|Stock chart of Rightside Group (NASDAQ: NAME) (source: google.com)|
From the chart above, you can tell $NAME stockholders have not had the "best ride" since Rightside started trading as a spin off from Demand Media in 2014.
Santos notes that the domain name registrar business is incredibly competitive: "with around 2,500 existing registrars ... [w]e cannot expect much improvement there in terms of margins, even though revenue has continued performing decently." 61% of Rightside's revenue in the first nine months of 2015 came from its wholesaler registrar services, which Santos says argues against investing in Rightside. In fact, Santos argues that Rightside's wholesale customer concentration is a potential negative:
"Namecheap, Inc. represents 27% of its domain names under management. Namecheap still has a $1 million promissory note outstanding, and doesn't seem in the best of conditions. This could lead both to a fundamental impact and negative news flow."It is unclear why Santos concludes Namecheap "doesn't seem in the best of conditions." In fairness to Namecheap, it is among the most highly rated registrars in the business, as is Rightside's own Name registrar. The Q3 2015 10Q filed by Rightside discloses that Namecheap paid $1.5 million during 2015, leaving a balance of only $1 million due December 31, 2015. From SEC filings through today, it is unclear if the remaining balance has been paid in full or a further extension has, or will be, granted. In any event, a reason Santos judges Rightside's valuation as "expensive at present EBITDA run rate" seems to be influenced by the fact that all registrars' margins are thin and it is a very competitive industry, e.g., the Registrar giant GoDaddy has not reported a profit since 2009.
Which brings us to Rightside's new gTLDs. The new gTLDs' future potential profitability "means NAME [Rightside] deserves to be monitored ... gTLDs work like a legal monopoly of sorts, and can result in very favorable economics, as Verisign [registry operator of TLDs .COM and .NET] shows."
For more, read the Santos article at: Rightside Group: Pondering A Few Positives And Negatives - Rightside Group, Ltd. (NASDAQ:NAME) | Seeking Alpha
See also: seekingalpha.com/symbol/NAME