I just received a press release from Dark Blue Sea (DBS) regarding a domain sales agreement with Godaddy.com. This agreement means that DBS has now secured one of the largest channels to market for their Domain Distribution Network (DDN).
As well as being a straight sales agreement DBS has secured Godaddy as a growing major shareholder. Upon signing and meeting set sales targets Godaddy is ably to purchase up to 6.5 million DBS shares at 65 cents per share. This is a bargain price for Godaddy and a means for DBS to shore up its share registry with an informed partner.
The performance targets that Godaddy have agreed to mean that they commit to 45,000 domain sales over a 5 year period to be able to exercise all of their options. If each domain is sold for an average of $US1,500 each this represents $US67.5 million in sales or $US13.5 million annually. Compare this to $AU32.67 million ($US30.31) in total revenues for 2007 and you can see that this agreement is likely to have a huge impact on DBS's future results.
What is unclear and obviously confidential is the revenue split between DBS and Godaddy. If we were to assume that the split was 50/50 (there is no reason to assume this) then the deal will add 8.42 cents directly to the DBS share price each year or 42.1 cents over the life of the agreement. This means that the DBS share price should move up from its current 65 cent level to $1.07 purely as a direct result of this agreement. Wouldn't it be nice if the stock market operated in this non-emotional fashion!
Assuming that Godaddy meet their targets then DBS will be diluting existing shareholders by 7.5% with the issue of a further 6.5 million shares. This means that the final share price taking into account the dilution will be $1.03. This is a 57.8% increase in the share price as a direct result of this agreement. This assumes a LOT of things (including exercising the options) but it's not a bad result.
A side benefit of the agreement is that it further strengthens the share registry from corporate raider Photon which is potentially a good thing. Additionally, Godaddy may provide an option for selling the whole of DBS in the future. Maybe a try before you buy? The natural fit between Godaddy and DBS can not be underestimated.
What isn't clear is if DBS has managed to do an exclusive deal with Godaddy. This would place them in a very enviable position when you consider that NameMedia has also been courting the corporate giant of domain registrations for quite some time. It will be interesting to see if this deal has any impact on the impending NameMedia IPO.
All things considered the DBS team needs to be congratulated on their efforts as I know that it's been a long hard road. The Godaddy deal is a corporate feather in their caps.
Disclaimer: I am a shareholder of DBS and would recommend that readers please seek personal professional financial advice prior to embarking on any activity regarding any company made in this blog.
Source: Posted by Michael Gilmour — Original post on on
Whizzbangsblog — March 10, 2008
