Dark Blue Sea Limited, parent company of Fabulous.com, released their September 2008 Quarterly Report (PDF) today.  The report contains DBS’ key performance indicators, trading performance, domain portfolio information, finacial position, strategic outlook and a brief on the impact of the Australian dollar versus US Dollar.The company revenue from direct navigation slipped again this quarter. Since their March 2008 quarterly report, DBS believes that “trading conditions have continued to worsen” in the online advertising industry.  They cite a weaker US economy, fewer companies advertising and other factors such as they Yahoo/Google deal as points that have contributed to the overall instability in the revenue from direct navigation traffic.

While the company remains uncertain about performance in the direct navigation and advertising sector, they seem optimistic about their second source of revenue, domain sales. The company saw softening in domain sales around the time of the US credit crisis in mid-September, but sales have rebounded.  In addition DBS points out the distribution deal with Godaddy continues to be developed.  DBS makes an important point about the growing shift in revenue from direct navigation to domain sales

“It is worth noting that the Company’s portfolio now generates more revenue from secondary market sales than advertising”.

In looking at the specific numbers it is important to note that the reason that domain sales revenue outpaced direct navigation is not a result of an increase in domain sales. Rather direct navigation revenue continues to decrease while domain sales remain mostly steady.  This is the second quarter that DBS’ domain sales revenue outpaced direct navigation. With the strategic partnership with Godaddy and the growing interest from domain portfolio owners in the company’s Domain Distribution Network, the company seems more and more focused on the domain sales channel.

DBS’ views in the Strategic Outlook section reflects on how this relates to other businesses in the domain space. It also highlights a growing focus on revenue through  domain sales .

“Historically, the domain services businesses. . . . have generated the majority of their gross profit from intermediating advertising revenue. As the advertising component of the industry has declined, industry profitability plummeted. Many service businesses that rely exclusively on advertising are no longer viable and the industry is ripe for consolidation.

Going forward the company sees secondary market domain name sales becoming a much more significant component of the industry . . .”

The company brings up industry consolidation again later in the report. DBS discusses that they are exploring consolidation in the context of strategic options. They believe from discussions with other industry participants that the timing for consolidation is appropriate.

What companies will merge or consolidate during the “trying times” and which will die off ?   Which company will become the leader in the domain aftermarket ?   Will domains become more liquid as the industry builds a better domain sales channel ?   If this DBS quarterly report is any indication of the current climate in the domain space, times are tough and we may start seeing some of these questions answered soon enough.  If you’d like more information on the company, the DBS Investors Presentation from October 2008 (PDF) provides a good synopsis of the company and the domain industry.

Related posts:

• Jupiter Research confirms the power of Direct Navigation
• Godaddy and Dark Blue Sea Strengthen Relationships
• Dark Blue Sea Investors Presentation Released
• Sedo Tops $70 Million in Domain Sales for 2007
• ReplyCycle Taps Into New Revenue Source For Domain Name Owners