Company plans to harvest some of its free cash flow.

CentralNic (AIM: CNIC) published its annual report (pdf) this week. The rollup of domain name and traffic monetization companies is entering a new phase with a new CEO, and three things stuck out to me in the annual report.

Strategic Shift

Late last year, longtime CentralNic CEO Ben Crawford abruptly “retired” from the company. It seems that this was part of a strategic shift at the company. Crawford oversaw immense growth, with much of it coming from acquisitions. The company is now shifting to making the company more profitable and increasing cash flows. Crawford was paid $575,000 in lieu of notice, and the company has quickly shifted the messaging around the future of the company.

New CEO Michael Riedl was previously the CFO and is leading the company through a decidedly bottom-line-based transition. The company will focus on organic growth and returning capital to shareholders instead of large acquisitions.

Riedl introduced a “waterfall model” for how the company will allocate free cash flow:

Progressive dividends
Capital projects to boost organic growth
Accretive bolt-on acquisitions
Share buybacks
Debt repayment

Seeing a company that has grown through acquisition suddenly put progressive dividends at the top of its list is a bit jarring.

Traffic Arbitrage

A huge part of CentralNic’s business is traffic arbitrage, although the company won’t call it by that name.

Page six of the annual report explains the company’s arbitrage model that underpins a significant part of its growth in the Online Marketing segment. It describes how the company gets traffic from social media platforms and search engines and monetizes it by ultimately sending it to pay-per-click links or affiliate links.

The company increased the number of visitor sessions from 2.6 billion in 2021 to 4.6 billion in 2022. It credits strong growth in social media traffic acquisition. It also increased its RPM (revenue per thousand impressions) from $76.40 to $105.00. This is not necessarily indicative of higher pay-per-click revenue for the industry at large because CentralNic focuses its arbitrage efforts.

Google’s Role

Google has made up a substantial amount of CentralNic’s revenue for a long time, but it ballooned in 2022. While not using Google’s name, the company stated:

For the year ended 31 December 2022, there was one customer that represented more than 10% of the Group’s revenue, amounting to USD 492,783,000 (2021: USD 208,863,000) across two segments (Online Marketing USD 483,208,000 (2021: 198,994,000) and Online Presence USD 9,575,000 (2021: USD 9,8696,000 (sic))). The customer is an aggregator who does not procure the services for its own use but provides access to an estimated three to four million end customers who order and consume the services.

This represents approximately 68% of total revenue, up from about 50% in 2021. Nearly all of that is from Online Marketing, which is essentially Google’s pay-per-click links. The smaller portion from Online Presence is likely related to Google’s domain name registrar.


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