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Username: Ray
Date/Time: Mon, October 16, 2000 at 4:36 AM GMT
Browser: AOL Browser V5.0 using Windows 95
Score: 5
Subject: Fuzzy looking numbers

Message: 		 

 
                Afilias proposal at the 90% confidence level:

1) Afilias is predicting about 2,845,000 .web registrations in the first 365 days
2) Afilias will be charging the registrars $5.75 per registration.

This certainly seems to mean a top line revenue number of about $16,350,000 (note yr's 2,3,4 & 5 expect just a slightly higher number of registrations at the 90% confidence level)

Now, Afilias is forecasting, at the 90% confidence level, year 1 expenses to be as follows (from their application):

Marketing:                  $15,900,000 (97% to revenue)
Fees to TP:                   1,100,000 (escalates to $24M in year 4)
Registry Buildout:              800,000
Customer Service:               500,000
General Admin:                3,400,000
ICANN Kickback:                 300,000

If I have done my math correctly, then Afilias is actually forecasting a negative ($5,650,000) earnings at the 90% confidence level?   Year 2 gets worse when the TP Fees swell to $9.3M.

First of all, what type of sound management team would spend 97% of their revenues on marketing?  This type of shotgun branding is what got many a dotcom company in trouble as a viable ongoing concern. 

At the 50% confidence level, Afilias is forecasting an earnings loss of about ($4,225,000).  Again, with marketing at a burn rate of over 90% to forecasted revenue.  Afilias even states that they "anticipate requiring approximately $5,000,000 in additional capital at the 50% confiedence level".  I can see why.

Now, at the most remote 10% confidence level, Afilias does forecast an earnings profit of about $5M in year 1.

(Keep in mind each of these earnings numbers are before Interest, Depreciation, Amortization.  These are also before Executive Salaries or even office rent.)

In year 3, at the important 90% confidence level, we can make an aggressive assumption that Afilias is forecasting 6M .web registrations (this assumes that ALL year 1 registrations are renewed).

If this happens, revenues in year 3 amount to $34.5M.  But expenses, thanks to the $17M TP Fees again, amount to a staggering $37.5M.  This is in year 3!

So, the numbers tell me that this application will need to be altered, as it is written, unless the most remote 10% confidence level happens once placed into actual operation.

Afilias does make mention to the ability to receive additional outside funding.  But, if the 90% confidence level is what occurs as is inherently expected, then I question how deep the pockets will be from such third party funding (and from who).  Most importantly, I must question the management team that would actually make an application forecasting a material loss position at the 90% to 50% confidence level.

Ray

     
     
 

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