Web.com $WEB Q1 2016 Financial Results Webcast, May 5, 5pm ET

Web.com 1-year chart; $WEB is DOWN 10% in the past year (source: google.com)

Domain name registrar and technology company, Web.com Group, Inc., will release Q1 2016 earnings after market close on May 5, followed by a conference call/webcast to discuss the financial results.

Web.com conference call: May 5, 2016, at 5:00 p.m. ET - Listen to webcast - Presentation (pdf) - Web.com Press Release: First Quarter 2016 Financial Results

• LIVE webcast and replay of the call with accompanying slides will be available at the Investor Relations page of the Company's website http://ir.web.com/events.cfm. 
• To access the call, dial 888-505-4347 (domestic) or 719-325-2341 (international). A replay of this conference call will be available until May 19, 2016, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 8461710.
• Web.com Group (WEB) David Brown on Q1 2016 Results - Earnings Call Transcript | Seeking Alpha

Q1 2016 Results as provided by Web.com in presentation and press release (see links above):

Summary of First Quarter 2016 Financial Results:

Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $144.8 million for the first quarter of 2016, compared to $132.6 million for the first quarter of 2015. Non-GAAP revenue was $153.4 million for the first quarter of 2016, compared to $137.7 million in the year-ago quarter, and at the high end of the Company's guidance range of $150.5 million to $153.5 million. The year over year increase in revenue is primarily due to the acquisition of Yodle.

GAAP operating income was $6.9 million for the first quarter of 2016, compared to $11.1 million for the first quarter of 2015. Non-GAAP operating income was $35.1 million for the first quarter of 2016, representing a 23% non-GAAP operating margin, compared to $32.2 million for the first quarter of 2015, representing a 23% non-GAAP operating margin.

GAAP net income was $0.3 million, or $0.01 per diluted share, for the first quarter of 2016. GAAP net income was $2.3 million, or $0.04 per diluted share, for the first quarter of 2015. Non-GAAP net income was $32.2 million for the first quarter of 2016, or $0.63 per diluted share, exceeding the high end of the Company's net income guidance of $30 million to $32 million, and at the high end of the Company's earnings per share guidance of $0.59 to $0.63 per diluted share. The Company had non-GAAP net income of $29.5 million, or $0.56 per diluted share, for the first quarter of 2015.

Adjusted EBITDA was $39.7 million for the first quarter of 2016, compared to $36.1 million for the first quarter of 2015, representing a 26% adjusted EBITDA margin during each of the three months ended March 31, 2016 and 2015.

The Company generated cash from operations of $14.5 million for the first quarter of 2016, compared to $31.9 million of cash flow from operations for the first quarter of 2015. The decline in cash from operations is due to costs related to closing the Yodle acquisition and changes in the incentive payout.

First Quarter and Recent Business Highlights:

• Closed on the acquisition of Yodle on March 9, 2016.
• Web.com's total net subscribers were approximately 3,423,000 at the end of the first quarter of 2016, up approximately 70,000 from the end of the fourth quarter of 2015. This includes approximately 53,000 subscribers from the acquisition of Yodle.
• Web.com's average revenue per user (ARPU) was $15.10 for the first quarter of 2016 compared to $13.75 for the first quarter of 2015. ARPU was up sequentially during the first quarter of 2016 from $13.92 during the fourth quarter of 2015. ARPU during the first quarter included the partial period impact of Yodle. 
• Web.com's trailing twelve month customer retention rate was 87.1% for the first quarter of 2016. 
• Web.com borrowed $315 million during the first quarter of 2016 primarily to fund the Yodle acquisition and used $12.5 million in cash to reduce debt during the quarter.
• Repurchased 617,000 shares for $11.2 million in the first quarter of 2016.

Web.com Group, Inc. provides services to small businesses, offering subscription-based solutions including domains, hosting, website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products and eCommerce solutions. Brands include Network Solutions (networksolutions.com), Registry.com, and Yodle (Yodle.com).

Stock exchange & symbol:  NASDAQ: WEB
Principal domain: web.com
Investor Relations: ir.web.com

WEB.com management will present at two upcoming investor conferences in May:

• May 10, 2016 9:50 AM PT SunTrust Robinson Humphrey 2016 Internet & Digital Media Conference Listen to webcast

• May 25, 2016 9:20 AM ET J.P. Morgan Global Technology, Media and Telecom Conference Listen to webcast

An audio of the presentations will be accessible in the Investor Relations section of the Company's website (ir.web.com) for a limited period of time after each event.

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See also on Domain Mondo: ICANN Damaged a Competitive Domain Name Market With Its New gTLDs [includes Web.com Q4 2015 Results]


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DISCLAIMER

Neustar $NSR Will Lose $500 Million Annual Revenue, 80% Downside?

