Member Info for Silverblade

I'll keep you posted if any of my issues get answered bakky - Toby, Michael and Guy all down to be in attendance. I think its more of a Q+A based on questions submitted online prior to and during meeting - don't think its a live chat as such. SB

aristide - apologies for the earlier attempt at your username! SB

artiside - I don't believe tomorrow's meeting is a presentation - it is the company's AGM where they will look to approve last years accounts, reappoint the company auditor and directors. What is different is the ability to ask questions both prior to and during the meeting - hence the new shareholder friendly forum. There will be a limit as to what can and cannot be answered. There may a brief statement tomorrow morning through an RNS if there is anything material to be discussed - if not - nothing new will be discussed, the focus will be on clarifying points of interest within the guidelines of good commercial practice. SB

Let’s see what transpires over the next few weeks bakky. Despite all the crap over the last few years I believe the business has the ability to deliver a decent return for investors - even those who bought at 10p+ / including myself. What is clear and we have all commented on is a lack of trust in our leadership’s decision making and accountability - fairly or unfairly - and somehow that needs fixing for all our sakes. SB

bakky - it would be good to have some understanding on what these initiatives are - we are almost 2/3 of the way through our financial year and yet to see anything 'innovative' in our approach this year. We also need to see revised forecasts for the year - presumably through finncap - although this may have to wait until the results in a months time - which should be accompanied by a Q3 trading update based on previous comments from the board on quarterly updates. Interestingly there has been no share options RNS so far - you don't think they are avoiding issuing prior to the AGM by any chance?! SB

bakky - FWIW - 70%+ of all deletes are .vip. That string added huge volume (more than 500K net) between Sept 2019 and Feb 2020. Given what we have heard in the last 12 months about bad debts - there may be a link between the decline and non payment - combined with a more cautious approach from Chinese domain investors post covid. Other strings do not appear to have been as volatile - with the majority posting excellent % gains without significant levels of deletes. The AGM is on Thursday - I have asked quite a few questions I would like to see answered - perhaps there is some mileage in asking about china? SB

Like the tale Hucks - very amusing, probably not all fiction either....!! And look what a bit of humour does to the price - three decent buys in a row!! SB

Morning Gents. Part of the difficulty we have is conducting research using gtld statistics that vary from site to site – which makes comparisons unreliable – so take the following with a margin of error based on my sources. Hucks is correct in that year to date looks like we have had little growth – we have remained steady at c.2.4m DUM’s. However, that masks what is happening at ‘string’ level. The big overall drop is in .vip – not unsurprising – with close on 150K less registrations than at start of year – despite continued sales and with another decent slice of delete’s coming up. Work is slightly up on year overall. What is much better – is the activity below these two – with casa up 93%, fit 58%, yoga 45%, law 25%, luxe 20%, miami 20%, fashion 10%. Bayern and nrw are steady, with wedding down 18%. What this is likely doing is replacing high volume, low margin registrations with reduced volume, higher margin registrations. IMO the most important issue for the company is to increase its revenue – registrations sound good – but in reality, it’s the revenue per domain which is important – look at our adult portfolio and the revenue per domain they generate. Our portfolio contributed an average of about $8 per domain last year ($18.9m / 2.4m DUMS). Increase that to an average of $10 – and standing still at 2.4m overall DUM’s adds almost $5m revenue – all profit. SB

No problem Hucks. Totally agree that our value per domain is nuts - and I don't think your numbers are unrealistic. What this light bit of research confirms is the fundamental mismatch between our perception on company value and the current market share price. To put this into context – we are currently valued at c.$72m for 2.4m DUMs. Of that total value – you could argue $40m is attributable to the 100,000 adult registrations ($400 each). Take away $7m cash, leaves $25m for the remaining 2.3 DUM’s – or $11 per registration – or 2x average revenue per domain life (I think each domain outside the adults averages about $5 per annum in revenue given the heavy lower cost weighting of vip and work v the rest of the sales). Add in even the lower end potential from adultblock and a sum of the parts analysis of our valuation makes our current position even more crazy. This is why our II’s continue to purchase given the potential upside – and to some extent why the business continues to buy its own shares to reduce shares in circulation and reduce the price an acquirer would have to make by making it cheaper – possibly by a reasonable amount. IMO. SB

Market evidence would suggest the opposite YHAL. SB

Here is some info on the sector – gathered from various online sources so usual caveats on that - which might help our understanding on what may lie ahead and who might be an interested acquirer. As we know, generally speaking there is a lot of M+A / consolidation activity in the sector – at both registrar and registry levels – featuring both vertical integration and private equity deals.

