Rightside group

Rightside Group

By Cameron Fen

Who wants to buy this company?

2010 2011 2012 2013 2014 June

-20

-15

-10

-5

0

5

Net Income

Net Income

I Do!

Here is Why…

But First…Some Information

• Rightside Group was recently spun off from Demand Media

• Company has a market cap of approx. $230 MM

• Company has $26 million in net cash• The company operates a Domain Registrar

Business and a Domain Registry Business

1. The Registrar Business

Registrar Business

• Registrars are in the business of registering domain names

• Typically they charge $10 a year. Typically $8 goes to the registry, which before the new gTLDs (more later), was predominately Verisign

• Rightside’s Registrar business consists of the largest wholesale registrar and second largest registrar after goDaddy, named eNOM.

• Very thin profit margins

Earnings Loss

• Rightside’s loss in Earnings are entirely due to the Registrar Business

• The Registry Business has no revenue yet• Recent acquisition of Name.com– Which is interesting because…

Rightside turned a Name.com into an Unprofitable Company

It turned a Name.com into an Unprofitable Company

1-year profit of Name.com

Expenses added by Rightside

Let’s read Footnotes!!!

Note B(ii)

Amortization Expense

• Customer relations, owned website names and trade names do not need to be amortized as they last forever

• However Rightside is not only amortizing these intangible assets for their acquisition, they are doing it for their own operations as well

Rightside Amortization

Rightside Amortization

Net Income without the additional Amortization would have been Approximately

$3 million

Why would management do this?

The Motive

• Management often downplays the performance of the company right before the spinoff so management can get options at lower valuations

• Also buried in the Form-10 the fact that Rightside needed a total of more than 10 million dollars between 2013 and 2014 to start the registry business

Unlike what the initial earnings picture suggests, the company is not losing pricing

power…

Company Prices vs Inflation

Date Operating Income Price for Wholesale Account Change in Price Inflation2014 -9.4 8.98 0.055 0.0152013 -0.4 8.5 -0.057 0.0162012 -1.2 9 0.057 0.0292011 6.3 8.5 0.067 0.0162010 4.7 7.95 0.000 0.0262009 5.1 7.95 0.065 -0.0042008 11.2 7.45 0.069 0.0442007 6.95

Average 0.037 0.021

Company Prices vs Inflation

Date Operating Income Price for Wholesale Account Change in Price Inflation2014 -9.4 8.98 0.055 0.0152013 -0.4 8.5 -0.057 0.0162012 -1.2 9 0.057 0.0292011 6.3 8.5 0.067 0.0162010 4.7 7.95 0.000 0.0262009 5.1 7.95 0.065 -0.0042008 11.2 7.45 0.069 0.0442007 6.95

Average 0.037 0.021

Average Increase in Price > Inflation

The company seems to be able to raise prices but it looks like the registrar business is steadily losing more money

Why is the company losing so much money? Is it sector wide?

We can look at CompsCompany Market Cap Net Profit MarginDADA SpA (BIT:DA) 74.37 1.48Gabia Inc (KOSDAQ:A079940) 65.40 4.29Melbourne IT Ltd. (ASX:MLB) 151.75 3.16Sino-i Technology Limited (SEHK:250) 115.62 -6.30Tucows Inc. (NasdaqCM:TCX) 150.30 3.85Name.com 18.00 10.30Xiamen 35.Com (SZSE:300051) 460.45 6.24Average 147.98 3.29Average minus Sino-I and Xiamen 35.com 91.96 4.62

Note: Both Xiamen and Sino-I were excluded because a.) both were based in China a developing country as opposed to a developed country and b.) Xiamen has a larger market cap than Rightside and Sino-i spends 50% of its revenue on marketing

We can look at CompsCompany Market Cap Net Profit MarginDADA SpA (BIT:DA) 74.37 1.48Gabia Inc (KOSDAQ:A079940) 65.40 4.29Melbourne IT Ltd. (ASX:MLB) 151.75 3.16Sino-i Technology Limited (SEHK:250) 115.62 -6.30Tucows Inc. (NasdaqCM:TCX) 150.30 3.85Name.com 18.00 10.30Xiamen 35.Com (SZSE:300051) 460.45 6.24Average 147.98 3.29Average minus Sino-I and Xiamen 35.com 91.96 4.62

