By Nick Patience
Notorious Wall Street short seller Asensio & Co has now got Network Solutions Inc in its cross hairs and is predicting that the company will eventually only be permitted to charge new registrars around $3 per name or less to register names in .com, .net and .org, rather than the $16 per name per year NSI suggested in its draft contractual agreement for registrars that it published earlier this month.
And sources tell us that the Department of Commerce, which is in almost constant talks with NSI about the future direction of the domain name system has already persuaded NSI to go well below $10 per name per year for the two month testbed period that will run from late April to late June, with five registrars chosen by the Internet Corporation for Assigned Names and Numbers (ICANN). NSI did not get back to us to comment on this or the Asensio report yesterday, but issued a statement after the markets closed, claiming that the report contains numerous inaccuracies and that Asensio & Co has never spoken with Network Solutions management. NSI says it stands by its public statements and its SEC filings. The company’s counsel is looking into the matter.
Asensio reckons that NSI’s current stock price, which closed Wednesday at $110 following a two-for-one split this week, is grossly overvalued and predicts that after the testbed registration phase is completed the stock will be trading at around $40 and well below $20 once the current registry contract ends on September 30, 2000.
Asensio makes a living out of what it calls investigating fraudulent stock promotions and publishing research on grossly overvalued companies. Shorting an internet stock such as NSI is unusual for Asensio and many would argue a very risky tactic, but the company is unbowed. It believes that because of its, its rapidly deteriorating fundamentals, non-internet owner- management and its monopolistic image within the internet community, the stock will trade lower regardless of what happens to other internet stocks.
Manuel Asensio expressed to us disbelief that NSI has the power to negotiate anything at all with a government agency or even ICANN. They should be dictating to NSI was his argument. But that ignores the peculiar balances of power that existing within this purest of pure internet plays. In a second release yesterday, the company said ICANN is the sole DNS authority with a registrar licensing program, and an approved DNS accreditation policy statement, application and agreement. It concludes, once the unnecessary cooperative agreement is terminated, NSOL [NSI’s ticker symbol] will simply be one of hundreds of companies with identical registration services capabilities operating in a low price per unit, low-barrier to entry, highly competitive, small (approximately $100m at $35 per name per year in 1998) dollar value market.
Whatever the merits of Asensio’s claims – we have followed the company since well before it went public in June 1997 and some of the claims seem to use to have been researched thoroughly and are very detailed – it certainly had an effect on NSI stock and raised the temperature on the mailing lists that are the traditional means of communication in the internet community. After Wednesday’s $110 close, the stock opened yesterday just shy of $116, before falling as the news got out, hitting a low of $100 before recovering slightly to close at $101.0625, down $8.9375, or 8.1% on a day when technology stocks enjoyed a strong recovery. NSI stock has been falling all week for no apparent reason, which could mean that some investors got wind of this report in advance although there is no proof of that. But a deal is thought to be in the pipeline with America Online Inc, which could send the price soaring once more.
