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October 28, 1999

Competition Makes Only a Small Dent in NSI’s Q3

By CBR Staff Writer

By Nick Patience

Network Solutions Inc, the company that dominates the domain name registration business worldwide reported third-quarter results that flew past analysts’ estimates. NSI saw third quarter net income up 142% at $7.3m, or $0.21 per share, on revenues that rose 133% over the year-ago quarter. Analysts surveyed by First Call were expecting $0.18 per share, so $0.21 is quite an upside. NSI finished the day up $8.25, or 8.9% at $102.25.

The Herndon, Virginia-based company registered 1.3 million net new registration in the quarter, a 160% increase on the same quarter in 1998 and a 12% increase over the previous quarter’s 1.2 million. However competition is obviously cutting into NSI’s market at last, because the 12% growth is a fair way down from the 28% growth between the first and second quarters. Chief financial officer Bob Korzeniewski says the market as a whole grew 25% in the quarter and NSI is getting its fair share of that. He also pointed to a slightly seasonal slowdown during the summer in Europe, but overall he expressed himself pleased with the growth. International registrations in com/net/org were 406,000 during the quarter, a 194% increase in the year-ago quarter.

Indeed, the company reports that its registry business, the wholesale part that handles the internet’s entire database of domain names some 190,000 names were registered in .com, .net and .org by registrars other than NSI. For each of those NSI received $18 for two years’ registrations, and that will drop to $12 for two years and NSI will start offering single-year registrations under the agreement it struck during the quarter with the Department of Commerce and ICANN (Internet Corporation for Assigned Names and Numbers). There are currently 11 companies actively competing with NSI in this business and a whole slew of others waiting to either be accredited by ICANN, or working to get the shared registry system software up and running.

And further indicating the nature of NSI’s business going forward, the company managed to sell its value-added services, which include the dot com toolkit and its components, such as email, web site building, maintenance tools, directory services and even T-shirts to 15% of its registrants during the quarter. Korzeniewski says that’s above the company’s expectations at this stage.

The three-month period also saw the launch of the dot com directory, a directory of more than two million businesses that is culled from directories such as Hoover’s infoUSA and GTE SuperPages and to which NSI added a bunch of value-added services. Each listing for that costs $119 per year and companies can tweak their listing themselves to insure it is kept up to date.

The agreements between NSI, ICANN and the DoC, which were set on September 28 and are due to be signed after next week’s ICANN board meeting on November 4, include an strong incentive for NSI to sell of its registry to a company not involved in the DNS business. As part of the agreement it got its contract to run the registry for com/net/org extended until 2004, but if its sells it within 18 months of signing the agreement, the buyer will have that extended through 2007. Various valuations have been put on the registry business and they are all north of $1bn, which would give the company quite a tidy return on its investment of the past seven years or so. It can also retain up to 25% of the registry business as part of any deal. Cash and equivalents stood at $98.9m at the end of the quarter. Nine-month net profits were $17.9m, up 138% on the first nine months of 1998, as revenues grew 132% to $144.9m year-on-year.

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