Every comp is profitable with the exception of one which would have been profitable had it not spent 50% of revenue on marketing expense

At a 3% Net Profit Margin, the Registrar business will make over $5.5 Million

3% is below all of Rightside’s smaller US peers

The problem is with Rightside: it looks like management has saddled the company with

excess expenses

But before we dig further lets look at the different sources of revenue…

Income StatementsCombined Statements of Operations

2013 2013 2012 2012 2011 2010 2009 2008Domain Sevices 141.6 104.4 94 126.9 112.6 96.1 86.6 80.8Aftermarket 43.6 35.3 33.5 46.1 47.8 43.3 42 43.8

Total Revenue 185.2 139.7 127.5 173 160.4 139.4 128.6 124.6

Operating expense

Service Costs 145.3 108.7 93.1 127.5 111.3 99.9 90 81.1Sales and Marketing 10.3 7.8 6.4 8.8 6.2 6 4.8 3.3Product Development 11.9 7.9 7.4 9.7 9.2 6.1 6.3 5.7G&A 25.6 18.6 14.4 19.9 18 11.5 8.3 6.9Amortization of Intangibles 7.9 6.1 6.6 8.3 9.4 11.2 14.1 16.4Total Operating expenses 201 149.1 127.9 174.2 154.1 134.7 123.5 113.4Income before Taxes -15.8 -9.4 -0.4 -1.2 6.3 4.7 5.1 11.2

Gain on other assets 4.2 2.6 0 0 0 0 0 0Other Expense 0 0 0 0 0 0 0 0.2Income Tax 0.9 1.9 0.1 0.2 -2.6 -2 -2.3 -4.3Net Income -10.7 -4.9 -0.3 -1 3.7 2.7 2.8 7.1

9 months ended Sep 30 Year ended Dec 31

Income StatementCombined Statements of Operations

2013 2013 2012 2012 2011 2010 2009 2008Domain Sevices 141.6 104.4 94 126.9 112.6 96.1 86.6 80.8Aftermarket 43.6 35.3 33.5 46.1 47.8 43.3 42 43.8

Total Revenue 185.2 139.7 127.5 173 160.4 139.4 128.6 124.6

Operating expense

Service Costs 145.3 108.7 93.1 127.5 111.3 99.9 90 81.1Sales and Marketing 10.3 7.8 6.4 8.8 6.2 6 4.8 3.3Product Development 11.9 7.9 7.4 9.7 9.2 6.1 6.3 5.7G&A 25.6 18.6 14.4 19.9 18 11.5 8.3 6.9Amortization of Intangibles 7.9 6.1 6.6 8.3 9.4 11.2 14.1 16.4Total Operating expenses 201 149.1 127.9 174.2 154.1 134.7 123.5 113.4Income before Taxes -15.8 -9.4 -0.4 -1.2 6.3 4.7 5.1 11.2

Gain on other assets 4.2 2.6 0 0 0 0 0 0Other Expense 0 0 0 0 0 0 0 0.2Income Tax 0.9 1.9 0.1 0.2 -2.6 -2 -2.3 -4.3Net Income -10.7 -4.9 -0.3 -1 3.7 2.7 2.8 7.1

9 months ended Sep 30 Year ended Dec 31

Domain Name Services is the recurring revenue the company charges for registry fee

Income StatementCombined Statements of Operations

2013 2013 2012 2012 2011 2010 2009 2008Domain Sevices 141.6 104.4 94 126.9 112.6 96.1 86.6 80.8Aftermarket 43.6 35.3 33.5 46.1 47.8 43.3 42 43.8

Total Revenue 185.2 139.7 127.5 173 160.4 139.4 128.6 124.6

Operating expense

Service Costs 145.3 108.7 93.1 127.5 111.3 99.9 90 81.1Sales and Marketing 10.3 7.8 6.4 8.8 6.2 6 4.8 3.3Product Development 11.9 7.9 7.4 9.7 9.2 6.1 6.3 5.7G&A 25.6 18.6 14.4 19.9 18 11.5 8.3 6.9Amortization of Intangibles 7.9 6.1 6.6 8.3 9.4 11.2 14.1 16.4Total Operating expenses 201 149.1 127.9 174.2 154.1 134.7 123.5 113.4Income before Taxes -15.8 -9.4 -0.4 -1.2 6.3 4.7 5.1 11.2