Godaddy is the industry leader – and by association have deep pockets. In 2020 so far they have purchased the Neustar registry for $218m and Frank Schillings 375,000 name portfolio for $88m ($235 per name). Prior deals include buying a Donuts portfolio with 200,000 names and Kevin Ham’s 100,000 name portfolio for a combined $50m ($167 per name) and Michael Berkens 70,000 name portfolio for $35m ($500 per name).

Donuts were an industry consolidator, buying Rightside in 2017 for $213m (40 gtlds with about 1m registrations plus domain registry services business). Interestingly Donuts had offered $70m in 2016 for Rightside and were told where to go - although Rightside subsequently had more $$cash as a result of their Tucows deal. This gave Donuts a 240 name gtld business with 4.5m registrations – which led to Abry taking them private in 2018 in a rumored $500m deal ($110 per name).

Abry appear to have management/funding links with Ethos Capital who failed to secure .org from PIR in a $1.1B offer earlier in 2020. Ethos is led by Erik Brooks who was in charge at Abrys when the business purchased Donuts. Following .org failure it will be interesting to see where Ethos go next.

Other recent significant deals include Web.com being taken private by Siris Capital in 2019 in a $2b deal (Web.com have since been on the acquisition trail – purchasing webcentral for AUS $12.2m – and Dremascape networks for $73m in 2019).

Centralnic have made 11 acquisitions totaling $207m – the latest being their $48m Team Internet purchase. Tucows bought Rightside’s enon registrar and reselller business for $83.5m in 2017; and of course, mmx itself purchased ICM for $41m in May 2018.

So – strong evidence of vertical integration and building businesses of scale; deals of significant value; and purchase prices in terms of quantum and per domain which appear to significantly undervalue mmx (acknowledging there are lot of numbers missing here in terms of EBITDA and PBT which clearly have a major impact on valuations). By way of comparison our domains are currently valued at c. $25 per registration. SB

Looks like there is an ongoing effort to support the share price at 6p - mmx aside there appears to be little appetite for purchases and a constant stream of small sells - but they all add up. Does make you wonder who is continuing to off load over a prolonged time period. SB

Hucks. Interesting post. From my perspective – despite ok recent sales and renewals the reality is our revenue has declined H1 2020 – a pattern which has repeated itself on several occasions in the last five years (hence the ‘strategic acquisition’) which I believe is a fundamental issue for a company claiming to be ‘growing’. So any purchaser of the business needs to be convinced that revenue is growing in real terms – or they could apply such an economy of scale they would accept such a situation. In terms of acquisition price – there are three shareholder ‘groups’ at play here – and each will have a different agenda. Declared II’s own c. 60% of the business – and having reviewed various purchases by the majority imo they are all averaging somewhere around 8p – some a bit less some a bit higher – Hony being the exception who bought in at 13p. These II’s do not appear to be interested in dividends (or lets face it this would be higher up on the agenda) – so we have to assume they are after capital growth – and I would think a minimum of 50% ROI would be required – so 12p would be the starting point. Interestingly – this is the number likely to interest management – TH and MS maximum 50% vesting is 11.6p (13m - 2021) and 100% vesting at 14p (5m - 2020) for their outstanding options – so hit this price in next two financial year reports and they receive all shares. 50% of 2021 is cash generation related which should be easy to hit. Any award this year will be x 2 current share price to vest. So that leaves PI’s. Would we be happy with a take out at 12p – not ecstatic – but a lot happier than present. After that – once you establish a base line - it’s up for debate as to exactly what a purchaser would pay – let’s be honest they would strip all costs right back, amortize the purchase and generate a very healthy return if they can keep the initial outlay low but acceptable. So for me 12p is the minimum – with a hope that perhaps we could add the 3p to 5p noted in your post IF we show the market we are what we say we are…..SB

