Tucows Divests Lots of Assets but CEO Noss remains

On November 5 Tucows released it's Q3 report and results were down on most financial categories except for cash flow;it was up 2% for Q3 and 27% for 9 months to $34 million.Tucows is definitely in transition.Earlier blogs on Workathon  on May26 and July1,2020 recommended getting new revenue sources and reducing the number of board members as well as their salaries.As it was stated in the July1 blog"Tucows is in a mature market with competition and need to find alternative revenue producers".

Divesting Assets

Tucows has been selling off domaine names in bulk since Q2 of 2019.Some domaine names have been also sold in this quarter;the transaction bought a gain of $2 million.But in addition, it sold the customer base of it's Ting mobile internet business in southern U.S.A. to DISH for a $5 million gain.This is the reason that cash flow is ahead of 2019's cash flow as it appears some of the gain was included in cash flow.It is not clear whether competition from GoDaddy has cut into their profit margin or not.However it is true that GoDaddy sells and registers domain names for only $.99 a customer.And as a result of these asset sales now Tucows is much easier to manage.

Time to Beef Up

Tucows still has a substantial revenue stream but it is steadily declining as it sells off assets. It also appears that some of the gains from the sale of assets have been improperly included in their net income figure.That aside Tucows is still in a relatively good financial position. Yet it's P/E ratio has climbed from 20 times earnings to about 50 times earnings.That is still below the P/E ratio of Shopify.Also adjusted EBITDA is $38 million for the 9 month period or up 7% from 2019.And their capital structure is not very stressed as TC has only 10 million shares outstanding;it has not increased equity since 2016.In addition, there is not a significant amount of debt on their books.

In my May 26 blog it was pointed out that Tucows has 7 to 9 members on their board.And all board members were being paid around $500,000.Tucows can potentially save almost $5 million in board member salaries annually as there is less business to manage.So there is lots of potential capital that can be used to make acquisitions.Now is the time for the remaining board members to make more than one new acquisition.

 

Forecast for 2020  

There is little time left in 2020.But this is still a volatile milieu to forecast in.It is possible that Tucow's  price drops gradually to the $80-$85 price level.But as news of board members resignations arrive and one or two solid acquisitions are released the price may start to drift back towards the $95 level by yearend.A moderate Q4 report and perhaps a small equity issue could move TC towards $100 but this is very difficult to foresee.That aside the next quarter is bound to be difficult for  TC shareholders.

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