Canada’s Tucows bets on ‘mobile phone customers’

Bloomberg

After a decade-long hibernation following the dot-com crash, Canada’s Tucows Ltd. is roaring back to life with an acquisition and a deepening effort to win over disgruntled US mobile phone customers.
The Toronto-based internet services provider is the largest re-seller and manager of domain names after Scottsdale, Arizona-based GoDaddy Inc. Its customers are firms like Squarespace Inc. and Shopify Inc., which help customers get set up with websites but don’t want to manage registering and renewing the addresses themselves.
Tucows’ shares are up 34 percent on the Nasdaq Composite Index this year after the company agreed in January to acquire long-time rival eNom from Rightside Group Ltd. for $83.5 million, consolidating its place as the main wholesaler of internet domains. That turbo-charged a turnaround which has seen its shares advance more than 12-fold since 2012, eclipsing the doubling of the Nasdaq and rewarding investors such as East Setauket, New York-based Renaissance Technologies LLC, one of the of the world’s most profitable hedge funds.
The stock was little changed at $47.35 in New York on Tuesday for a market value of $497 million. Business is booming as ICANN, the nonprofit gatekeeper of web addresses, opens up hundreds of new domain names, giving individuals and companies the chance to have a web address that ends in something more creative than “.com” or “.org,” like “.beer” or “.Republican.”
Still, it’s a tough niche to be in. “It is a hyper-competitive market with extremely thin margins but we were early and we have had scale since nearly the beginning,” Chief Executive Officer Elliot Noss said in an interview at the company’s Toronto offices on March 2. When someone buys a web domain for $15, most of it goes to regulators and registries. Tucows gets $1.20 to $1.40 per transaction, Noss said.
So the company is plowing the cash from domains into higher-growth, higher-margin businesses. In 2012 it started Ting Wireless, a cell-service provider that rents space on T-Mobile US Inc. and Sprint Corp.’s networks, and re-sells it to consumers with its own customer service and billing practices. Ting now has around 250,000 devices on its network, and the business accounted for more than a third of the company’s revenue in the fourth quarter of 2016.
The next frontier is internet service. Ting is building out high-speed fiber networks in five mid-sized US cities and plans to invest between $30 million and $35 million in the business in 2017. That number will grow in the coming years, Noss said. He’s going after US consumers dissatisfied by the internet service provided by cable TV companies, which sometimes have near-monopolies over certain regions.
“We have two businesses that generate a lot of capital, we’re happy to deploy it there,” Noss said. Tucows hasn’t started laying fiber in Canada yet, where cable and internet providers like Shaw Communications Inc. and BCE Inc. are spending billions on their own fiber build-outs. Noss doesn’t rule it out though. “We work with cities that want to work with us. If a Canadian city puts up its hand, we would love to work with them,” he said.