TUCOWS Inc. Will the Cows come home?

 

Tucows began as a startup software distribution company back in 1993 and has evolved and grown to various business services.

Tucows is now a provider of network access, domain names and other Internet services. Ting (https://ting.com) delivers mobile phone service and fixed Internet access with outstanding customer support. OpenSRS (http://opensrs.com) manages nearly 15 million domain names and millions of value-added services through a global reseller network of over 13,000 web hosts and ISPs. Hover (http://hover.com) makes it easy for individuals and small businesses to manage their domain names and email addresses. More information can be found on Tucows’ corporate website (http://tucows.com).

 

Tucows reported a fantastic earnings recently.

  • Year-on-year EPS growth is 86%.
  • 3 year and 5 year average growth is more than 40%.
  • Overall revenue grew by 11% year-over-year.
  • Gross Margin for Network Services for current quarter increases by 31%.
  • Gross Margin for Domain Services for current quarter increases by 10%.

Total Network expenses increase by 23%.

 

Current growth plans:

  • Ting Internet (4 towns underway)
  • Ting mobile

Economic moat:

 

Risks:

  • Key people risk (CEO received a high 99% rating for glassdoor and is instrumental to the company’s success)
  • Other big players might follow to offer pay as you use model
  • Slight increase in Short interests

 

Key Metrics:

  • Price as of recommendation: $27.45
  • P/E: 20.4
  • P/B: 9.8
  • P/S: 1.7
  • Price/Cash Flow: 19
  • ROA: 10.56
  • ROE: 46.5
  • ROIC: 38.82
  • Current Ratio: 0.85 (could be a red flag), from my understanding this is due to pre-paid subscription model for their domain services.
  • PEG: 0.63
  • D/E: 0.31

Insider Trade (Possibly red flag)

Conclusion:

The company outlook is positive but there are some risks in their growth. The growth will depend how well they execute and grow in Ting.

 

Disclosure: I own a small position of shares in TCX.

Useful links and Tools for Value Investor

Updated 26 Nov 17

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