Why Web.Com May Stand Up Against Google Site Registrations

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Web.com Group Inc. (NASDAQ: WWWW) has been a great hidden Web growth story that most investors have overlooked. Then came word that Google Inc. (NASDAQ: GOOG) has decided to begin testing out website domain registrations, one of the key recurring revenue streams for Web.com. The question to ask is whether NetworkSolutions, part of Web.com, should be down 20% just with Google testing out a service. There is a real chance that Web.com can withstand this pressure, but there are of course caveats.

The Google Domains effort is currently in an invite-only beta test phase, and it includes a “build a site” tool that would also compete with Web.com, GoDaddy and a host of other domain registrar and website hosting companies. Is it possible that Google will let its Google Domains be about as frequently used as old Google Sites effort?

We would point out that Web.com currently has over 3 million customers. If you have ever been involved in transferring hosts and domain registrars, it is something that some people will only do if they absolutely have to. Ditto on email hosting systems.

The Google Blog post said:

It’s 2014 and it seems obvious, but across laptops, tablets and mobile devices, a website is one of the first places people go to find information about a business. But amazingly, our research shows that 55% of small businesses still don’t have one.

So as we explore ways to help small businesses succeed online, we thought it made sense to look more closely at the starting point of every business’s online presence — a website. And that starts with a domain name.

Google also noted on its invite-only status:

We aren’t ready for everyone to join yet (you currently need an invitation code to buy or transfer a domain), so we want those who join to play an active role in helping us improve. We’re working hard to offer our customers the best domain experience possible, and we welcome your input, questions and feedback.

Web.com shares were down 21% at $27.34, against a 52-week range of $22.72 to $37.72, in mid-afternoon trading. Its volume of 6 million shares with two hours until the close was already about ten times normal trading volume. A boutique firm named B. Riley downgraded Web.com to Neutral from Buy, with a $40 price target, but that was against a $34.60 close.

The take on this from 24/7 Wall St. is that Web.com should actually see almost zero impact from this new Google effort for some time to come. That being said, this is just one more broader line of competition for Web.com, Network Solutions and the other services down the road. The question is whether down the road turns into weeks and months or whether this just remains one of the dozens of fledgling services launched by Google that never really adds up to very much. If Google likes the outcome, then this could represent a serious long-term threat to Web.com.

One last note on the trading of Web.com needs to be addressed. To dismiss the impact of this news entirely would be silly. When stocks drop 20% or more, it is rarely the case that a mountain was created out of a mole hill. That being said, this move does seem extreme for something that may never amount to as much as is being made of it. Caveat emptor!

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