See also newer posts  on Domain Mondo: Caveat Emptor: Neustar MarketShare Acquisition, 2016 $NSR Guidance (10 Dec 2015); Investors Flee Neustar $NSR, Stock Down 19% in Five Trading Days (12 Nov 2015) and Nov 9, 2015: Neustar $NSR Shares Tanked Friday After Marketshare Announcement

(Editor's Note: This post's original title was: "LIVE Webcasts: Neustar, Web.com, Q3 2015, $NSR 80% Downside Risk?")

"Loss of the NPAC contracts on or after September 30, 2016 will have a material impact on our future operating results when compared to our current financial profile. We expect to lose approximately $500 million of annual revenue and this loss will adversely impact our income from operations and operating margin. Additionally, this loss may have a disproportionate material negative impact on our operating margin because of the largely fixed and shared cost structure that is designed to support all of our services. We are unable to quantify the impact on our income from operations and operating margin at this time because the end date of the NPAC contract is uncertain and due to our largely fixed and shared cost structure. Our disclosure will expand as we evaluate the cost structure that will be in place to support our ongoing business, as we approach September 30, 2016 or as we learn more about the timing of the NPAC contract termination." p. 27 Neustar 10-Q (emphasis added), filed with the SEC October 29, 2015

"Since our previous article detailing how NeuStar (NYSE:NSR) is unlikely to survive without its NPAC contract, management has strengthened the bear case once again by making a rather costly acquisition and increasing leverage significantly, while canceling its share repurchase scheme ... What slightly befuddles us is that management would take on so much leverage at a time when the survival of the company hangs in the balance. Clearly, the company is extremely cash strapped as they were forced to cancel their $150M share repurchase program after only spending ~$102M (or two thirds of the allocated amount). Recall that management announced this share repurchase programme on the same day that they confirmed the loss of the NPAC contract. (The termination of the share repurchase was only announced through a passing remark in the conference call. There was no press release)."--John Zhang, Seeking Alpha, Nov. 9, 2015 

3rd UPDATE 30 Oct 2015: Seeking Alpha has now picked up on the Neustar disclosure (see 2nd Update below): NeuStar: The Loss Of The NAPM Contract Sees New Disclosure - NeuStar, Inc. (NYSE:NSR) | Seeking Alpha. In addition the transcript from yesterday's call has been released by Seeking Alpha--excerpts--emphasis and links added:

"... with Bombora, we're the clear global leader in launching and operating TLDs. To-date, we have launched 122 new TLDs or Top Level Domains, including notable names like .nyc, .science, and .club. We have several hundred more to launch including over 150 brand TLDs, which present great opportunities for us to cross-sell other services ...

"... First question is on the recent filings or documents that we saw filed on the SEC at your website. The SEC is currently asking for more segments' margin disclosure. What is your plan to address this, because the documents that were filed so far really don't indicate what you're planning to take?

Paul S. Lalljie - Chief Financial Officer & Senior Vice President:
"... as you can see from the outline and in all of our public filings, we generally capture information at the consolidated level. As we get closer to an end date for the impact, we will revisit our disclosures. Unfortunately that date is not very specific at this point in time, and as you can see in our 10-Q page 27 of 151, we have disclosures about expecting to lose the $500 million of revenue, but we – it is uncertain at this point in time what the impact will be, although we believe the impact on operating margin will be disproportionate, meaning it's not a dollar-for-dollar impact...

Will V. Power - Robert W. Baird & Co., Inc. (Broker):
"... on the Bombora deal I think you said $2.8 million of revenue contribution. Did you all give the EBITDA contribution? I know it would be small, but be curious to know what that might have been. If you're able to disclose that?

Paul S. Lalljie - Chief Financial Officer & Senior Vice President:
"I don't think we gave the EBITDA contribution, but I think in our explanation of expenses, we did include $2.7 million of acquisition-related operating expense and that should be primarily Bombora."


Based on the above, it is clear that the expected (approximately) $500 million loss disclosed in the 10-Q (see above and below), will have a "disproportionate impact on operating margin"--meaning impact on EBITDA and profits. On the Bombora deal, it appears to be a low-margin business at present: $2.8M revenue less $2.7 (approx) expenses= $100,000 EBITDA contribution for the quarter--Caveat Emptor!

