| Small & micro cap project / Activism insight

TUCOWS (TCX): Significant percentage in Investmentaktiengesellschaft and Osmium Partners’s portfolio and signs of moat

 

by | Dec 15, 2019

Basics

M. Cap: $684 million

Tucows is a publicly traded Internet services and telecommunications company.

Investmentaktiengesellschaft für langfristige Investoren TGV

  • The top five stocks account for 71% of the total portfolio.
  • The company accounts for 10% of the total portfolio – Rank #4

Osmium Partners

  • The top five stocks account for 65% of the total portfolio.
  • The company accounts for 10% of the total portfolio – Rank #2

SIGNS OF MOAT

(1) Domain Services: The segment accounted for roughly 72% of total revenue.

This segment’s business model consists primarily of non-refundable, up-front payments, which generates recurring revenue and a positive operating cash flow.

Generally speaking, domain name renewals are “sticky” in nature.

As per the company’s presentation, the company is the second-largest domain name registrar, with renewal rates well above the industry average. Nevertheless, the company doesn’t provide renewal rate data.

(2) Ting Fibernet:  Possible first-mover advantage in smaller cities

In addition to mobile telephony services, the company is offering a gigabit fiber network direct to the premises (FTTP) whether a home, a business or a multiple occupancy dwelling. The total number of subscribers under management nearly doubled in the past year – 5 million in Q1 2018 to 9.5 million in Q3 2019.

  1. i) Small town: Given the list of towns that the Ting is serving, it is clear the company is focusing predominantly on smaller towns/cities that have been “bypassed” by giant firms.

“The company’s focus has primarily been on smaller towns that have easily fallen through the broadband cracks.” – an article dated June 01, 2016.

  1. ii) Exclusive rights: In a small town like Fuquay-Varina, North Carolina, the company will be the “exclusive network operator and exclusive service provider” for a certain period of time.

iii) Not many competitors: As per an article dated July 5, 2018, Fuquay-Varina did not attract much interest from broadband providers to provide a fiber network. A similar opinion was echoed by the Westminster’s city council president.

We’re a small enough community that the incumbents would never come here,” he said. “We wanted Google Fiber to come, but it didn’t work out.” Source

We spoke to Assistant Town Manager Mark Matthews, who said that Fuquay-Varina reached out to a number of possible broadband providers, including the incumbents, but none of the conversations panned out. They saw the strongest commitment in Ting. Source

Below are the list of towns/cities and the respective population targeted by Ting

  • Holly Springs, NC: 36,749
  • Fuquay-Varina, NC: 29,200
  • Wake Forest: 44,046
  • Centennial, CO: 110,831
  • Charlottesville, VA: 48,117
  • Sandpoint, ID: 8,703
  • Westminster, MD: 18,648
  • Solana Beach, CA: 13,379
  • Rolesville, NC: 8,111
  • Fullerton, CA: 139,640

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