Gain on other assets 4.2 2.6 0 0 0 0 0 0Other Expense 0 0 0 0 0 0 0 0.2Income Tax 0.9 1.9 0.1 0.2 -2.6 -2 -2.3 -4.3Net Income -10.7 -4.9 -0.3 -1 3.7 2.7 2.8 7.1

9 months ended Sep 30 Year ended Dec 31

Aftermarket Revenue is the value added services like security, web hosting and email

One thing you notice right away is that service costs are almost always higher than domain

service revenue

Service CostsCombined Statements of Operations Year ended Dec 31 unauditedunadited

2013 2013 2012 2012 2011 2010 2009 2008Domain Sevices 141.6 104.4 94 126.9 112.6 96.1 86.6 80.8Aftermarket 43.6 35.3 33.5 46.1 47.8 43.3 42 43.8

Total Revenue 185.2 139.7 127.5 173 160.4 139.4 128.6 124.6

Operating expense

Service Costs 145.3 108.7 93.1 127.5 111.3 99.9 90 81.1Sales and Marketing 10.3 7.8 6.4 8.8 6.2 6 4.8 3.3Product Development 11.9 7.9 7.4 9.7 9.2 6.1 6.3 5.7G&A 25.6 18.6 14.4 19.9 18 11.5 8.3 6.9Amortization of intangible Assets 7.9 6.1 6.6 8.3 9.4 11.2 14.1 16.4Total Operating expenses 201 149.1 127.9 174.2 154.1 134.7 123.5 113.4Income before Taxes -15.8 -9.4 -0.4 -1.2 6.3 4.7 5.1 11.2

Gain on other assets 4.2 2.6 0 0 0 0 0 0Other Expense 0 0 0 0 0 0 0 0.2Income Tax 0.9 1.9 0.1 0.2 -2.6 -2 -2.3 -4.3Net Income -10.7 -4.9 -0.3 -1 3.7 2.7 2.8 7.1

9 months ended Sep 30

Service CostsCombined Statements of Operations Year ended Dec 31 unauditedunadited

2013 2013 2012 2012 2011 2010 2009 2008Domain Sevices 141.6 104.4 94 126.9 112.6 96.1 86.6 80.8Aftermarket 43.6 35.3 33.5 46.1 47.8 43.3 42 43.8

Total Revenue 185.2 139.7 127.5 173 160.4 139.4 128.6 124.6

Operating expense

Service Costs 145.3 108.7 93.1 127.5 111.3 99.9 90 81.1Sales and Marketing 10.3 7.8 6.4 8.8 6.2 6 4.8 3.3Product Development 11.9 7.9 7.4 9.7 9.2 6.1 6.3 5.7G&A 25.6 18.6 14.4 19.9 18 11.5 8.3 6.9Amortization of intangible Assets 7.9 6.1 6.6 8.3 9.4 11.2 14.1 16.4Total Operating expenses 201 149.1 127.9 174.2 154.1 134.7 123.5 113.4Income before Taxes -15.8 -9.4 -0.4 -1.2 6.3 4.7 5.1 11.2

Gain on other assets 4.2 2.6 0 0 0 0 0 0Other Expense 0 0 0 0 0 0 0 0.2Income Tax 0.9 1.9 0.1 0.2 -2.6 -2 -2.3 -4.3Net Income -10.7 -4.9 -0.3 -1 3.7 2.7 2.8 7.1

9 months ended Sep 30

Service costs are almost entirely costs related to domain service’s revenue

Comps’ Service Costs

Company 12/31/2013 12/31/2012 12/31/2011DADA SpA (BIT:DA) 0.65 0.68 0.69Gabia Inc (KOSDAQ:A079940) 0.55 0.59 0.55Melbourne IT Ltd. (ASX:MLB) 0.40 0.41 0.35Sino-i Technology Limited (SEHK:250) 0.17 0.25 0.26Tucows Inc. (NasdaqCM:TCX) 0.72 0.72 0.70Xiamen 35.Com Technology Co., Ltd. 0.37 0.36 0.31Average 0.48 0.50 0.48Average minus Sino-I and Xiamen 0.58 0.60 0.57Max 0.72 0.72 0.70

