Dark Blue Sea a public company, part of our Domain Stock Parking Index, released its financial performance for the quarter ending June 30, 2008 today.

Dark Blue Sea owns Fabulous.com.

Their reported financial  results I believe is a reflection of the current status of the domain industry and therefore is important to read and understand even if you have no stock in Dark Blue Sea.

I think the most interesting stats contained in the financial report is the sustained decline in parking revenue derived from Dark Blue Sea own portfolio of domains

For the quarter ending June 2007, a year ago they generated $2,051,000 in parking revenue, in the quarter ending 9/2007 that number dropped to $2,010,000, in the quarter ending 12/31/07 that number fell to $1,661,000.

In 2008 the decline in parking revenue continued.

For the first quarter ending 3/08 parking revenue dropped to $1,370,000 and for the most recent quarter ending June 30, 2008, parking revenue dropped to $1,143,000.

So were basically looking at a drop in parking revenue of Dark Blue Sea domains of around 50% in one year.

It is important because this revenue drop is on the 600K plus domain Dark Blue Sea owns in their own right which according to them generate over 170K unique daily visitors as opposed to third party owned domains which can come and go from their parking system.

Other statements made by the company are quite interesting as well:

The company had a mixed trading performance in the June quarter reflecting a good
domain sales performance but ongoing difficult trading conditions on the traffic/
advertising side of the business.

Domain sales in the June quarter were approximately US$2.8 million, significantly
better than both the March quarter (US$1 million) and the corresponding quarter in
2007 (US$640,000). This was due to three factors.

Firstly, secondary market sales of domains to retail buyers, primarily through the
Domain Distribution Network (DDN) have continued to show growth as the various
DDN partners (including GoDaddy) improve their respective sales processes.

Secondly, the company sold a premium domain name for US$250,000 during the
quarter. (they did not mention the domain)

Finally, the company sold some domain names to other professional domain name
investors. This last factor highlights an important point about Dark Blue Sea – the
directors see the bulk of Dark Blue Sea’s shareholder value residing in the
company’s domain name portfolio. The domain name portfolio gives the company
considerable flexibility in managing the business, reported profits and liquidity.
Further discussion about the domain name portfolio is contained below.

Dark Blue Sea is a US centric business that generates most of its revenue from
direct navigation advertising which is part of the US online advertising industry.

The key factors that are currently driving the direct navigation advertising industry are

1.   The weaker economic environment in the US

2.   Generally fewer advertisers (as observed by Dark Blue Sea) leading to a
reduction in bid prices and coverage and hence overall yield received by
Dark Blue Sea

3.  Changes to the way that online advertisers can place advertisements via the
advertiser interfaces of the major search advertising networks; and

4.  An overall uncertain strategic landscape stemming from the unsuccessful
takeover bid for Yahoo by Microsoft and the subsequent outsourcing of
search advertising to Google by Yahoo.

Like a share portfolio with (investment / trading) positions in different company’s
shares, the company’s domain name portfolio has a range of different positions.

In  fact the company has 600,000 different positions, each costing approximately US$7
per annum to maintain.

Each position can be renewed for a further year or  discontinued for no cost (other than administrative). In this regard, the company’s  domain name portfolio is a very flexible investment that has progressively evolved since its establishment in 2002. As a general comment, the portfolio has evolved
(and will continue to evolve) as the ways to monetize the internet have evolved. In
constructing the portfolio, we try to incorporate both current monetization
opportunities as well as anticipated ones (as innovation on the internet continues).

Our main position is generic non-typo dot com domain names and this forms the core
of our portfolio. It is this core which both generates advertising revenue (either
currently or expected in the future) and has the possibility of being sold to retail
buyers at a realistic prices with a reasonable probability. In this regard it is exposed
to the two main revenue streams (currently) in the domain name industry. We see
generic dot com domain names, particular ones that have underlying commerciality,
as enduring assets ­ names that will always be in demand and likely to appreciate in
value as the internet grows over the next five to ten years.

The company has a range of other positions in the portfolio as well. Different domain
name extensions such as .co.uk and .com.au is just one example. Like most
portfolios, some of these positions will work, some won’t. Some positions have
worked in the past and may not in the future. This is the ongoing management
challenge ­ structuring the portfolio appropriately within the constraints of the
company’s financial resources.

Like share traders who buy and sell, other professional domain industry participants
may have different views, risk profiles or financial objectives to ours. In this regard
there is a reasonably active and liquid professional secondary market for domain
names. It is to this market that we sold some of our (non-core) domain names to
other professional domain investors in the June quarter.

Domain sales are an import source of liquidity for the company. Cash raised from
domain sales can be used to reinvest back into more domains. Alternatively, the
cash can be used to pay dividends to share holders or, which has the case been
more recently, to buy back shares.

Dark Blue Sea went on to say concerning its dividend:

“”””Given the company’s current cautious disposition and the level of cash reserves
(post the most recent significant share buy back), it is unlikely the 1.5 cent fully
franked dividend paid as the final dividend for 2006/07 will be maintained. A decision
on a final dividend for 2007/08 will be made by the directors with the release of the
final results in late August.””””””

Dark Blue Sea is down $.03 in trading today at $.32 (7.25%).

So basically parking revenues are declining, sales are growing, values of domains continue to rise for end users but as to domainers with parking revenues failing, the uncertainly of the future of Yahoo, the uncertainly of Google allowing parked domains no guarantee or assurances can be made.

Sounds like the domain industry in general.