Domain name business continues to chug along.
Tucows (NASDAQ: TCX) announced Q4 and full-year 2020 earnings after the market closed yesterday. It also announced that its board authorized the purchase of up to $40 million of its stock on the open market.
The earnings report requires some backstory to fully appreciate it.
Until late last year, Tucows had three main services:
- Mobile phone services sold under its Ting brand.
- Fiber-to-the home internet services sold under its Ting brand.
- Domain name services including Enom, OpenSRS, Hover, and a couple of other brands.
It sold its mobile virtual network operator (MVNO) business to DISH last year. The deal is an earn-out arrangement in which DISH pays based on the performance of the Ting subscribers it took over. Tucows will also provide a mobile services enabler (MSE) platform to help MVNOs with billing, provisioning, customer service, etc.
Q4 mobile service revenue plummeted due to exiting the business. But the Fiber and Domains businesses continued to chug along.
Domain Name Wire readers mostly care about the domain business, so let’s dig in a bit.
The wholesale arm of the business saw modest Q4 revenue growth from $51.4 million in 2019 to $52.8 million in 2020. Retail was essentially flat year over year. And aftermarket (portfolio) domain sales dropped to about $300,000 because Tucows sold the rest of its portfolio (save for surname domains) at the end of 2019. (The company still earns aftermarket revenue from its expired domain stream but does not break out this number.)
The net-net is that total Q4 domain revenue and profit was flat year over year.
Tucows has been shifting the focus to improving margins in the domain business. If you take out the bulk domain portfolio sale from Q4 of 2019, gross margin dollars from the domain business increased 8% in 2020 compared to 2019. The number is similar for Q4 2020 compared to Q4 2019.
The company also benefited from a surge in domain registrations as businesses moved online due to the pandemic. In its wholesale channel, new registrations in Q4 were up 17% year over year. This is down from 40% in Q2 and 30% in Q3, which were the biggest growth quarters across the industry.
So, going forward, you can look at Tucows as a tale of two businesses: the cash cow domain business and the internet service (and perhaps MSE) growth business.
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