Flood of New Domain Names Yields Few Investment Opportunities

DMD stock is the obvious candidate, but its history doesn't inspire confidence

   

ICANN (Internet Corporation for Assigned Names and Numbers) has released 100 new generic top-level domains (gTLDs) today.

DemandMedia185 Flood of New Domain Names Yields Few Investment OpportunitiesGeneric top-level domains form the end part of a web address like  “.com,” “.edu,” “.gov” and “.org.” The organization claims that this will somehow be good for consumers. But that’s probably too optimistic. If anything, the effort will likely lead to more confusion.

Let’s face it, the original gTLDs have remained fairly durable. If you want to visit a business-oriented site, then add a .com. If you are going to a school site, you use .edu. And so on. All in all, it’s pretty easy and intuitive.

But that may end soon. After all, did you know that before ICAAN’s latest move, there were already 22 gTLDs? Unless you work in web development, I bet you’d struggle to name more than five.

Yet it seems that many organizations want to promote their own gTLDs — ICAAN has received nearly 2,000 proposals! Not surprisingly, many came from top web operators like Amazon (AMZN), Apple (AAPL) and Google (GOOG).

As for the 100 that were approved, they are diverse — and some are downright strange. Examples include .plumber, .sexy, .clothing, .menu, .email, .careers, .sexy, .ninj and .cool.

If anything, the likely result for ICAAN’s plan is that there will be a scramble by domain-name buyers and cybersquatters to scoop up thousands of names — hoping that they will ultimately fetch a nice premium (I suspect many porn site operators will also get creative).

At the same time, large companies will probably lock up names as well, to protect their brands. There may also be some benefits with Search Engine Optimization (SEO), which is a way to get higher rankings in Google through multiple links and relevant content.

So, which public companies may benefit? The only stock with a real claim is Demand Media (DMD). According to its most recent 10-Q filings:

“Under the New gTLD Program, our domain services business was awarded and entered into its first registry agreements, becoming an ICANN accredited registry for new gTLDs. In addition, our subsidiaries, eNom and Name.com were awarded contracts necessary to participate in the New gTLD Program. With these recent developments, our domain name services business is in a leading position to sell and support new gTLDs and we expect to launch our first new gTLD registry operations in the first quarter of 2014.”

But it looks like it will take a few quarters for the revenues to be recognized (according to the most recent earnings call). Besides, DMD stock plans to spin off its domain registry business, which has seen meager growth over the years. And the company has provided little clarity on how the new gTLD program will improve the top-line.

The fact remains that DMD stock has been a long-time loser for investors, with the stock down 73% over the past five years. The domain name/SEO business is not easy, especially when trying to deal with the complex changes in Google’s search engine. Regardless of how many gTLDs get approved, I wouldn’t recommend DMD stock as an investment.

Despite the hype around gTLDs, the fact is that good investment opportunities for new domains don’t really exist, yet. And as the performance of DMD stock has proven over the past few years, there are much safer — and much more lucrative — places to put your money.

So unless you’re planning on buying up domain names, don’t get too excited about the news from ICAAN.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/02/get-ready-flood-new-fangled-web-addresses/.

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