Heaps of registrations today - around 9/10k from a quick review. Best appears to be Ascio registrar from Denmark picking up 1.9k law - In the days of premium pricing that would be a fantastic sale. Even at standard sale/renewal that’s decent business. SB

I think the AGM will provide an opportunity to ask the board on what the plan is - and if you read my summary review of the last five years you will see some of the challenges the business has had to deal with - we might not like it but the company needs to regain trust from the PI investment community - we should take comfort that our II investors appear to have that trust. SB

"Just off to see O'Reilly dear". I've been laughing at that episode and all the others for more than 30 years - quite brilliant. Hope I'm not going to be posting here for 30 years. You do wonder though.....SB

Sunday/bakky - given we are in a 5 year plan, I did a quick review of the last 5 years. We entered 2015 with more than $45m cash but huge operating costs and an aspirational and complex business model; during the year we ousted our founder (Krueger) who subsequently sold his entire 130m shareholding. We also had a buyback programme which picked up 80m shares. Less than a year later in early 2016 our CEO left (AVC) with a decent pay off, with subsequent numerous changes to our board structure – ins and outs – including TH as our new CEO and the return of Weill who subsequently appears to have been rather untrustworthy in his dealings with the company. We then had the tender offer in late 2016 – 100m shares taken out at a cost of £13m – plus a new Asian investor. 2017 saw the arrival of the strategic review based on what was clearly a need to address our new business ‘annuity’ model which was clearly going to result in short term revenue reductions – and given there were no reasonable offers we purchased ICM in 2018 for $41m (time of purchase). Enter SJL et al – for a rollercoaster 18 months during which we had a $12m trading loss, London write offs/settlement, law disappointment, VIP bad debts/provisions – and a staged 150m share exit by SJL reaching its conclusion in early 2020. As we entered 2020 we made some new senior appointments, our cash was down to $6m, our brokered deals are now non existent and our total revenue has declined as a result albeit there are signs our renewals and sales business is doing ok – possibly linked to digital business activity associated with covid. We have another buyback still in operation, are 4 years into a 5 year plan (2016/2021 – linked to TH starting?), have a potential revenue winner in adultblock, strong support from our institutional investors but a share price which was 6p in 2010 and despite a high of 17p in 2014 (oh for those days eh…) we are back at 6p. Still, you can’t say it’s been boring. SB

Just a quick recap. To some extent I am surprised the company continues to buy its own shares – perhaps our trading position will be healthier than envisaged despite the reduced revenue – guess we will find out next month. Of the £1.5m total allocated to the buyback, £1.35m has been spent so far on 23.6m shares (averaging about 5.7p), of which 17.8m have been cancelled and 5.8m remain in treasury. The share price at the start of the buyback was 6.25p. The scale of the buyback appears to be simply not large enough to have any meaningful impact on share price or indeed eps. To put some of this into context – the total number of share options awarded to the senior team in the last 12 months was 28.75m – all at no cost (50% of which start to accrue at a share price over 5.8p) and resulting in a $1.2m non cash share expense incurred last year – which I believe for accounting purposes is treated as employee compensation during the period. This year’s options package is overdue to be announced. I’m all for incentive packages but I believe they should be linked to real shareholder returns in terms of capital returns (and that doesn’t mean a share price sub 6p) and distributions. mmx and institutions aside – there appears to be no interest in purchasing shares in the business despite what we believe is significant undervaluation – less than $25 per domain under management - by any peer measure that is ridiculous. SB

It will be very interesting to see exactly how profitable we are in H1. There are too many questions that continue to get thrown up here - how are are adult domains faring given we were told the decline had been arrested; how come our costs appear to be increasing despite the back of house and cloud efficiencies introduces; why do we talk about dividends and tender offers which would deliver for shareholders and instead spend money on a buyback which appears to have achieved nothing etc. I hope I am wrong but there is inconsistency with messaging and that to infers there is an element of making it up year by year. I suspect we are all just jaded. Too many years, too heavy losses and too many never ending problems to someone else’s account. Thank goodness it’s the weekend eh! Have a good one all. SB

Afternoon Sunday. It’s all’s bit grim. But on the plus side I think I just spotted the most elusive of mmx trades - a purchase.....SB