2nd UPDATE 29 Oct 2015: Neustar admits "annual revenue will decrease by approximately $500 million" upon termination of NPAC contracts. and "total revenue and profitability may be materially adversely affected" (see 10-Q excerpt below). Note that 2014 total annual revenue was only $964 million, of which John Zhang (see further below) has stated "NPAC contract accounts for over 100% of Neustar's EBITDA" (Earnings Before Interest, Taxes, Depreciation, Amortization):

Item 1A. Risk Factors (p.33-34, Form 10-Q) (emphasis added)
"In addition to the other information set forth in this Quarterly Report, you should carefully consider the risks discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2014, filed with the SEC on February 13, 2015. The risks discussed in this Quarterly Report and in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks set forth below and described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

"When our seven contracts with North American Portability Management LLC are terminated, the timing of which is uncertain, our revenue and profitability may be materially adversely affected.

"We cannot be certain whether our contracts to provide local number portability services will be extended beyond September 30, 2016.  Once the contracts terminate, our annual revenue will decrease by approximately $500 million.  As a result of the uncertain contract end date and due to our cost structure, which is organized by function, the impact of the termination of the contracts on our income from operations is not currently quantifiable.  At the time of termination, our revenue and profitability will be dependent upon the success of our remaining business.  If we are not able to replace this lost revenue and adjust our operating plans to support our remaining business, our total revenue and profitability may be materially adversely affected."

UPDATE: Neustar misses on revenue: NeuStar (NYSE:NSR): Q3 EPS of $1.29 beats by $0.17.
Revenue of $261.7M (+7.3% Y/Y) misses by $0.31M. Press Release. Neustar stock closed today DOWN 3.93% at $26.89 (price decrease $1.10 ).
Web.com (NASDAQ:WWWW): Q3 EPS of $0.62 beats by $0.02; Revenue $140.4M (-2.4% Y/Y) beats by $0.85M. Earnings Release.

Domain Name Registry operator Neustar (NYSE: NSR) and Domain Name Registrar Web.com Group, Inc. (NASDAQ: WWWW - Web.com, NetworkSolutions.com, Register.com) both report Q3 2015 earnings after the market close today and each will have live webcasts at 5 pm ET. Here are the links to Web.com's earnings and live webcast [Web.com Group (WWWW) David L. Brown on Q3 2015 Results - Earnings Call Transcript | Seeking Alpha] BUT the more interesting story is Neustar:

Neustar 5-year stock chart as of Oct 28, 2015 (source: google.com)

Neustar, Inc., (NYSE: NSR) will report Q3 2015 results on Thursday, October 29, 2015, after the close of regular trading. The third quarter earnings release will be followed by a teleconference and webcast beginning at 5:00 p.m. ET. For the live or archived webcast via the Internet, go to the Investor Relations section of the Neustar website: http://www.neustar.biz/about-us/investor-relations (source: NSR press release).

To participate in the teleconference: 800-765-0709 (international callers: 913-312-0860) and enter PIN 447718 (a few minutes prior to the call in order to register). A replay of the call will be available through 11:59 p.m. (Eastern Time) on Thursday, November 5, 2015 by dialing 877-870-5176 (international callers should dial 858-384-5517) and entering PIN 447718.

Principal domain name: neustar.biz
Stock exchange and Symbol: NYSE: NSR

About Neustar, Inc.(source: Neustar): Neustar, Inc., is the first real-time provider of cloud-based information services, enabling marketing and IT security professionals to promote and protect their businesses. With a commitment to privacy and neutrality, Neustar operates complex data registries and uses its expertise to deliver actionable, data-driven insights that help clients make high-value business decisions in real time, one customer interaction at a time.

Neustar is also a domain name registry operator for top-level domains (TLDs) such as .biz, .us (ccTLD for the U.S.), .co (ccTLD for Colombia), and other TLDs, (.nyc, .travel) as well as providing services for other TLD registry operators.

Neustar insiders have been selling their shares in Neustar, generally a bearish sign. In a recent Seeking Alpha article: Neustar: 80%+ Downside Within 13 Months (Oct 14, 2015), John Zhang, a self-described contrarian value investor, concludes (emphasis added):

• There is a highly probable 80%+ downside within the next 13 months, with a chance the NSR may face default in the next 3 years due to continued deterioration in the non-NPAC business combined with the large liabilities on the balance sheet;
• The NPAC contract (FCC's Numbering Portability Administration Contract) accounts for over 100% of Neustar's EBITDA;.
• "Neustar risks breaching debt covenants in 2016 and 2017, and is unlikely to be able to refinance $300M in Senior Notes maturing in 2018;"

But what about Neustar's well-known acquisitions in the domain name industry, including .CO
and ARI Registry Services? Zhang specifically mentions .CO:

"... in March 2014, Neustar acquired .CO Internet S.A.S., the exclusive operator of .CO domain names. However, management disclosed in the next few quarters that [acquisition] contributed to incremental expenses and lower-than-expected revenues ... non-NPAC growth is slowing and margins are deteriorating. Furthermore, Neustar had to take on incremental amounts of debt to fund these purchases, leading to high leverage over the past few years." (emphasis added)

See also on Domain Mondo:

• Neustar Buys Bombora and ARI Registry Services for US$87 Million: 31 July 2015
• Domain Name Registry Operator Neustar After Losing FCC Vote 30 March 2015

Tweets about $NSR

Caveat Emptor!

