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

Web.com Group Inc. Stock Chart (source: Marketwatch.com)

Today Web.com Group (NASDAQ:WWWW) stock is tanking (see above, source: Marketwatch).
UPDATE--at market close 6Nov2014: WWWW $14.71  -5.54 (-27.33%) [source:Seeking Alpha] while overall the NASDAQ closed up +17.75 +0.38% at 4,638.47 (source: Bloomberg).

Web.com Group operates various brands in the domain name industry including registrars web.com, networksolutions.com, and register.com.

Yesterday afternoon (5 Nov 2014), Web.com Group (NASDAQ:WWWW) presented its Q3 2014 Results in a conference call. Excerpts below (emphasis added) from Web.com Group's (WWWW) CEO David Brown on Q3 2014 Results - 5 Nov 2014 Earnings Call Transcript | Seeking Alpha [my "translation" appears within brackets below]

David L. Brown - Web.com Group Chairman, Chief Executive Officer and President: "First, in the domain business, while we continue to expect the recently expanded top-level domain environment to increase our ability to sell domains over the medium to long term, the increased availability of names has had a near-term negative impact on domain-related revenue. This is primarily associated with noncore domain-related revenue such as sales of premium domain names and bulk domain sales. While not a significant part of our overall domain business, it has historically represented several million dollars of quarterly revenue. But given the current environment, we now expect minimal contribution in the coming quarter." 

[Translation: Since ICANN's new gTLDs (new generic Top-Level Domains) came out, the domain name business has been bad, but medium to long term we hope it will get better.]

David L. Brown - Web.com Group Chairman, Chief Executive Officer and President: There's a marketplace out in the U.S. and around the world that buys domains and resells them or monetizes them, and we've seen that market get soft. We actually commented on this in our second quarter call that we were beginning to see softness. We saw it continue to soften further. Our belief is the reason the softness is occurring is that this marketplace is looking at all of these new gTLDs coming into place, i.e., there are more options available for people and they're kind of stepping back away, at least temporarily, to see how things settle out. We continue to believe that this market could come back. But for the sake of conservatism, we have effectively taken this revenue out of our model for the fourth quarter because we can't predict how long this behavior is going to continue.

[Translation: Web.com Group (web.com, networksolutions.com, register.com) does not expect to make any money in domain name aftermarket sales due to the chaos and confusion caused by the current launch of over 1300 new gTLDs by ICANN, which is causing domain name investors to become cautious and the market to go "soft."]

Gray Powell - Wells Fargo Securities, LLC, Research Division: "So on the domain name side, I just want to make sure that I have it correct. So specifically, you're saying that new gTLDs are impacting the resale of domain names in the aftermarket. Is that right?"

David L. Brown - Web.com Group Chairman, Chief Executive Officer and President: "That's our belief at this point. When we commented in the second quarter, it was just beginning to impact us, and we really didn't understand it at that point. Upon investigation and discussion with some of the purchasers in the marketplace, we see a much more cautious attitude in the marketplace. And we just believe that demand has softened, which leads us to believe that people have kind of -- are taking a wait-and-see attitude relative to this new phenomenon of gTLDs and the new opportunities they create."

[Tanslation: "Opportunities" means "problems and financial pitfalls," i.e., the new gTLDs are BAD NEWS for almost everyone: trademark holders, law enforcement, consumers, the domain name industry (see above), as well as domain name registrants and investors. It's called "flooding the market" and creating gross oversupply or a "glut," which leads to commoditizing (falling prices) and a shakeout in the industry with a few well-capitalized big operators (Google and Amazon?) eventually controlling marketshare. The premium extensions .COM and well-run ccTLDs should weather the storm and maintain and continue to increase in value over the long-term, but do not expect savvy domain name investors to follow the new gTLDs over the cliff. There are plenty of .COM and ccTLD domain names available--we were never "running out of .COM domain names" and ICANN never considered "consumer demand" as a relevant factor in whether to create more gTLD domain name extensions. ICANN just decided to "glut" the market "because they can" and because it would make a "lot of money" for ICANN, at least in the short term.]

See also: WWWW: The Greatest Stock Promotion Story Ever Told | Stocks and Dollars: "...This company is engaged in an unattractive low-growth commodity business of selling domain names...." and  We're doing great, say [new gTLD] dot-London chiefs ... Unfortunately, few agree • The Register


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Reason #2 Why New gTLD Domains Are a #FAIL

Second part of the post from yesterday --

Reason #2 new gTLD domains are a #FAIL: Increasing Supply Does Not Increase Demand

New gTLDS are to Domains what Atlantic City is to Gambling--

What happened in Atlantic City, is already happening to the new gTLDs (new generic Top-Level Domains)--see Most New gTLD Domain Names Are On Life-Support, Infecting Other gTLDs. ICANN is flooding the domain name ecosystem with over 1300 new gTLDs (from just 22)--creating market chaos, confusion, and gross oversupply. New gTLD registries had to pay an initial fee of $185,000, plus other costs, and auction fees, which in many cases total in the millions of dollars ($US) invested before the first domain name is sold!

Here's what happened in Atlantic City--"... Everyone bought into the myth that gambling would bring in needed tax revenue, and that you could attract plenty of blackjack and slot machine players no matter how many casinos you built. But the demand was not infinite, and ultimately got divided among all these sites, hurting Atlantic City perhaps the most. How did city and state leaders react? By unveiling a plan to turn Atlantic City into Las Vegas. Somehow, their response to a glut of gambling was to add more gambling, only with lots of flash and nightclubs and fine dining. Revel, the linchpin of this strategy... racked up almost $1 billion in debt during the construction phase, straining the budget right from the beginning. Revel never made a dime, and flamed out just two years after its opening...." (source)

Sound familiar? Everyone at ICANN bought into the myth that more gTLDs would bring in more registrant fees, no matter how many new gTLDs were flooded into the domain name ecosystem.

Donald Trump on Atlantic City (Bloomberg video, August 11, 2014):

Donald Trump on what happened to Atlantic City--"Too much competition"-- tremendous competition eating away at itself --Trump talks to Bloomberg's Trish Regan

Atlantic City Politicians = ICANN
Atlantic City Casinos = new gTLDs' registry operators
Atlantic City Gamblers = new gTLDs' domain name registrants

Lessons learned:

1. Demand is NOT infinite. 
2. Increasing supply does NOT increase demand. 
3. Too much competition is a BAD thing.

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see also: ICANN, New gTLD Domain Names, Universal Acceptance Another #FAIL