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Advertising - Wednesday, May 30, 2007

The Next Wave Of IPOs: Domainers

Some folks hate the domain business but we chalk it up to envy over how much these guys make and how smart you have to be to do well here.

Youssef Squali, an analyst with Jefferies & Company, described domainers, or direct navigation companies, for the NY Times: “They’re paying nothing to acquire a customer,” he said. “I think the next wave of I.P.O.’s will be around this area.”

Squali is particularly drawn to Name Media, which saw revenues double to $60M in 2006 with an estimated 40% profit margin. The company has bought up domains and develops content for clusters of domains so that not only does it make money from each visitor but they might actually search around the site and even come back.

Name Media is recruiting financial market brains to provide guidance:
"To decide which of those sites to develop and which to fill with search engine ads, NameMedia hired Hugh O’Neill, who previously oversaw $30B worth of financial derivatives for Sun Life Financial. Mr. O’Neill uses, among other things, the expected number of clicks and the value of the ads in a category to calculate the future value of a domain name."

RBC Capital Markets pegs the direct navigation market at more than $800M in ad revenues last year, and says that number could reach $1.1B in 2007.

Of course we turn to Frank Schilling down in Caymen to give us his take on these stories. He says that there are a number of other outfits larger than Name Media but Name cleans up nice. It has a dignified CEO, Goldman is the banker, Summit and Highland are reputable VC. Schilling suspects the reason Name's margins are only at 40% is because it is paying down debt. He believes that Oversee and Reinvent are much larger but they lack Ivy League polish.

Read - Millions of Addresses and Thousands of Sites, All Leading to One (NY Times)