, giving further advantage to Ethos.

I’ve talked to multiple private equity groups that were disappointed that they weren’t invited to the table.

But another private equity firm swooping in to buy .org doesn’t alleviate the community’s concerns, especially when it comes to pricing. Someone needs to do more than offer its assurances that it won’t jack up prices.

Enter GoDaddy (NYSE: GDDY).

GoDaddy has avoided becoming a registry, preferring to stick to the registrar side. It has flirted with becoming a registry, though. It unsuccessfully bid for the .Us contract. It applied for .home and .casa, only to later withdraw.

Now could be the time to reconsider. Here’s why.

First, GoDaddy wants to make sure that it doesn’t have to jack up prices on domains from one year to the next. It halted selling Uniregistry domains following the registry significantly increased wholesale prices.

Mike McLaughlin, who was GM of the GoDaddy’s domain business at the time, stated:

GoDaddy works to deliver a great client experience. We now have clients who will be paying up to 3,000 percent more for their renewal. That’s an extremely poor client experience and does not reflect well on the domain name industry in general.

Drastic price increases definitely lead to a poor client experience and hurt the domain industry.

Ethos Capital states it’s not going to raise .org prices a lot. But so far that’s just talk. Even if it’s true to its word, someone could come to Ethos next year and offers it $2 billion for .org. The fresh owner could increase prices substantially.

That would be bad for .org registrants. Bad for GoDaddy. Bad for domain names in general.

GoDaddy accounts for nearly 40% of all registered .org domain names, so it has a lot to lose if .org prices shoot through the roof. (It also has a lot to gain by owning 100% of the sale!)

Second, GoDaddy’s valuation is right now very high. It is valued at over $11 billion. That’s on forecasted 2019 revenue of regarding $3 billion and unlevered free cash flow of $730 million to $740 million.

The markets would like to see another $100 million in revenue with almost all of it falling to the bottom line.

GoDaddy’s cost of capital is cheap right now, too.

Third, owning a major registry could put pressure on .com and .net registry Verisign (NASDAQ: VRSN) to keep prices in check. In the short term, I expect .org to continue to cost more than .com. But if the U.S. government lifts the lid further on .com prices, GoDaddy would have another domain it could promote as an alternative.

(Note that Verisign’s fresh agreement with the U.S. government clarifies that Verisign can also become a retailer for non-.com domains.)

Would GoDaddy’s competitors be concerned regarding it owning .org? Probably. It could also be referred to the competition authorities.

But GoDaddy could assuage these concerns. It could keep .org’s management separate. It could limit its price increases contractually with ICANN. And it could state a minimum price at which it would offer .org as a registrar, ensuring it doesn’t undercut rivals.

A lot of groups could swoop in and offer better terms than Ethos. They can offer ISOC more money, which, in and of itself, ought to force ISOC to rethink its deal. They can also offer to contractually restrict pricing, which would eliminate much of the blowback ISOC is getting over its deal.

One of those bidders ought to be GoDaddy.