Service costs as a % of domain name revenue

Comps’ Service Costs

Company 12/31/2013 12/31/2012 12/31/2011DADA SpA (BIT:DA) 0.65 0.68 0.69Gabia Inc (KOSDAQ:A079940) 0.55 0.59 0.55Melbourne IT Ltd. (ASX:MLB) 0.40 0.41 0.35Sino-i Technology Limited (SEHK:250) 0.17 0.25 0.26Tucows Inc. (NasdaqCM:TCX) 0.72 0.72 0.70Xiamen 35.Com Technology Co., Ltd. 0.37 0.36 0.31Average 0.48 0.50 0.48Average minus Sino-I and Xiamen 0.58 0.60 0.57Max 0.72 0.72 0.70

Service costs as a % of domain name revenue

Rightside's service costs are 6% higher than the peer maximum

Rightside’s service costs are 78.5% of revenue this year up from 73.7% the year before and

69.3% the previous one

Curiously, Rightside lost cost discipline the moment it came time to spin the

company off and write options for new management

How easy is it to fix Rightside’s Profit Problem?

Very easy, just cut Domain Service Sales

• Profit (MM) = -.99 - .37 * Domain Service Sales + .95 *Aftermarket Sales

Note: Appendix 1. contains the regression and data used to derive this equation

Very easy, just cut Domain Service Sales

• Profit (MM) = -.99 - .37 * Domain Service Sales + .95 *Aftermarket Sales

This number is probably too high, however it is telling that nearly every dollar of aftermarket goes to the bottom line

Every dollar of domain service sales is costing the company $1.37

Note: Appendix 1. contains the regression and data used to derive this equation

However, Management is Investing for the Future

• When management wants the company to show a profit, all they have to do is to cut unprofitable domain services sales

• Management has grown domain service revenue because it allows the companies new gTLDs, which will be very profitable, to have a higher market penetration

What else might management cut after the spinoff?

What else might management cut after the spinoff?

G&A Expense

Expense MarginsOperating expense as a % of Revenue 9 months ended sep 30 Year ended Dec 31 unaudited unadited

2013 2013 2012 2012 2011 2010 2009 2008

Service Costs 78.46% 77.81% 73.02% 73.70% 69.39% 71.66% 69.98% 65.09%

Sales and Marketing 5.56% 5.58% 5.02% 5.09% 3.87% 4.30% 3.73% 2.65%

Product Development 6.43% 5.65% 5.80% 5.61% 5.74% 4.38% 4.90% 4.57%

G&A 13.82% 13.31% 11.29% 11.50% 11.22% 8.25% 6.45% 5.54%

Amortization of Intangible Assets 4.27% 4.37% 5.18% 4.80% 5.86% 8.03% 10.96% 13.16%

Total Operating expenses 108.53% 106.73% 100.31% 100.69% 96.07% 96.63% 96.03% 91.01%

Income before Taxes -8.53% -6.73% -0.31% -0.69% 3.93% 3.37% 3.97% 8.99%

Gain on other assets 2.27% 1.86% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.16%

Income Tax 0.49% 1.36% 0.08% 0.12% -1.62% -1.43% -1.79% -3.45%

Net Income -5.78% -3.51% -0.24% -0.58% 2.31% 1.94% 2.18% 5.70%

Expense MarginsOperating expense as a % of Revenue 9 months ended sep 30 Year ended Dec 31 unaudited unadited

2013 2013 2012 2012 2011 2010 2009 2008

Service Costs 78.46% 77.81% 73.02% 73.70% 69.39% 71.66% 69.98% 65.09%

Sales and Marketing 5.56% 5.58% 5.02% 5.09% 3.87% 4.30% 3.73% 2.65%

Product Development 6.43% 5.65% 5.80% 5.61% 5.74% 4.38% 4.90% 4.57%

G&A 13.82% 13.31% 11.29% 11.50% 11.22% 8.25% 6.45% 5.54%

Amortization of Intangible Assets 4.27% 4.37% 5.18% 4.80% 5.86% 8.03% 10.96% 13.16%

Total Operating expenses 108.53% 106.73% 100.31% 100.69% 96.07% 96.63% 96.03% 91.01%

Income before Taxes -8.53% -6.73% -0.31% -0.69% 3.93% 3.37% 3.97% 8.99%

Gain on other assets 2.27% 1.86% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.16%

