Any business owner will tell you there are three basic ways to
grow sales: increase your number of customers, increase the
amount of money your customers spend and buy other
Web.com Group (
) has used a mix of all three to more than triple its annual
sales over the past couple of years.
The company provides Internet services for small to midsize
businesses, or SMBs, in North America, South America and the
It provides .com, .net, .co, .org, and .info domains as well
as services such as domain name registration, domain name
transfers, domain name renewal, domain expiration protection and
domain privacy services. In addition, it offers social media
marketing and other services to subscribers.
Web.com has grown its business in part by adding new
subscribers. Last year, the company added enough new ones to pass
the 3 million subscriber milestone for the first time.
Once subscribers have been signed on, the next step is to sell
them added-value products so Web.com can increase its average
revenue per user, or APRU.
Revenue Per User
The company's success in this area is reflected in the fact
that its APRU during the fourth quarter rose to $13.79 from
$12.86 the prior year. Analysts expect that figure to keep rising
in coming quarters.
"The pace the company is currently on could put ARPU at
approximately $14.70 by the end of 2013," analyst Hamed Khorsand
of BWS Financial noted in a report. "Web.com has added different
solutions to enhance the online experience for a small business,
which provides a lift to margins and the amount of revenue per
Web.com grows its ARPU by cross-selling higher-priced products
like its eWorks Do It For Me subscription offering. EWorks
services include everything from registering domain names and
designing websites to providing technical support and social
"They say, 'We will do it for you, and do it at a really
affordable price.' This is a key to their success," said Sameet
Sinha, analyst at B. Riley & Co. "A company like GoDaddy.com
says, 'We will give you the tools, but you do it yourself.'
(EWorks) is different in that it does the work."
While Web.com has focused much of its recent attention on
growing organically, the company has also used acquisitions to
build its business.
The most notable buyout came in 2011, when Web.com acquired
Network Solutions, a marketing and domain company, for about $560
million. That deal brought aboard about 2 million small
businesses registered with Network Solutions.
Thanks to the Network Solutions deal, Web.com's sales in 2012
more than doubled from the previous year to $408 million. As
recently as 2010, the company had $120 million in annual
"They have been able to grow their number of customers both
through acquisitions and organically," Sinha said. "They have
also been able to upsell customers more services. Web.com has a
pretty wide area of products it can market to these companies.
And because the Internet grows more complex everyday, they can
develop even more products to sell."
The company plans to accelerate its growth pace this year by
spending more money on marketing. Its goal is to expand its
subscriber base by 15,000 to 20,000 each quarter with the
majority of new subscriptions focused on domain names and lower
"This will continue to serve as a feeder system for future
ARPU growth with our online marketing, e-commerce web services
and social media solutions," Chief Executive David Brown said on
a fourth-quarter conference call with analysts last month.
On the social media front, Web.com has aFacebook (
) product designed to help customers improve their visibility on
JPMorgan analyst Sterling Auty notes that when Web.com
launched its Facebook product, it was adding 4,000 to 6,000
customers per quarter.
"But management has revamped the solution, bringing better
value to the customer at a higher price point," Auty said. "We
expect the impact to be fewer customer additions, but the same
amount of revenue contribution because of the higher price and
Financially, Web.com has been on a strong roll the last couple
The company has grown earnings at least 33% in nine of the
last 10 quarters. The only exception was when it grew EPS by 17%
during the December 2011 quarter. Sales have risen at least 25%
over the same time frame.
Fourth-quarter earnings came in at 45 cents a share, up 61%
from a year earlier and 3 cents above consensus views. Non-GAAP
revenue, which adds back the impact of the fair value adjustment
to acquired deferred revenue, was $126.2 million for the quarter.
That also topped estimates.
Web.com reported its results after the close on Feb. 7. The
next day, its stock price rose 13% to 18.19. Shares currently
trade near 17.
The company entered the fourth quarter saying it wanted to
accelerate ARPU and not just increase its number of subscribers,
analyst Auty noted.
"The fourth-quarter results reflect the success in that
strategy as ARPU came in higher than expected, but subscriber
growth did not suffer with the base finishing the year over 3
million," he said.
The strategy should lead to accelerating organic revenue
growth that will drive free cash flow in 2013, he added. The
extra cash will likely be used to pay down debt and accelerate
"It is a virtuous cycle that we believe leads to estimate
increases and multiple expansion," said Auty.
Analysts polled by Thomson Reuters expect Web.com to grow EPS
25% this year and 17% in 2014.