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DISCLAIMER

Domain Name Registrar Web.com Reports Cyber Security Breach

Domain Name Registrar Web.com, (Nasdaq:WWWW) has reported that it discovered an unauthorized breach of one of its computer systems on August 13, 2015. The company, which also owns Network Solutions and Register.com, stated "As the result of this attack, the credit card information of approximately 93,000 customers (of the company's over 3.3 million customers) may have been compromised. The company uncovered the unauthorized activity through its ongoing security monitoring."

Web.com has reported the attack to credit card processors and the proper federal and state authorities, and as a further precaution, is providing a year of credit monitoring protection to impacted customers. Web.com is working with a leading IT security firm to conduct a thorough investigation, and continues to make significant investments in its internal security processes and systems to prevent incidents like this from occurring.

"The security of our customer information is a high priority for Web.com. Our goals are simple - to protect our clients from internet attacks and, in the event that an attack succeeds, to fix the problem immediately," said David L. Brown, Chairman, President and CEO, Web.com.

All customers that may have been impacted by this breach will shortly receive an email detailing the steps the company is taking. In addition, a letter, sent via the US Postal Service, will follow in the next few days. The company has posted a list of Frequently Asked Questions on http://security-faqs.web.com.

source: Web.com

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Web.com Q2 2015 Earnings Conference Call and LIVE Webcast 5pm ET

UPDATE August 7, 2015:  Web.com Group's (WWWW) CEO David Brown on Q2 2015 Results - Earnings Call Transcript | Seeking Alpha: David Brown - Chairman, Chief Executive Officer and President: "And relative to Google Domains I would say Josh, our response would be same as before. There is really not been any noticeable impact from Google Domains, [the] domain space is commoditized very competitive space [i.e., low profit margins] and at this point there are other significant players that have more muscle and at this point Google really hasn't shown much muscle in the space." (emphasis added)

Questions: Will Google get completely out of the commoditized, very competitive, low profit-margin domain name business? Why did they ever get into it? Did someone in Mountain View drink the ICANN new gTLDs Kool-Aid?

See:

• New gTLD Domains, the Walking Dead and Dying, ICANN FY15 Results 02 July 2015
• Google Dumps Its CAR New gTLD Domain, What Does That Tell You? 19 May 2015
• Has Google Fallen Out Of Love With ICANN's New gTLDs? 13 January 2015

Web.com Group stock charts: 5 year (left above) and 5-day (right above) [chart source: google.com]

The Web.com Group, Inc. [ check stock price now: NASDAQ:WWWW ], reported Q2 2015 financial results, after the U.S. financial markets closed on Thursday, July 30, 2015. A conference call and webcast, 5:00 pm ET (US), scheduled to discuss the Company's financial results and current business outlook. The webcast and replay of the call with accompanying slides will be available at the Investor Relations page of the Company's website (http://ir.web.com). To access the call, dial 877-407-0789 (domestic) or 201-689-8562 (international). A replay of the conference call will be available until August 6, 2015, at 877-870-5176 (domestic) or 858-384-5517 (international). The replay conference ID is 13614023. See also: Web.com Group's (WWWW) CEO David Brown on Q2 2015 Results - Earnings Call Transcript | Seeking Alpha

Web.com Second Quarter 2015 Earnings Conference Call - Jul 30, 2015, 5:00 PM ET:

• Listen to webcast
• Presentation pdf 722.3 KB

• Stock Exchange:Symbol (check price now): NASDAQ:WWWW
• Principal domain name: web.com
• SEC Filings - Web.com Group, Inc.