Income Tax 0.49% 1.36% 0.08% 0.12% -1.62% -1.43% -1.79% -3.45%

Net Income -5.78% -3.51% -0.24% -0.58% 2.31% 1.94% 2.18% 5.70%

Expense MarginsOperating expense as a % of Revenue 9 months ended sep 30 Year ended Dec 31 unaudited unadited

2013 2013 2012 2012 2011 2010 2009 2008

Service Costs 78.46% 77.81% 73.02% 73.70% 69.39% 71.66% 69.98% 65.09%

Sales and Marketing 5.56% 5.58% 5.02% 5.09% 3.87% 4.30% 3.73% 2.65%

Product Development 6.43% 5.65% 5.80% 5.61% 5.74% 4.38% 4.90% 4.57%

G&A 13.82% 13.31% 11.29% 11.50% 11.22% 8.25% 6.45% 5.54%

Amortization of Intangible Assets 4.27% 4.37% 5.18% 4.80% 5.86% 8.03% 10.96% 13.16%

Total Operating expenses 108.53% 106.73% 100.31% 100.69% 96.07% 96.63% 96.03% 91.01%

Income before Taxes -8.53% -6.73% -0.31% -0.69% 3.93% 3.37% 3.97% 8.99%

Gain on other assets 2.27% 1.86% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.16%

Income Tax 0.49% 1.36% 0.08% 0.12% -1.62% -1.43% -1.79% -3.45%

Net Income -5.78% -3.51% -0.24% -0.58% 2.31% 1.94% 2.18% 5.70%

Expense MarginsOperating expense as a % of Revenue 9 months ended sep 30 Year ended Dec 31 unaudited unadited

2013 2013 2012 2012 2011 2010 2009 2008

Service Costs 78.46% 77.81% 73.02% 73.70% 69.39% 71.66% 69.98% 65.09%

Sales and Marketing 5.56% 5.58% 5.02% 5.09% 3.87% 4.30% 3.73% 2.65%

Product Development 6.43% 5.65% 5.80% 5.61% 5.74% 4.38% 4.90% 4.57%

G&A 13.82% 13.31% 11.29% 11.50% 11.22% 8.25% 6.45% 5.54%

Amortization of Intangible Assets 4.27% 4.37% 5.18% 4.80% 5.86% 8.03% 10.96% 13.16%

Total Operating expenses 108.53% 106.73% 100.31% 100.69% 96.07% 96.63% 96.03% 91.01%

Income before Taxes -8.53% -6.73% -0.31% -0.69% 3.93% 3.37% 3.97% 8.99%

Gain on other assets 2.27% 1.86% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.16%

Income Tax 0.49% 1.36% 0.08% 0.12% -1.62% -1.43% -1.79% -3.45%

Net Income -5.78% -3.51% -0.24% -0.58% 2.31% 1.94% 2.18% 5.70%

Like Service Costs, G&A has been dramatically increasing up to the spin off

Risks

• If operations do not improve shortly after the spinoff, the registrar business may continue to lose money– NAME’s lackluster stock performance and low

valuation will probably attract activist investors– NAME’s registry business should earn a lot more

money

Registry Business

The Registry Business

• This business currently has nearly no revenue although the CEO is on record in saying that this business is Rightside’s most important– Investor Presentation July 1

• The Registry business owns the top level domain (TLD) and is paid a fee every time a company buys a domain with that TLD– i.e. .org, .com, .edu

gTLDs

• Congress has deregulated to domain business– Before Verisign, the company that owns the .com

TLD, could only charge a regulated amount• Now ICANN, the governing body of the

internet is allowing many more generic TLDs (gTLDs) like for example .social, .guru, .rest, etc.

• The company that puts in an application for each gTLD owns it and anyone that wants to use the gTLD on their website pays the owner

Business Rightside is in now

Business Rightside’s Registrar Business Will Be in the Future

Registry Business will be in the future

Like Verisign, NAME’s Registry business is an excellent business

• Analogy to the Railroad after they were deregulated– Control a monopoly on one domain (eg. .social)

• Pricing Power– If you were Facebook and you were worried about

phishers stealing login id’s by using the domain name facebook.social, how much would you be willing to pay NAME?

– $10,000 would be a small sum, yet NAME is profitable at $20

So how many people are going to get gTLDs from NAME?

