Sunday, May 20, 2018

Domain Name Sector Overview

Domain names are used to identify websites. While accessing website, domain name is translated dynamically to an IP address by service called Domain Name System (DNS). To ensure stability and security of DNS are the key responsibilities of ICANN. Domain names are configured in sub-domains of root domain. Set of first level domain names are generic top-level domains (.com, .net, .org, .info...) and country code top-level domains. An organization or community supports some domain names that means registration of them are restricted (.museum, .xxx, .jobs,...).
To access web, use of domain name may exist by Internet users' practices shifting away from typing web addresses directly through social networking sites. Use of web browsers is decreased by internet users to access content.

The following companies are considered for analysis:

Tucows Inc. : It is a Canadian company providing services in domain name registration, mobile phone and email service.
GoDaddy Inc. : It is provider of cloud-based products to small organizations, web design individuals and professionals. They are offering hosting, website building and security tools to clients.
Endurance International Group Holdings Inc. : Web hosting provider of cloud-based platform designed for small and medium sized organizations.
Rightside Group Ltd : It is offering domain name services for consumers to build their online presence.
Web.com Group Inc. : It offers internet services to small businesses (solutions are subscription based includes hosting, domains, website design and management, online marketing campaigns, search engine optimization).
Melbourne IT Ltd : A provider of managed services cloud applications to local and government clients. It is offering website and email hosting, online marketing, website security, customer’s domain name registrations and online tools, online business services reseller client’s network.

Following companies findings and opinion:

Rightside Group Ltd : To improve revenues at least 5 years are there. It operates and has net loss during 3 Yrs. It has low Z-score and low debt/equity. It is not paying any dividend.
Verisign Inc. : During last 5 Yrs. Revenues are increasing. Z-score is adequate. Debt is 3.2x operating cash flow, 1.9 revenues but net debt is nearby zero.
United Internet AG : It is operating net income and revenues are growing last 5 Yrs. High Z-score is there. Ratio of Debt/equity is acceptable. It pays dividend. Cash flow is computed without consider capital gains tax payment arises from intra-group dividend.
Web.com Group Inc. : There is an increase in revenues during last 5 Yrs. First year is of operating income. It is not paying any dividend and has low Z-score, high ratio of debt/equity.
Opinion on Domain names sector based on DCF analysis

The following steps are conducted to reach good level of stocks:

  1. The free cash flow which is added to many companies has introduced to future and gives discount by applying average capital cost.
  2. Sum of stock options and operating leases of every company have been counted and subtracted from equity total market value.
  3. There should be an appropriate short and long term of FCF future growth rate
    • It should be adjusted for market capitalization.
    • Non-adjusted market capitalization has estimated by observing financial reports of every targeted company.

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