Are We In a Bubble?

Llourinha BeachAs the summer approaches this side of Europe, last weekend I went to visit one of my mentors in Lourinha, a great beach location in the center of Portugal:

As we sat on the beach bar, looking the sun going down in the Atlantic, we discussed – among other things – what is the current status of the domain industry.

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MARKET UPDATE

Numerics have been increasing in price like there is no tomorrow. Floor prices have practically quadrupled during the past 6 months. While you could purchase a NNN.com (containing a 4) for about $16k last December, it is now rare to find any below $60k.

NN.com, that could be purchased in the low to mid six digits, have now a floor price closer to $700k. It is exactly like a real estate market where the major sellers purchased all distressed properties to artificially increase the asking price of the properties.

On the other hand LL.com have had a much slower but steadier increase over the past 2 years at rates of 5-10% per quarter, with evaluation ranges depending on the quality of the letters and floor prices now closer to $230k. LLL.com have also slowly increased and reached the $8k floor price, moving from a $4.5k floor price last December.

NNNN.com are now impossible to find under $6k and LN.com have floors closer to $35k (if not containing an “o” or “0”). Assets that used to be practically worthless, like NNNNN.com, suddenly started to have face value.

The question is now – are we in a bubble?

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BUBBLE?

I get this question a lot and my answer is YES, we are in a bubble. This is for a few reasons:

A. The “traceability” of liquid assets.

While it is difficult to identify the top 100 one word generic domains, numeric and short letter domains are very easy to trace for anyone that knows how to use an excel spreadsheet and a mass whois extractor.  A higher number of people are trying everyday to track the prices of these assets by emailing the contacts listed in the whois records.

In turn, this caused sellers to be literally inundated by price inquiries. Now, think about this: if you own a property that used to get one or two inquiries every other month and is now getting 20, it is human nature to think that your property is VERY valuable – or, at the very least, much more valuable than it used to.

B. The increased numbers of brokers.

While the market prices were growing so quickly, a lot more brokers saw an opportunity to get inside the market and finding buying opportunities on behalf of investors. Some of them, in order to include their commission, re-listed the domains at higher prices.

As a consequence, buyers saw a dramatic, day-by-day increase on the asking price of such assets, creating pressure to secure the domains as early as possible and putting them in weaker negotiating position.

C. Inconsistent demand from end users.

While it is true that numbers have a universal appeal, how many end users you know are willing to spend more than half a million to brand their business with an anonymous number? It is intuitive that British Airways should use BA.com and Western Union WU.com, but how many businesses do you think are looking to pursue a 64.com priced close to $1m USD?

It seems to me that the fundamentals are just not in place to sustain such a growth, and the increase in price is purely caused by market speculations.

D. Seller’s liquidity.

Usually anyone who owned numerics or short domains, registered or bought them in bulk. As some of these investors started to sell part of their portfolio, they no longer have the need for liquidity, therefore reducing the inventory available at market price.

The next question I get is – When is the bubble going to burst?

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FUTURE OUTLOOK

This is a harder question to answer. I believe that the market for liquid domains will crash as soon as another economic indicator like the housing market in China and/or the stock market will crash. Typically May is a selling month in the stock market, and Wall Street just reached new heights. I found a very interesting article regarding the expected correction to take place on Wall Street last month.

Since the domain market follows the economy, I would not be surprised to see the market crash at the very first signs of panic in the Chinese housing market. We are not there just yet, however we might get there as soon as the end of the year. For what concerns the stock market, it could be in August, when a few people would be looking to cash out their profits. But, not to be pessimistic, the rising trend might last a little longer – maybe after experiencing a short term correction.

Therefore the third question is – Is this the right time to sell?

Well, maybe. For sure the upside now looks very limited – although everything happened till today was not expected 🙂

Back to my short trip in Lourinha, as we set to leave and went to the bar to pick up the tab, to my surprise, the two beers were €1,40, the equivalent of $1 each. At the current market prices, you could practically buy 100 beers with a NNNNN.com just hand registered a few months ago on GoDaddy for $2. Good way to put things in perspective 🙂

Giuseppe

Giuseppe Graziano
Director of Business Development, Europe
Domain Holdings Group

How to Contact Me?

Skype: ggrgraziano
QQ: ggrg
3 replies
  1. Rich
    Rich says:

    Giuseppe@
    May i disagree with you ?
    I think it’s more like market/demand.NNN are only 999 combinations names that’s what makes it expensive.
    It’s like a collectible car/coin/picture
    China’s property investment directly makes up about 20 percent of Chinese GDP today.So even if the housing bubble will burst there is still capital to buy this numeric names.
    Why Berkens did not sell his 456.com for i believe $550,000 because it holds more value.
    But what do i know…

    Btw: i went to Algarve 25 years ago,one of my best vacations.It was beautiful.

    Reply
  2. Cam
    Cam says:

    Great article, thanks. I have been searching around for number .ca’s
    not much there. Any opinion on NNNN.XYZ or any number combo ending in .xyz

    Reply
  3. Mike
    Mike says:

    Most numeric .com owners are looking to hit the jackpot.. Too bad there are way more Chinese domainers than there are end-users..

    Reply

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