Domain Names

• Currently NAME owns 31 domain names• Projected to own approx. 40 domain names

after all names are auctioned off• Also does back work for Donuts, the largest

buyer of gTLDs

ARI Registry Services

• A research firm affiliated with the Australian nonprofit registry suggested that the .shop gTLD could bring in 7 million dollars from Austrialia, Hong Kong and Singapore alone

Previous gTLDs

• Despite being widely perceived as a failure, .xxx had over 100,000 domains registered– Each charged a $20 registry fee 2 million dollars

annually for 1 domain– Despite being designed for the porn industry most

didn’t sign on because they didn’t want to be filtered out of search sites

– Mainly business like Harvard and Microsoft bought domains to prevent satirical or defamatory sites from sprouting up

Our Domain Name Model

• Based on rolling domain name registrations, we estimate that after 2.5 years there will be over 40,000 domain names per gTLD

• At $20 per domain $800,000• See Appendix 2. for details• Our models are much more conservative than

other models and history– Reason: all of the other projections are based on the

gTLD being the only option but each gTLD competes with many others

What does a Registry business’ cost structure look like

• Management has said they will have 8-10 million in fixed costs and the rest will be profits

• Verisign (which is the .com registry business) has 27% net profit margins over the past 5 years

• Perhaps Verisign has economies of scale…

CentralNIC

• CentralNIC is a small 70 million dollar company that acts as a registry for second level domains

• CentralNIC has 24 second level domains compared with NAME’s 31

Second Level Domains are less valuable then TLDs ex

bbc.uk.co

Second Level Domains are less valuable then TLDs ex

bbc.uk.co

Second Level Domain

Second Level Domains are less valuable then TLDs ex

bbc.uk.co

Top Level Domain

Example gTLDs that NAME owns

Living.SocialA lot more elegant than a second level domain

Experts Agree

• "Your own gTLD demonstrates confidence and vision and may accelerate your brand and its value. An internet address at the Top Level is far better than registration at the 'low rent' Second Level.”

-Nick Wood Managing Director at Valideus

Source: http://www.iprinfo.com/julkaisut/iprinfo-lehti/lehtiarkisto/2009/IPRinfo_2-2009/fi_FI/Dot_Confusion__ICANN_is_Planning_Hundreds_of_New_gTLDs/

Using CentralNIC to estimate NAME’s Registry Value

• 2 ways–Margins–Market Cap

CentralNIC

CentralNIC Margins

• CentralNIC’s net margins are at 17%• At 35000 domain names per gTLD at $20 a

domain name and 40 gTLDs comes out to appox. 5 million dollar profit

• Doesn’t include back end stuff that NAME will do for Donuts

Market Cap way

• NAME and CentralNIC have similar number of gTLDs

• Thus the market cap of CentralNIC should equal the value of NAME’s Registry business

• CentralNIC is valued at 70 million dollars, which puts a lower bound (b/c CentralNIC has lower quality TLDs and less of them) on NAME’s registry business

Appendix

Appendix 1. Regression of Aftermarket and Domain Services

Operating Income

Registrar Income

Aftermarket Income

2013 -9.4 104.4 35.32012 -0.4 94 33.52011 6.3 112.6 47.82010 4.7 96.1 43.32009 5.1 86.6 422008 11.2 80.8 43.8

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.940398R Square 0.884349Adjusted R Square 0.838089Standard Error 2.763154Observations 8

ANOVAdf SS MS F Significance F

Regression 2 291.9137 145.9568 19.11676 0.004549Residual 5 38.1751 7.635019Total 7 330.0888

CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Intercept -0.99278 3.028811 -0.32778 0.756359 -8.77859 6.793027Registrar Income -0.36581 0.080655 -4.53549 0.006194 -0.57314 -0.15848Aftermarket Income 0.952905 0.161185 5.911888 0.001972 0.538567 1.367244

Appendix 2. Rolling Domain Name Registration

3-Jul Difference 9-Jun Difference 5/8/2014 Difference 25-FebTotal # of gTLDs 255 55 200 35 165 75 90Total # of domain names Registered 1600000 660000 940000 290000 650000domain per gTLD 6275 12000 4700 8286 3939

• The domains were split into cohorts, (eg the first 90 domains online if Feb-25 were one cohort, the 75 that came online from Feb-25 to May 8 another cohort

• Using a growth function decaying exponentially with respect to time, an best fit line was established and used as a growth trajectory