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Minds + Machine is taking domains to the next level propelled by China

Last updated: 14:45 21 Mar 2017 GMT, First published: 14:00 25 Jan 2017 GMT

Internet domains
Having launched the .vip domain into the Chinese market in May 2015, MMX currently has over 586,000 registrations in the country

Minds + Machines Group Ltd (LON:MMX) has surged since a transformational first half of 2016, which saw the internet domains provider launch operations in the exciting Chinese market, with full-year 2016 billings seen doubling.

The firm, which sells generic top-level domains (gTLDs) via resellers around the globe, also revealed the arrival of a new Chinese cornerstone investor last year in the shape of Goldstream Capital Master Fund I - which subscribed for £5.5mln worth of shares (42.3 mln shares) and a tender offer to all shareholders of 100 mln shares worth £13mln, or 13.2% of the entire issued capital.

Goldstream is owned by multi-billion dollar group Hony Capital - China's leading private equity group - which specialises in taking firms into China, and MMX believes it will help it increase its presence in Asia, where it sees immediate growth potential.

At the time, MMX’s chief executive Toby Hall described the cornerstone investment as a 'key moment'.

Asian boost …

Prior to the group’s launch in China last year, MMX had no exposure to the country. As at the end of 2015, 62% of all its billings came from Europe and 38% from the US with no contribution at all from the Asia region.

In a pre-close season update today, however, MMX said that - having successfully launched the .vip domain into the Chinese market in May 2015 - it currently has over 586,000 registrations in the country making it a leading gTLD owner in China as well as one of the top 10 new gTLD's worldwide.

Hall told Proactive Investors in an interview that the group is targeting 1 mln .vip registrations by the end of 2017.

WATCH: MMX CEO says 2016 an ‘exceptional year’ …

READ: .vip domain now marketed in Japan ….

Following .vip's success in China, the company is now looking to target other territories within Asia and announced that Japan's leading registrar group, GMO, has commenced marketing .vip into Japan.

In his interview, Hall mentioned India as an area with strong digital prospects, and other emerging Asian regions.

In today’s update, Hall said: “Significant progress is being made on a range of initiatives that should deliver meaningful standard name registration growth and awareness across a number of our TLDs in 2017, as well as premium inventory sales which typically benefits the profile of our top-line billings.

“We are well placed for further future growth and, with operating expenses under control, we look forward to the rest of 2017 and 2018 with confidence."

Pure play registry …

In April last year, fresh management set MMX off on a new course to rationalise and simplify costs, inking a deal with Nominet to take over the running of up to 28 top level domains within the group's portfolio.

It also struck made a deal with Uniregistrar Corp to take over its loss-making consumer-facing registrar operation, which as Hall explained, had been a considerable drain on the group's cash resources.

This sent a clear message to other registrars that the group wanted to partner, not compete, auguring well for its future growth as a pure registry business play.

Billings strong …

In a trading update in January, MMX said top-line growth had blasted it to profitability at the operating level in 2016 as its total billings jumped by 100% to US$15.8mln, up from US$7.9mln in 2015.

Excluding partner payments, billings for the year were up 115% year-on-year to US$13.9mln, as a result of an improved contribution from the group’s wholly-owned TLDs.

The group said its operating earnings before interest, tax, depreciation, amortisation (EBITDA) and restructuring costs are expected to top US$3.5mln when the numbers for 2016 are finally totted up.

That’s a big improvement on the US$12.1mln loss registered in 2015.

The group said renewal billings increased by 116% year-on-year to US$3.8mln, up from US$1.75mln the year before, suggesting MMX’s domains “have legs” in terms of lasting appeal.

The firm’s chief operating officer Michael Salazar said then: "After a transformational twelve months in terms of building revenues and cutting costs, we are now beginning to see the real benefits of being a portfolio player as we start to leverage the experiences and insights gained across the portfolio."

A growing market

The firm has a portfolio of TLDs, that's the part of an internet address after the final dot to you and me. It owns 25 new gTLDs (general top level domains) outright, has three in partnership and five, which are managed on behalf of clients.

It is cash generative as it charges resellers an upfront fee when users want  a new or renew a domain.

Domains include .beer, .boston, .casa, .cooking, .fashion, .fishing, .fit, .garden, .horse, .law, .miami, .vip, .vodka, .wedding and .work. It also is in partnership with the owners of .basketball, .country, .london and .rugby.

The transfer of the .boston domain has now gone through the back-room processes of the Internet Corporation for Assigned Names and Numbers (ICANN), which means MMX, in conjunction with the Boston Globe newspaper and the city of Boston, can begin planning for the launch of the domain, with ‘general availability’ scheduled for September 2017.

In a November update, MMX said it is experiencing higher than expected renewal rates stateside across its US-specific top level domains.

In Europe, the company announced the implementation of a long-term co-marketing campaign with registrar .UK  - a registrar is like a retailer, selling domain names to the public; while MMX, as a registry is more like a wholesaler, maintaining the database of domain names.

As the first leading UK registrar to introduce the initiative, in its first month the group saw a three-fold increase in .london registrations.

The company is closely monitoring the implementation of this long-term initiative across the wider UK registrar channel in 2017, as well as other initiatives planned for both the UK and Germany in the coming year.

Quality of earnings …

‘House’ broker FinnCap initiated coverage on the stock last year, noting that while the group's valuation reflected potential growth, it also discounts for risk, to reflect its immaturity.

"Over the coming years, we expect that the quality of earnings will rise and as a consequence, its rating should improve – this view is founded on the expectation that renewal rates typically improve after the first year period of a sale, thus achieving predictable earnings," analyst Harold Evans said.

The broker's modest assumptions derived an initial fair value of 20p, although currently its target price is ‘under review’.

In an update in January, the analyst said: “With MMX’s domains gaining material traction in 2016 and additional domains scheduled to launch this year, the direction of travel for the business is clearly positive and we look forward to prelims, expected in April.”

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