Comparing Godaddy’s and NetSol’s price tags

By , September 11, 2010

I was going to comment directly on Domain Stryker’s article about Godaddy’s vs NetSol’s respective price tags, until I read that he was putting me on the spot to say something half clueful about it over here 🙂

My initial comment was to the key differences between the prospect of Godaddy being bought for 1 Billion today and Verisign’s purchase of Network Solutions for 28B back in the dotcom heyday was this: Network Solutions included the registries for .COM, .NET and .ORG.

ICANN later forced Verisign to divest out of the registrar side if they wanted to renew their contract for the registry (and they were also forced to let go of .ORG as well)

So for 28B, Verisign got the .COM and .NET registries, for what looks like in perpetuity. No matter how big Godaddy ever gets, at $8.88 a domain or so, they will always be paying the lions share of it to Verisign (well, for .COM and .NET’s)

That’s not to say Verisign got a bargain on NetSol. They locked up the registry, but given the times, everybody was paying nosebleed valuations for everything, but consider this:

Network Solutions was originally purchased by a privately held company called SAIC for $4.5 million. SAIC stands for “Science Applications International Corporation” and  their motto is “From Science to Solutions”. Many of their solutions solve problems for the US Department of Defense, Homeland Security, etc.

As described in detail in this email on an early domain policy list, after SAIC purchased that obscure little outfit called Network Solutions for their 4.5M, they raised about $30 million taking Network Solutions public, while hanging onto 85% of the shares and floating 15%. Shortly after the the IPO, the newly public Network Solutions declared a dividend that put $10 million right back into SAIC’s pocket, doubling their investment on the spot and still leaving them with majority control of the company (but putting NetSol from a profit into a loss for the year).

But that was just the warm up, because when Verisign bought up NetSol for that 28 billion, SAIC would have gotten nearly $24 Billion of it. Not a bad return on 4.5M.

In Godaddy’s case, we have a Registrar that in 2005 was doing about 137M a year in revenues. They filed this S1 back then to raise 200M in an IPO which was then called off. 84 Million of those revenues came from domain registrations. Godaddy retails domains around $8 or $9, so $6 goes to Verisign, putting their COGS on the domains around 75%. That’s the thing with domain registrars that play the margin game (even wholesalers like my favorite Tucows): the gross margins on the domains aren’t that great (especially compared to the registry side of things), so those registrars need to make it up in add-ons. In Godaddy’s case that means web hosting, email, SSL certs, et al.

While the original S1 showed Godaddy was actually losing money. I don’t have the figures handy to see how many domains they had under management in 2005, I imagine they’re a lot larger now than they were then. I also suspect that they are also benefiting greatly from monetizing their domain expiries, a la Tucows.

So without fresh data, we have to fold over a napkin and do some guesswork: In 2005 they wanted to raise roughy 1.5X revenues. So maybe if they still feel that multiple is reasonable, then it would mean their revenues could be around $660M (although the estimates I’ve seen around this news put them at $750 to $800M, which means a lower multiple than from 2005.) So since I lowball everything, I’d call it $600M revenues, and of that maybe $300M is from domains, and $300M from everything else. The domain revenue is thin margin (as we noted), so we look at that other $300M for the bulk of our earnings.

What if it was all pure gravy? Then a 1B price tag on Godaddy might be 3X earnings, which is pretty good. But I doubt it. Maybe 100M is earnings, putting them at 10X, which is also respectable.

But the back of our napkin is covered in “maybes” and “ifs”, so it’s really hard to say.

There you go DomainStryker, hope I didn’t disappoint.

Google Analytics Alternative