Web.com Q2 2015 Financial Results (NASDAQ:WWWW):

Summary of Second Quarter 2015 Financial Results:

• Total revenue, calculated in accordance with U.S. generally accepted accounting principles (GAAP), was $135.7 million for the second quarter of 2015, compared to $138.2 million for the second quarter of 2014. Non-GAAP revenue was $140.0 million for the second quarter of 2015, compared to $144.7 million in the year-ago quarter, and above the high end of the Company's guidance range of $137.0 million to $138.5 million.
• GAAP operating income was $14.9 million for the second quarter of 2015, compared to $10.4 million for the second quarter of 2014. Non-GAAP operating income was $34.3 million for the second quarter of 2015, representing a 25% non-GAAP operating margin, compared to $38.4 million for the second quarter of 2014, representing a 27% non-GAAP operating margin.
• GAAP net income was $4.6 million, or $0.09 per diluted share, for the second quarter of 2015. GAAP net loss was $0.8 million, or $0.02 per diluted share, for the second quarter of 2014. Non-GAAP net income was $31.5 million for the second quarter of 2015, or $0.60 per diluted share, exceeding the high end of the Company's guidance of $29.0 million to $30.0 million, or $0.56 to $0.57 per diluted share. The Company had non-GAAP net income of $33.6 million, or $0.62 per diluted share, for the second quarter of 2014.
• Adjusted EBITDA was $38.4 million for the second quarter of 2015, compared to $41.8 million for the second quarter of 2014, representing a 27% and 29% adjusted EBITDA margin during three months ended June 30, 2015 and 2014, respectively. 
• The Company generated cash from operations of $45.5 million for the second quarter of 2015, compared to $37.1 million of cash flow from operations for the second quarter of 2014. 

Second Quarter and Recent Business Highlights:

• Web.com's total net subscribers were approximately 3,316,000 at the end of the second quarter of 2015, up approximately 21,000 from the end of the first quarter of 2015.
• Web.com's average revenue per user (ARPU) was $13.91 for the second quarter of 2015 compared to $14.89 for the second quarter of 2014. ARPU was up sequentially during the second quarter of 2015 from $13.75 during the first quarter of 2015.
• Web.com's trailing twelve month customer retention rate was 87.7% for the second quarter of 2015. This is in line with recent levels of high customer retention.
• Web.com used $30.0 million in cash to reduce debt during the second quarter of 2015.
• Repurchased 657,000 shares for $14.2 million in the second quarter of 2015.

Tweets about $WWWW

Web.com Group, Inc. provides Internet services to small businesses including domains, hosting, website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products and eCommerce solutions. Domain Name Registrars Network Solutions (networksolutions.com) and Register.com are brands of the Company. (source: Web.com Group)

See also on Domain Mondo:

Web.com (NASDAQ:WWWW) Stock Hit by Citigroup Downgrade
Jun 23, 2015
A downgrade of domain name registrar Web.com (NASDAQ: WWWW) to neutral by Citigroup hit the stock hard this morning. The registrar and web services provider provides domain name registration services through ...

Web.com First Quarter 2015 Financial Results
May 01, 2015
Web.com First Quarter 2015 Financial Results, WWWW, domain name registrar, Network Solutions, Register.com, Web.com Group,

Web.com Chairman Bearish on new gTLDs, Premium Domain Names
Mar 11, 2015
Web.com Chairman Bearish on new gTLDs, Premium Domain Names, domains, domain names, new gTLDs, David L Brown, premium domains, buying and selling domains, domain portfolio, Network Solutions, Universal ...

Web.Com Group Stock Tanks, New gTLDs Kill Domains Aftermarket
Nov 06, 2014


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New gTLD XYZ Domain Name Registrations Net LOSS Now 114935

New gTLD dot XYZ domain name registration numbers are hemorrhaging--registrations on June 3, 2015, were 940,585 and as of June 23, 2015, are 825,650--a (net) drop of 114,935 or a net loss in registrations of over 12% (source: namestat.org/xyz).

Easy come, easy go?

It is unknown, but probable, that [UPDATE] many of those registrations were given away for free by domain name registrar Network Solutions last year--reportedly 300,000+ registrations. [note: Andy Brier of namestat.org sent me the link to his blog where his analysis indicates a less than 6% retention rate for XYZ domains at Network Solutions--interesting reading!]

Earlier today, Domain Mondo posted the news that the stock of the corporate parent of Network Solutions, Web.com, received a downgrade by Citigroup this morning.

NASDAQ: WWWW

See also: Domain Name Registrar Network Solutions Settles FTC Charges: "... Network Solutions LLC has agreed to settle Federal Trade Commission charges that it misled consumers who bought its web hosting services by promising a full refund if they canceled within 30 days. In reality, the company withheld substantial cancellation fees from most refunds..."

Caveat Emptor!

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Web.com (NASDAQ:WWWW) Stock Hit by Citigroup Downgrade

WWWW stock hit by Citigroup downgrade (source: google.com)

A downgrade of  domain name registrar Web.com (NASDAQ: WWWW) to neutral by Citigroup hit the stock hard this morning. The registrar and web services provider provides domain name registration services through Web.com, NetworkSolutions.com and Register.com. As of yesterday's close, the stock had risen 60% from a late-January low of $14.52, but shares have remained far below a 52-week high of $34.79.

