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CentralNic’s jump in billings confirms step-up following Instra acquisition

Published: 12:54 07 Sep 2016 BST

representation of top level web domains on a giant keyboard
It now has more than 34% of the wholesale market, up from around 20%.

When it unveiled the acquisition of Instra Group in late 2015 CentralNic described the deal as transformational, though in this case the occassional corporate cliché clearly rings true.

Interim results released on Wednesday, including the Instra business, showed a 468% jump in bookings for the six months ended June 30.

Bookings - the gross amount charged for domains before CentralNic’s revenue sharing arrangements with its domain partners - amounted to £45.08mln, compared to £7.93mln in the same period of last year.

CentralNic’s revenue amounted to £8.9mln, double the £4.44mln in the first half of 2015.

Each of the group’s divisions showed progress though, significantly, the wholesale business stands out.  The growth in that division was described as unprecedented by CentralNic, and indeed, it the impact in terms of market share was very significant – rising to over 34% of the wholesale market from 20%.

The company highlighted that it now supports six of the top 25 new top-level domains (including the most popular of all .xyz).

It also highlighted that since June it has offered a ‘gateway service’ to connect domains that use rival wholesalers.

Confident of achieving market expectations

CentralNic chairman Mike Turner, in Wednesday’s statement, said: “During 2016 to date, CentralNic has advanced its growth strategy through the acquisition of the Instra Group. Together with Internet.BS, the group is now able to address demand from a number of retail segments across geographic markets.

“This reflects our strategy to enhance the quality and visibility of the group's earnings.”

He added: “Trading in our core businesses overall has remained in line with the board's expectations since the half year.

“Our team is in discussions with trade buyers for premium domain name sales, and anticipating that these sales will proceed, the board is confident of achieving the market expectations for the year."

As much as the obviously scaling up of CentralNic’s business encourages, the bottom line for the six-monthly results underline that the group must continue to build on this momentum.

Whittling down from £45.08mln of billings, to £8.9mln of revenues the group reported adjusted earnings of £1.3mln and ultimately a £1.3mln interim loss after tax.

Plainly CentralNic has marked significant progress in its growth, though there remains quite some way left to go.

What does CentralNic actually do?

The main element of CentralNic’s business is to provide the technical back end for internet domains.

Put simply it runs and maintains the register of website addresses on behalf of the domain name owners.

It serves 1,500 vendors across 77 countries. And it is the exclusive wholesaler for 30 of the new top level domain extensions – including ‘.xyz’, ‘.site’, ‘.online’, ‘.website’, ‘.space’, and ‘.tech’.

According to CentralNic one of every three websites registered onto new domains rely on the company’s platform.

Domains are sold to website operators on annual subscription basis, and as those payments are collected upon sign-up or renewal a fixed fee is paid to CentralNic for its services.

.xyz is the largest and most popular new domain

For most investors, CentralNic appeared on the radar just over a year ago, as the group’s AIM share price more than doubled after Google chose a .xyz web domain name for the corporate web site of Alphabet, Google’s new holding company.

It was a high profile moment for the domain - and in turn CentralNIC – as it confirmed a few investors had already observed; this was a new and exciting opportunity in the web domain business.

“Xyz was always the most successful new top level domain," CentralNic chief executive Ben Crawford previously told Proactive Investors.

“There were already over one million domains registered to .xyz, and none of the others new domains have come close.”

The high profile news event put the spotlight on the potential of new domains generally, and .xyz specifically.

In the second half of 2016 xyz remains an important aspect to the CentalNic business.

The company highlighted in the outlook that it has supported the .xyz anniversary marketing campaign and that it has seen “unprecedented success in building the domain inventory for renewal next year.”

CentralNIC is about more just than xyz

As well as xyz, CentralNIC is the partner for many new domains.

CentralNic acts as the key technical intermediary. It is the exclusive middleman between entrepreneurial investors – those that secured the rights to the new domains - and customer facing internet companies like GoDaddy that sell them to web site owners.

Addresses ending with .tickets and .fans for example have been set up with specific purposes and target audiences in mind – basically to resonate specifically with a certain type of audience or purpose.

This new ‘usefulness’ has already been recognised by major brands like Manchester United, Formula One and eBay (to name just a few).

In the same way, other new domains from CentalNic such as .bar, .press or .college have clearly defined types of customers in mind.

Recent launches include the .store, .art and .fm top level domains.

The Verisign comparison

What happened with .com is central to the investment case for CentralNic, and this potential becomes clear with just a cursory comparison with Verisign (the Nasdaq quoted operator of the .com and .net domains).

Verisign, worth nearly US$8bn, ended 2014 with around 130mln .com and .net domain names in its ‘name-base’ and it generated some $600mln of cash flow, from US$890mln of revenue.

It may still be fairly early days as CentralNic continues to amass scale, but, if the group can replicate anything like the same trajectory as Verisign and .com, the potential for very significant value creation appears obvious.

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