I happen to follow all the listed domain related companies such as Marchex, Dark Blue Sea or Tucows because their annual reports always have interesting information for me. Most of the information is pretty dull, but sometimes you’re capable to dig out some very interesting info.
Anyway, investors in Marchex have to be very dissapointed. If you would have invested in the stock in 2006, your holdings today are probably worth 80% less. The company has historicaly severely underperformed the NASDAQ composite. Management has in my view clearly underperformed and was unable to exploit all the various opportunities. I think it’s time to get creative…
Marchex is pretty much a mix of various assets that management has acquired over the years, including the famous $160 million Yun Ye portfolio buyout. The problem is that putting all these assets together has in fact depressed their values instead of increasing them through synergies. There is value to be released.
Marchex is an ideal candidate to be broken up into pieces that should be in aggregate more valuable than the current mini-conglomerate structure that Marchex is. The domain portfolio is probably easily worth $150 million. Its annual ebitda potential is probably somewhere around $20-25 million. The domain portfolio should be split off and floated as a separate company or sold. This would release substantial value to shareholders.
Another big problem of Marchex is its dual class structure that is depressing the share price and given management too much control. Its B-class shares are trading on NASDAQ – about 25 million outstanding. But the problem is with the A-class which is held by management. Each A-class share (10 million of them) entitles its owner 25 votes compared to every B class. This gives management 93% voting power in Marchex. I believe a lot of value would be released to shareholders if this dual share structure would be abandoned – suddenly Marchex would become a potential acquisition candidate, it could bring the attention of an activist investor (think Icahn) etc. Otherwise Marchex will just continue to be a cosy kingdom for its management.
Very sad story, isn’t it?
