Digging into MMX and its earnings

Digging into MMX and its earnings

Top level domain seller has improved its revenue base but still struggles with its legacy.

Earlier today I wrote about Minds + Machine’s (MMX) first-half revenue. This afternoon I had the chance to talk to MMX CEO Toby Hall and dive into the company’s full earnings report.

Hall is confident in the company’s trajectory. The company forecasts that its renewal revenue will begin covering its full cost base within the next 24 months.

Renewal revenue is something Hall has been harping on since he took over as CEO of the company. He believes that investors understand subscription businesses and will reward the company if it creates a stable base of renewal revenue.

That’s clearly part of the rationale behind the company’s purchase of ICM Registry earlier this year. The company has a steady base of registrations and renewals across its TLDs, most notably .XXX.

MMX picked it up for about 9 times profit. It will help shore up MMX’s revenue base to help investors value the company. When Hall took over, the company’s market valuation wasn’t based on any fundamentals. Now investors are valuing it at about 15-17 times operating profit.

The steady base of revenue is helping MMX look at different opportunities. Hall is particularly excited about what the company is doing with the .Luxe domain and Ethereum Name Service. It remains to be seen how the Ethereum Name Service deal will impact registrations, but Hall looks it kind of like R&D.

The company is still struggling with some of the legacy of the company, though. In its published earnings report it gave details on a burdensome contract that it has already renegotiated once:

In 2016, the Company successfully renegotiated aspects of the given contract to reduce the then marketing obligations of $10.8 million to nearly half this amount under the condition that those marketing funds be provided directly to the commercial partner to manage. In addition, the Company negotiated that the runway on its 2017 minimum guaranteed commitment be extended from 12 months to 17 months to allow the revised marketing strategy to come into effect. To date, a significant portion of that marketing budget has been spent by the partner with minimal impact on revenues in the current year and no expectation of any material uplift in future periods. Accordingly, given recent performance, and expected future performance, the Company is now impairing the asset ($4.1 million) and is providing for a one-time onerous contract provision in the amount of $7 million, reflecting the future expected losses of $1.7 million per year above revenue for the remainder of the contract, based on flat growth of the asset. The provision reflects net future obligations (i.e., cash due above total revenue per annum), which will be paid from 2018 until the contract end in August 2021. The Company will seek to renegotiate a more equitable settlement given the losses incurred on this asset (c. $11.9 million) since the start of the contract, as a result of the terms agreed by former management.

Although the company will not disclose this partnership by name, it’s quite clearly .London. There are a couple of observations here.

First, broad marketing of namespaces isn’t moving the needle.

Second, the deal MMX inked with .London before new TLDs came out shows just how bullish the company’s founders were. That contract was a heck of a bet for such an early stage company. It turned out to be a very bad bet.

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