It has been an eventful year for the internet domain name specialist Minds + Machines Group Ltd (LON:MMX), which changed management and direction earlier this year.
Co-founder and chief executive Antony Van Couvering was voted off the board in February, to be replaced in April by Toby Hall, who had been the company’s chief marketing officer and an adviser to the company since its inception in 2009.
The change came about because the board felt that a fresh approach was required to fully exploit the revenue potential of its leading portfolios of top level domains – otherwise known as TLDs, the part of an internet address after the final dot.
Those TLDs include .beer, .boston, .casa, .cooking, .fashion, .fishing, .fit, .garden, .horse, .law, .miami, .vip, .vodka, .wedding and .work, plus it is also in partnership with the owners of .basketball, .country, .london and .rugby.
Ownership of those TLDs was achieved by winning auctions, and the company is still in the running for a number of other TLDs yet to be assigned by ICANN, the industry body that coordinates the internet’s naming system, but it is fair to say the focus has largely moved on to making money out of the TLDs it already controls.
In April, the new management set its stamp on the business by striking two transformational outsourcing deals for its top level domain business, which will significantly reduce costs.
The firm inked an agreement with Nominet, which operates .uk and currently has over 10.7mln domains registered on its platform, to take over the management and running of up to 28 top level domains within Minds + Machines’ portfolio.
It also made a deal with Uniregistrar Corp to take over its loss-making consumer-facing www.mindsandmachines.com branded registrar operation.
This cheered the market and also journalists, who would not have to go through the business of explaining the difference between a registrar – a company (e.g. GoDaddy) that sells domain names to the public – and a registry, which is an organisation that maintains a database of TLD names on behalf of registrars.
The move left Minds + Machines (usually referred to as MMX) as a pure-play registry group with dramatically reduced overheads, operating in a high-growth business.
How high?
The new generic TLD (gTLD) market grew globally in 2015 from 3.71mln registered domains at the beginning of the year to 11.2mln, with the growth being fuelled by significant growth in the second half of the year in China.
Not all gTLDs are created equal, but Minds + Machines is very happy with the ones it has bagged. For instance, the launch of .vip saw 203,720 registrations within five days of the launch on 17 May, putting it in the top 20 of new gTLDs; it subsequently moved into the top 10 in June, with a big take-up in China.
The company has set its sights on becoming the TLD supplier of choice in Asia.
“It has taken us just five days to effectively recoup the US$3.1mln that we spent to acquire this top level domain,” CEO Toby Hall told Proactive Investors.
Usually, companies use discounts or incentives to drive registration numbers, but Hall added that, “what makes this launch stand out is we absolutely haven’t used aggressive price discounting to generate this first surge of registrations”.
The eschewing of “try before you buy” promotions, or use of the so-called “freemium” model to promote use of the .vip TLD bodes well for renewal rates and the long-term reputation of the domain, according to Hall.
Broker N+1 Singer said: “This launch establishes the group well in the Asia Pac market (over 80% of the registrations were accounted for by China) and provides an excellent template for its other TLDs.”
High growth but lower costs
The group recently reported that billings in the first half of 2016 soared to US$8.05mln from US$2mln in the corresponding period of 2015.
Domains under management grew by a staggering 236% to 728,940, as at the end of June, from 217,200 a year earlier.
While the top line has been growing like billy-o, the new management has been pressing ahead with its the cost-cutting and restructuring programme.
“MMX is now a pure-play registry business and is significantly reducing its cost base; the outstanding result for .vip show how it can achieve outstanding results under the new strategy,” N+1 Singer said back in May, as it said the scope for further value creation is significant.
The shares are currently trading at just over 10p. N+1 Singer said a simplified discounted cash flow model implies a fair value price of anywhere between 11p and 32p “depending on flexed assumptions”.