The domain name business more than doubled in the past three months as Internet users bought the rights to 5 million names, according to figures released Thursday by the company that maintains the database of names.
But for those in the business of registering domain names, the phenomenal growth rate is a mixed blessing. Analysts said the figures make it impossible to gauge a base level from which to predict growth, leaving investors to guess whether registering names can become a profitable endeavor.
, the Herndon, Va.-based company that just a year ago maintained a government-ordained monopoly in the business, the numbers illuminated a steep drop in market share, although its quarterly earnings from the name business more than tripled. Now that a regulatory body has rescinded the monopoly, competitors offering name registration as a peripheral service to core businesses like Web hosting have rushed Network Solutions' turf.
The NSI Registry, the database of names maintained by Network Solutions, logged 5 million new entries during the company's first fiscal quarter ending March 31, compared to around 2.3 million in the quarter ending Dec. 31. In the comparable quarter last year, the registry logged 922,000 new names.
During the quarter, Network Solutions registered 2 million of those 5 million names, or 40%, while its 37 new competitors registered the rest. In the comparable quarter last year, the company had no competition. In the quarter ending in December, analysts estimate the company maintained a 70% market share despite the beginning of competition.
The numbers were released as part of Network Solutions' quarterly earnings report. For now, the earnings report shows, the diminished market share has not meant disappointment for investors. The company reported revenue of $98.2 million, compared to $38.1 million in the year-ago quarter.
Net income was $14.7 million, or 20 cents a diluted share, compared with $4.8 million, or 7 cents a diluted share, in the comparable quarter last year. Analysts polled by
First Call/Thomson Financial
predicted the company would report earnings of 14 cents a diluted share.
"We have lost no momentum whatsoever in our business," said Jim Rutt, the company's chief executive, in a telephone interview.
Network Solutions is rapidly altering its business model after agreeing to split into two companies. The registry company will continue to maintain the database, charging competing registrars $6 for each name. The registrar company will compete directly with the other registrars. It currently charges $70 per name for the basic service of assigning the name.
But to compete with companies like
, which register domain names as an ancillary business and for a nominal fee, Network Solutions has begun offering so-called "value-added" registration services. Those packages run from $119 to $169 (including the basic $70 fee). The additional services generated $20.3 million in revenue in the first quarter, the company said.
Rutt said Network Solutions has chosen to focus on marketing names to customers who plan to build extensive Web sites, leaving out those who are simply hoarding domain names.
"The sweet spot for us is small but real businesses," Rutt said.
He said the company surveyed a sample of the new entrants to the registry, finding that 80% of the names that corresponded to extensive sites used Network Solutions as the registrar. To qualify as extensive, a site had to contain multiple pages or an interactive form. Rutt said the sampling had a 3% margin of error. He said he could not recall the number of domain names included in the sample.
The strategy was chosen because those customers are more likely to buy additional services like Web site building tools and renew their names, Rutt said.
While the company did not specifically state a figure, analysts said the figure for other services leaves around $91 million of the total revenue from the basic registration services. To garner that revenue, Network Solutions must charge $70 to register a domain name, a service comparable to issuing a building address or license plate number.
The drop to 40% is "a significant share loss," said Todd C. Weller, analyst for Legg Mason. "Can we believe that 5 million is a base that will continue next quarter?"
Shares of Network Solutions were up 11 3/8, or 10%, to 126 3/4. (Network Solutions closed up 20 9/16, or 18%, at 135 15/16.)