I couldn’t believe it. For the past few weeks I’ve been witnessing a fantastic stock being taken apart by the downturn in the world markets. In the space of 90 days it’s gone from a high of $1.20 to a low of $0.65. That’s nearly a 50% drop in the share price!
You’ve probably heard the saying, “Smart investors make their money when they buy.” I think that it can absolutely be said of the Dark Blue Sea (DBS) stock at this present time.
One of the nice by-products of the domain business is that it’s cash flow rich. This gives us spare cash to pick up bargain stocks in an economic climate like were in at the moment. I’m sure that there are a lot of other bargains out there but DBS is at 12 month low and that’s got to be good in anyone’s language.
So what’s really going on? Is it just the global downturn? Is DBS a foretelling of a bleaker future for domain owners? Here are a few things to keep in the back of your mind before you reach for the phone and call your broker.
The results of the recent domainFest conference auction were less than stellar (although not too bad) and this was due to a number of large key purchasers keeping out of the marketplace. This suggests a softening of domain prices due to lack of market depth. Without the depth of domain purchasers the industry will be dependent upon a select few individuals to fuel and inflate domain sales.
One of the reasons why I’ve been pushing standards so strongly is that without standards we are unlikely to get the influx of cash into the industry that will fuel the demand for demands and keep prices soaring. The timeliness of the upcoming TRAFFIC conference and the theme on transparency and standards will hopefully start the ball rolling towards industry standards.
When you look at the DBS December Quarterly update you can see a declining margin for both their internal and external traffic. In the notes associated with the report it suggests that the US credit crisis may be impacting online advertising spend.
This really got me curious so off I went Googling to look up what’s some of the predictions for 2008 online advertising spend. Each report I read was really positive about 2008 and sited that some of the main reasons for the bullish outlook were spending on politics (ie. elections), sports and better targeting capabilities.
So I’m now a little confused. Research predictions are suggesting even up to a 31.9% increase in online advertising (source: JP Morgan – Nothing but Net) for 2008 and yet none of the recent articles them seem to have mentioned the credit crisis.
I went back to articles in the middle of last year and found a number of them suggesting that there will be a down-turn in the online advertising market due to 34% of online advertising is provided by the US financial services market. I then read on and found that the Google/Yahoo results for November have bucked this downward trend and remained steady. One reason why this may be the case is that the financial services sector is in deep problems and a possible way out is through increased advertising. The most economic form of advertising and lead generation is online – hence our sector of the universe being shielded from some of the crisis, for now anyway.
Here’s my problem. I believe that the team at DBS are smart, really smart so why is it that they are showing a slow down in numbers while everyone else seems to be predicting nothing but “blue sky” ahead? It could be that DBS is sending an early signal of what’s to come for domainers or it could be that they’ve been distracted with the mammoth task of getting more registrars on the DDN (they posted a great result on this front!).
Whatever the reason it’s caused me to want to do some report diving and get my brain around what’s going on in the industry in this volatile global economic climate. There’s one thing for sure I’m definitely going to be examining the next DBS financial report that will be posted later this month. It will be interesting to see whether the last report was only an interim blip on what I believe is a fantastic company. In the meantime, I’m off to get a bargain!
Disclaimer: I own DBS shares and if you consider purchasing DBS stock then I would highly recommend that you first seek professional advice.
Wiki: Dark Blue Sea, domainFest, TRAFFIC
Source: Posted by Michael Gilmour — Original post on on Whizzbangsblog — February 5, 2008
