Register To Close Afternic

Two years after it acquired domain re-seller Afternic for $48 million, domain name registrar Register.com said it would close the unit, citing a poor market for re-selling domain names.

by @NY Staff [September 26, 2002]

Two years after it acquired domain re-seller Afternic for $48 million, domain name registrar Register.com said it would close the unit.

During a brief conference call Wednesday to announce lowered revenue expectations for the third quarter, the New York-based Register.com said the secondary market for re-selling domain names was not enough to keep the unit open.

"After two years and a lot of hard work, we've determined the (domain re-selling) segment does not have sufficient opportunity to continue devoting resources toward it," Register.com CEO Richard Forman said.

As a result of the charges it will have to take for shuttering the Afternic unit, and because of overall softness in sales this year, the company said it doesn't expect a profit for the third quarter. It expects sales to come in between $23 million and $25 million, reversing the 5 percent sequential growth it had previously expected from the second quarter. During the same time a year ago, Register.com took in $29.5 million.

In addition, penalties for charge backs from apparent credit card fraud cases have become a bigger problem for the company this year. Forman said an increase in penalties related to canceled credit card charges, many of them from overseas accounts, had exposed the company to the risk of losing its credit card processing rights. Forman took no questions during a conference call Wednesday, but said the company is working to reduce the charge backs and would provide more details when it releases third quarter results in early November.

Although the company did not say so during its follow up conference call, its third quarter pre-announcement in many ways underscores the mounting price pressure Register.com is facing from competitors offering much lower rates on domain names registrations and re-sales.

For example, while Register.com's average domain registration fee is about $25, some competitors such as GoDaddy.com are dangling prices as low as $8.95 to register a domain name, hosting fees of $5.95 a month and new extensions such as .us for $9.95 for two years.

Register.com also recently filed a lawsuit against rival Domain Registry of America, charging it with using Register.com's brand and logo to steal customers.

The aggressive competition and charge backs could help explain why the company said it would no longer pursue its "registry advantage" service, an outsourced full-service domain registry it had begun offering to smaller, overseas registries.

Afternic apparently turned out to be an albatross for Register.com as the expected secondary market for re-selling domain names never materialized to the degree that the market expected and cheaper competitors set up shop. A year ago it recorded a $32.5 million write-down in goodwill related to its acquisition of Afternic. Without that charge, Register.com would have recorded a profit of $1.8 million, or 4 cents per share.

Forman said the company would keep Afternic's automated auction segment, virtual broker, but would otherwise integrate the rest of Afternic across other areas of its business.

Its plans for introducing registration sales for the new top level domain .pro remains on track for launch during the first quarter of 2003, Forman said.

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