See also: Domain Name Registrar Network Solutions Settles FTC Charges

More info: Web.com Group Stock Rating Lowered by Citigroup Inc. (WWWW) and 

UPDATE: Citi Cuts Web.com To Hold, No Justification For Premium Multiple - Tech Trader Daily - Barrons.com: from the Citigroup note: "Through the next few quarters better renewals in the core .COM/.NET domain business from TTM should help, but we worry that weaker recent domain trends coupled with a growing gTLD renewal base that came in via promotional pricing could reverse momentum."

UPDATE: see also New gTLD XYZ Domain Name Registrations Net LOSS Now 114935

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Web.com First Quarter 2015 Financial Results

(Click on slides to enlarge)

Web.com Reports Q1 2015 Financial Results

• First quarter revenue and profitability exceeded high end of guidance
• Web.com's average revenue per user (ARPU) was down to $13.75 for the first quarter of 2015, compared to $14.07 for the fourth quarter of 2014.
• Customer churn was approximately 1% for the first quarter of 2015, consistent with recent low levels.
• 3.3 million subscribers with 19,000 net additions
• Repurchased 904,000 shares for $15.8 million and reduced debt by $17.5 million

Web.com First Quarter 2015 Earnings Conference Call: Listen to webcast
Presentation (pdf) 818.7 KB

Web.com Group, Inc. is a provider of web services catering to small and medium-sized businesses. Web.com Group purchased domain name registrars Register.com (for $135 million in 2010) and Network Solutions (in 2011 for $405 million).

Its stock symbol is WWWW trading on the NASDAQ. Its total market capitalization is $977 million, and the stock price is down -40.8% from its high in the past 12 months, and down -3.7% in the current year to date (as of yesterday's close).

UPDATE: WWWW Earnings Call Transcript

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The Day Jon Postel Freed The Internet Root From US Government Control

Jon Postel in 1994, with hand-drawn map of Internet top-level domains. Photo By Irene Fertik, USC News Service. © 1994, USC. [used with permission]

This post is about Jon Postel a/k/a the "god of the internet," the U.S. Government and its claim on the Internet Root, as well as IANA, ICANN, the Root Zone Maintainer Verisign, successor to Network Solutions (NSI), and the IANA Stewardship Transition. [UPDATE: Part 2 of this post is now What Is The US Government's Claim to the Internet Root?]

"In the Domain Name System (DNS) naming of computers there is a hierarchy of names. The root of system is unnamed. There are a set of what are called "top-level domain names" (TLDs). These are the generic TLDs (EDU, COM, NET, ORG, GOV, MIL, and INT), and the two letter country codes from ISO-3166. It is extremely unlikely that any other TLDs will be created."--Jon Postel, March 1994, RFC 1591

On January 28, 1998, Jon Postel emailed eight of the [then] twelve operators of the Internet's regional root nameservers, instructing them to change the authoritative Internet root zone server from Network Solutions NSI's A.ROOT-SERVERS.NET (198.41.0.4) to DNSROOT.IANA.ORG (198.32.1.98). The operators complied with Postel's instructions, thus dividing control of the Internet between 8 non-government operators and the 4 remaining U.S. Government roots at NASA, DoD, and BRL with NSI. Though usage of the Internet was not interrupted, Postel soon heard from senior US government officials who threatened him to undo this change--

"According to news reports at the time, Postel made the switch without approval from anyone. Some said it was merely a “test” meant to show that the internet’s directory infrastructure could be repositioned as needed. But others said that Postel was making a statement — that he was trying to show the White House that it couldn’t wrest control of the internet from the widespread community of researchers who had built and maintained the network over the previous three decades. The White House was just days away from revealing a plan to reorganize the way the internet’s directory system was governed."--Remembering Jon Postel — And the Day He Hijacked the Internet | WIRED

Washington Post - Saturday, January 31, 1998 - Page H01:   "... Internet community leaders affiliated with Postel spent the week embroiled in tense negotiations with the Clinton administration over the government's  future role in controlling some of the network's key operating functions ... Some computer user groups, including those affiliated with Postel, had urged the government to end its oversight of the network sooner. "It's very hard to believe the timing was entirely coincidental," said one senior government official familiar with the incident. Postel did not return phone calls seeking comment yesterday, but in a statement he said the reconfiguration would result in "no change to the data" in the directory-information computers, called "root servers." He said that "once this test is completed, [the servers] will revert to the previous arrangements."... One of the reconfigured servers is located at the University of Maryland at College Park ... Gerry Sneeringer, the assistant director for networking for the university's Academic Information Technologies Service, said he received an e-mail message last week from Postel asking that the change be made. "If Jon asks us to point somewhere else, we'll do it," Sneeringer said. "He is the authority here." Akira Kato, a researcher at the University of Tokyo who runs another root server, said in a telephone interview that he, too, reconfigured his server after getting an e-mail from Postel. J. Beckwith Burr, a [U.S. government] Commerce Department official who co-authored the administration's report, said the incident "caused a lot of concern ... We have asked that the system be returned to the situation it was in before and that no such tests are to be undertaken without consultation again." (emphasis added)

