CentralNic Group PLC’s (LON:CNIC) acquisition of German group Team Internet is expected to be nearly 44% accretive to the group’s earnings for its 2020 financial year, according to new analysis from the company’s house broker.
Zeus Capital added in a note published on Monday that the purchase will also be 40.6% accretive in 2021.
The broker currently has the firm pegged with a price/earnings (PE) ratio of 9.2 for its 2020 financial year, however, this is expected to increase once the acquisition completes next year.
Speaking to Proactive on Monday, CentralNic chief executive Ben Crawford said what makes Team Internet distinct from the rest of its businesses is rather than selling domain names for websites it allows companies to place adverts for themselves of the web pages of defunct competitors, redirecting consumer traffic towards their own sites.
This model means companies can get “the best customer [they] could possibly want”, Crawford says, adding that Team Internet currently runs its operation through over 20mln different domain names serving 35,000 customers.
For CentralNic, the purchase adds another recurring revenue business with organic growth of around 4% per year.
“It’s a business we’ve been chasing for some time”, Crawford says.
The US$48mln acquisition of Team Internet, CentralNic’s largest to date, continues a strategy by the firm to establish itself as a key aggregator in the domain name sector.
Since the start of 2018 the company has made over five acquisitions to boost its domain name portfolio.
One key purchase last year was KeyDrive, a tech firm which develops and operates software platforms used for selling subscription-based tools for businesses to operate online, including domain names, hosting, email, domain portfolio management and advertising services.
The acquisition effectively caused CentralNic to double in size, a fact that was borne out in its latest set of half-year results, which reported a 225% surge in revenues to US$49.7mln in the six months ended 30 June, alongside a swing to a US$2.4mln profit from a US$1.4mln loss a year ago.
CentralNic’s growth also showcases the profitability of a relatively new industry, the registration of top-level domains (TLDs).
Big business in domain names
TLDs are suffixes attached to the end of websites such as ‘.com’, ‘.org’ or ‘.edu’, with each domain having to be registered to a company or entity that wishes to use it, making controlling them big business.
According to data from US domain name registry Verisign Inc (NASDAQ:VRSN), the second quarter of 2019 saw 354.7mln domain name registrations across all TLDs, a 4.4% increase on the prior year, with ‘.com’ being the most popular by far with 142.5mln new registrations compared to just 23mln for ‘.cu’, the second most popular.
Making money from TLDs is mostly the realm of domain name registrars, organisations which charge customers a yearly subscription to use a domain name.
The biggest currently is GoDaddy Inc (NYSE:GDDY), which as of July 2019 controls around 60mln TLDs and for the three months ended 30 June reported revenue of US$737.2mln. The firm carries a market cap of nearly US$12bn.
And the market is set to expand even further, with analysis from Research and Markets highlighting trends such as rapid urbanisation, e-commerce and an increased blogging activity as key drivers in the growth of the domain name industry.
With the number of internet users growing at a rate of over 1mln people every day, the need for new domains, and registrars, is likely to continue into the long-term.