There are clear indications that good internet businesses are starting to be re-valued. The growth of eBay and enormous success of their model not to mention their share price is probably one of the best examples. eBay is now the world's largest retailer of cars, it's easily the biggest seller of collectibles and artwork. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> |
Who would have believed that, 5 years ago? Why? Because they simply take a margin with no risk on the way through, they are making excellent money and should continue to do so. |
Wouldn't Coles Myer love it if they didn't have to pay for real estate, employ thousands of staff and pay for the stock? Such is the nature of the digital marketplace. Just ask a music retailer. Google is the other obvious example of an internet stock starting to have a more than significant valuation. |
It's not just limited to the Google's & eBay's of the world. The right internet companies are being aggregated by other companies. Recently there was an agreement to sell lastminute.com. It's a site that offers special deals for hotels and holidays primarily throughout Europe. The price was over $1 billion yet it has never made a profit. News Limited has just offered $776 million for internet company Intermix Media. Intermix recently posted a loss of $1.7 million. |
<?xml:namespace prefix = v ns = "urn:schemas-microsoft-com:vml" /> SO WHAT IS INTERESTING IN THE AUSTRALIAN INTERNET STOCKS ? |
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Well there's a small internet company that you have more than likely come across without even knowing it. It's called Dark Blue Sea (DBS) and it has quietly been building a very interesting business model in the direct navigation space. DBS is the world's second largest owner of domain names. Because it is its own registrar, it only pays US$6 a year to have a domain name and it concentrates mostly on .com's. That is clearly the biggest market in the world, and where the biggest opportunities exist. |
The DBS business model is interesting. It buys domain names, one way or another and then charges, at cost per click, for people who enter them directly into their web browsers address bar. As opposed to entering them in a search engine. Almost 10% of users enter a domain name they believe will help them find what they need. |
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Okay not the greatest link, but take the example of spyware.com. 5000 people per day type in www.spyware.com trying to find a solution for their infected PC. There is actually no site with the name as such, but someone is paying the owner of www.spyware.com for the clicks that come from using the name. They registered it, bought it and have kept it since the late 90's. They currently get a cheque for over US $2,000 a day simply because they own the domain name. People who own spyware related products pay for people to come to their sites via spyware.com. DBS doesn't own spyware.com. It does however own a lot of very valuable ones. |
In fact DBS has a portfolio of over 430,000 direct navigation domains, through Fabulous.com DBS manages 600,000 third party domains, which gives them a distribution network of over 1,000,000 generic domain names in 550 industry areas. It has the benefits of lower costs operating out of Brisbane and there's always the possibility that someone will acquire the company. |
All in all, the company is cash flow positive increasingly profitable and is doing so well it is currently doing its second buy-back in 6 months. And look at this for growth: |
Quarter end 31.03.04 - Revenue $1.7 million. Overheads $0.98 million Quarter end 31.03.05 - Revenue $3.8 million. Overheads $1.08 million That's a 123% increase in revenue with 10.2% increase on overheads. |
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Recently in the US, Marchex (Nasdaq; MCHX) acquired the domain portfolio business, Name Developments. Marchex paid US$164 million for Name Developments. It was done at 8.6 times revenue. On that basis Dark Blue Sea is worth about $57 million not its current cap of around $35 million. And that is with no value on its technology and intermediary business. It could end up as a real Aussie internet success story. |
Another interesting factor is that the DBS register will be tightened up considerably in what is the company's second buy-back. The company has an articulate, committed, hardworking and professional CEO in Richard Moore and over 60% of shares are owned by Dean Shannon, who founded it, and management. Neither of these parties is interested in selling unless they are paid the proper value for the company. Moreover in recent times the directors of DBS have been buying up chunks of their own company. Since the start of this year the directors have bought about 2 million shares. This equates to almost half a million dollars in stock. |
All up if you are thinking of diving into the murky waters of investing in dot com's, it could be worth swimming toward the clearer waters of Dark Blue Sea . |
Good Trading, Team Share Cafe |