Within a week, the US NTIA issued a proposal to "improve" technical management of Internet names and addresses, including changes to authority over the Internet DNS root zone, which ultimately, and controversially, increased U.S. control over the Internet. On October 16, 1998, Postel died of heart problems in Los Angeles, nine months after the DNS Root Authority incident. 
All of which would be an interesting footnote in the history of the Internet, but for the US Government's Department of Commerce, NTIA, March, 2014, announced "intent to transition key Internet domain name functions to the global multistakeholder community," including NTIA's procedural role of administering changes to the authoritative [Internet] root zone file; its historic stewardship of the DNS--the Internet Domain Name System, including its roles in the IANA functions and the Internet root zone management functions--see: NTIA Q&A, March 2014.

Part 2 of this post is now here: What Is The US Government's Claim to the Internet Root?
further info:
root-servers.org
ICANN | NSI-NSF Cooperative Agreement | 1 January 1993
Verisign Cooperative Agreement | NTIA
IANA Functions and Related Root Zone Management Transition Questions and Answers | NTIA
USC/ISI's Postel Center
http://www.postel.org/pr.htm

From Domain Mondo: Steve Crocker's Remembrance of Jon Postel Was The Best Thing That Happened at ICANN 51


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Domain Name Registrar Network Solutions Settles FTC Charges

Web.com Group, Inc., which owns domain name registrar and hosting provider, Network Solutions, disclosed on August 1, 2014, in a SEC 10-Q filing, a pending FTC investigation:

"The Federal Trade Commission ("FTC") is investigating the methods by which Network Solutions has marketed its domain name and web hosting services to customers. The Company is cooperating with the FTC investigation. The Company has responded to an FTC Civil Investigative Demand and is responding to additional FTC information requests. The FTC investigation could conclude with a variety of outcomes, including the closing of the inquiry with no action, an order regarding our marketing practices, or a payment to the government or to customers." (emphasis added)

The FTC has now announced this week a settlement with Network Solutions--

From the Federal Trade Commission (FTC) Washington, D.C. (press release)--FTC Obtains Settlement From Network Solutions LLC for Misleading Consumers About Refunds--

"Network Solutions LLC has agreed to settle Federal Trade Commission charges that it misled consumers who bought its web hosting services by promising a full refund if they canceled within 30 days. In reality, the company withheld substantial cancellation fees from most refunds.

"In an administrative complaint, the FTC alleged that Network Solutions, a domain name registrar and web hosting provider, offered web hosting packages with a “30 Day Money Back Guarantee,” but did not adequately disclose that it withheld part of the refund – up to 30 percent – from customers who cancelled within 30 days of buying an annual or multi-year package and registering an included domain name.

"The proposed settlement order prohibits Network Solutions from failing to clearly disclose, before obtaining a customer’s billing information, the material terms of any money-back guarantee, or failing to refund the full purchase price in response to a request that complies with the terms of a guarantee. The settlement also bars the company from misrepresenting material terms of any refund or cancellation policy or money-back guarantee, or any other material fact about web hosting.

"The FTC acknowledges the assistance of the Better Business Bureau serving Metro Washington DC & Eastern Pennsylvania in this case.

"The Commission vote to issue an administrative complaint and accept the proposed consent agreement for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through May 7, 2015, after which the Commission will decide whether to issue the order on a final basis. Interested parties can submit written comments electronically."

Federal Trade Commission
Title: Proposed Consent Agreement and Request for Public Comments
Subject Category: In the Matter of Network Solutions, LLC; File No 132 3084
Published: Date To Be Added
Comments Due: Thursday, May 7, 2015

Invitation To Comment:
The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The Federal Register Notice includes an Analysis to Aid Public Comment that describes both the allegations in the proposed draft complaint and the terms of the consent order - embodied in the consent agreement - that would settle these allegations. Interested parties are invited to submit written comments on the issues.... (emphasis added; read more and submit comment at the Federal Trade Commission website.)

