By Nick Patience
Network Solutions Inc, fresh from discovering which companies are its first competitors in the domain name registration market, beat Wall Street consensus estimates for its earnings by two cents per share yesterday. The Herndon, Virginia-based company won a cooperative agreement from the US government in early 1993 and has held the monopoly on registrations and control of the domain name database ever since. On Wednesday the Internet Corporation for Assigned Names and Numbers (ICANN) announced the first five companies to compete in the registration market, and they will be registering names from Monday. Once the two-month test period ends in late June, the market will be opened up to any company that meets ICANN’s accreditation guidelines – it has already accredited 29 such firms.
During the first quarter NSI registered 922,000 net new names during the quarter, which is up 171% from the year-ago quarter and 49% from the previous quarter, which is quite a rate of progress. Net income in the quarter was $4.8m, a 134.2% increase over last year’s quarter. That translates into earnings per share of 14 cents, against the 12 cents predicted by First Call’s analysts’ survey. Revenues in the quarter rose 131.2% to $38.1m.
The company is still without a full-time chief executive, after Gabe Battista resigned suddenly in November to take over at Tel- Save.com Inc, a long distance telephone company. Since then chairman of the board Mike Daniels has been the acting CEO, aided by chief financial officer Bob Korzeniewski. Doug Wolford, NSI’s senior VP sales & marketing says the list of candidates has been paired down quite a bit and he expects an announcement within a month or two. NSI has employed the recruitment firm and is looking beyond pure internet business.
Aside from the domain name registrations, the company’s internet technology services generated sales of $3.3m of the total $38.1m revenues in the quarter. It declined to split out the revenues from domain name registrations alone, but Wolford did say that lining up its value-added services, such as dot com mail and dot com business card against its 175 domain name resellers, the value-added services would be in the top three revenue generators. The resellers have to pay NSI $70 per name for two year’s registration and then make what they can on top of that. The new model of direct competition gives companies a lot more room for a profit margin and the ability to compete on fairer terms. NSI’s hold on the actual registry, for which the competitors pay $9 per name, is scheduled to end on September 30 2000. The number of registrations in .com, .net and .org from outside the US in the quarter was 230,000, up 135% from a year ago.
Wolford declined to say whether he thought the new competition would be accretive or dilutive to NSI’s earnings, but touted the overall market expansion as a good thing. He says there has been a lot of focus on cost and not a lot on value regarding the new competition, pointing to America Online Inc’s complete lack of experience in this field, which hasn’t stopped it from becoming one of the first five test companies. We suggested that AOL does know a thing or two about billing and customer service – or at least is very experienced at it – but Wolford says there’s a lot more to domain name registration than is commonly thought. NSI has had its share of customer care problems in the past and has presumably learned how hard it can be to satisfy hungry domain name registrants looking to snatch up the last few valuable names in .com. The company says it has now registered a total 4.2 million names up to the end of the quarter. It took four years to get to the first million names, but just four months to go from one million to four million.
NSI’s stock has been on a roller coaster ride this week, even taking into consideration the ups and down of the market for internet stocks right now. It is the target of short-seller Asensio & Co and has had some stock-boosting support recently
from its friends at Prudential Securities Inc – most of whose predictions about this week’s ICANN announcement proved to be way off the mark – and long-time follower Hambrecht & Quist rates the stock a strong buy. Asensio issued a note yesterday predicting that because the test-bed registrars are being charged $18 per name for two year’s registration, even though the fee is only fixed for the 60 day test period, it shows that the Commerce Department is planning to end NSI’s contract early. We’re not so sure. By Tuesday’s close the stock had lost 61% from its high of 153 3/4 on March 22. It shot up again Wednesday and yesterday closed down $8.5625, or 9.3% at $83.4375 on more than twice their average volume.
