Falls Short, Stock Tumbles — Tucows Revenues
Shares of domain name firm Tucows are down over 15% in early trading following announcing earnings.
Domain name firm Tucows noted lower than expected revenue growth for the second quarter of 2007. Its shares (AMEX: TCX) are down $.20 to $1.01 USD on the news as of this morning.
“We delivered solid financial performance in the second quarter, which benefited from the sale of a block of 2,500 domain names from our portfolio,” stated Elliot Noss, President and CEO of Tucows. “Consolidation in the domain name industry, the ramp-up in the sales cycle for our fresh email service and disappointing Google ad revenues resulted in weaker year-over-year revenue growth than we would have liked. Our overriding objective is to drive strong long-term growth and we have recently taken a number of steps in this regard, counting the recent launch of our fresh email platform, the launch of our Premium Domains service and subsequent to quarter end, the buyout of ItsYourDomain.
Two of Noss’ comments are discouraging. First, part of its upside in the quarter was from the sale of a domain portfolio for $3M. This is equivalent to a firm selling off revenue-producing assets. This is a smart move if the price is right, but eliminates the revenue potential of those assets. Second, it appears that Tucows domain name parking revenue with its partner Google (NASDAQ: GOOG) came in below expecations.
Also this morning, Tucows disclosed changes to its wholesale client pricing model. The fresh price for .com domains will be $9.20. Beginning September 1 this will include domain whois privacy services.
Noss refers to this fresh lower pricing as making a “significant investment” in its business, which basically means Tucows is cutting into its margins in order to grow. Tucows faces pricing pressure from lower cost rivals. The fresh pricing is roughly equal to that of GoDaddy, the world’s largest domain name registrar.