Case Timeline - April 7, 2015:
Agreement Containing Consent Order (42.03 KB)
Complaint (433.7 KB)
Analysis of Proposed Consent Order to Aid Public Comment (22 KB)

UPDATE: Order issued May 28, 2015 (pdf)

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Web.com Chairman Bearish on new gTLDs, Premium Domain Names

"Turning to our domain business... in recent quarters, we discussed our exit from a natural accounts business, as well as the softness we've seen in the premium domain name and domain portfolio sales areas of our domain business. These have largely been removed from our 2015 outlook, and each represented approximately $5 million of revenue per quarter, and will impact revenue by $25 million when compared to 2014. In the [new] gTLD market... based on the lack of clarity on future announcements and timing, we are not currently forecasting any gTLD benefit in 2015... We also took a modest, noncash $2 million asset impairment charge in the quarter related to the value of certain domain names held in our monetization portfolio. As we've referenced in prior quarters, the premium domain and domain portfolio business has softened, and this revaluation reflects our estimation this market is likely to remain under pressure... " - Web.com Chariman David L. Brown - Q4 2014 Earnings Call, February 12, 2015 (source: seekingalpha.com infra)

Web.com Group (WWWW) Q4 2014 Results - Earnings Call Transcript | Seeking Alpha: "George A. Kelly - Craig-Hallum Capital Group LLC, Research Division: ... First, with the premium domain business. I'm wondering if you could explain a little bit what's causing the weakness there?

"David L. Brown - Chairman, Chief Executive Officer and President: Sure. We think that it's a classic case of too much supply and not enough demand. That business has been a shrinking business for years. It was a darling business 10 years ago and even 5 years ago, but buying and trading domains has been a less attractive business here for the last few years. And then add on top of that, new extensions, new gTLDs. You can now go out and buy the name you want with .nyc, at the end of it, if you live in New York, or .ca, or a variety of other extensions. So why would you pay for a premium domain, if you can buy the domain for $20 or $30? And that, I think, has created a lot of at minimum, pricing pressure in that space, and has really dried up some of the demand for those premium domains."

Domain Mondo's response:

1. New gTLDs may be the DNS equivalent of damaged goods--new gTLDs reportedly "break stuff" and fail to work across the internet. The disappointing registration numbers thus far for new gTLDs would be even worse but for the rampant first-year registrations by cybersquatters, as well as the initial launch year defensive registrations by trademark holders and speculative registrations by legitimate domain name investors. .GURU was one of the first new gTLDs to launch last year and its renewals (which began January 30, 2015) together with new registrations, have shown surprising weakness, and even an overall "contraction" in total registration numbers on some days.

2. The key to long-term success for new gTLDs is for business owners to build operating websites on those new domain extensions. But now with the known issues of new gTLDs' problems with "Universal Acceptance" [as noted above, new gTLDs reportedly do not work across the internet (a problem which will take years to "fix") and break stuff]--it is hard to see how any knowledgeable entrepreneur would be willing to risk building his/her main business website on a new gTLD domain name.

3. Even if the "failure to work across the internet" problem is ultimately solved, new gTLDs, in general, have a pricing predictability problem--they are not only more expensive, generally, than dot COM domain names to register, but the renewal registration fees have no caps--one year the renewal fee could be $20 and the next year it could be $20,000--totally within the control of the new gTLD registry operator (that's just one of the ways ICANN failed to protect the "public interest" in the new gTLDs program). Predictability is an important factor to business owners and, right now, a competitive advantage of dot COM domain names are on price, predictability of future pricing (renewal fees) as well as the obvious dominance of the brand dot COM.

4. Dot COM is still the "gold standard" in domain names and that is not likely to change for the foreseeable future. Dot COM registrations continue to grow and dominate total new TLD registrations worldwide--that is why dot COM domain names are increasing in value on the aftermarket. Because there are over 100 million dot COM domain names registered, the normal churn in dropped dot COM domain names continues to create an active, on-going buying opportunity for both new registrants and domain name investors. Indeed, while there are functional domain name aftermarkets (both sales and auction platforms), there is still a golden opportunity awaiting an enterprise or entrepreneur who builds the Uber of a domain name aftermarket.

5. I am personally bearish on Web.com (which also owns Network Solutions), for several reasons including a previously reported FTC investigation of Network Solutions marketing practices. From the earnings call, it appears that its strategy is based on charging its registrants for additional services they may (or may not) need, and which may be available at, e.g., GoDaddy, for less. Most domain investors I know avoid holding many, if any, domain names at Network Solutions/Web.com. (Note: I personally own no stock in WWWW and have no intention of taking any positions, long or short, in WWWW--see disclaimer at the bottom of this web page).

-- John Poole, Editor, Domain Mondo

Caveat Emptor!

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