Tucows 2013 Annual Report Download - page 42

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During Fiscal 2013, the number of transactions from all new, renewed and transferred-in domain name registrations
that we processed decreased by 0.1 million transactions to 9.1 million when compared to Fiscal 2012 and reflects the impact
of customers who have acquired their own registrar accreditation no longer registering new domain names on our platform.
While we anticipate that the number of new, renewed and transferred-in domain name registrations will continue to
incrementally increase in the long term, the volatility in the market could affect the growth of domain names that we manage.
As of December 31, 2013, the total domain names under our management remain essentially flat at 10.6 million,
when compared to December 31, 2012. The total domain names under our management continue to be impacted by two
customers who have acquired their own accreditation no longer registering new domain names on our platform. In addition,
we provide provisioning services on a monthly basis to accredited registrars who use our technical systems to process domain
registrations with their own accreditation. As of December 31, 2013, we managed 3.6 million domain names on behalf of
other accredited registrars, an increase of 0.2 million compared as of December 31, 2012.
Retail
Net revenues from Retail for Fiscal 2013, as compared to Fiscal 2012, increased by $14.2 million to $24.9 million.
This increase was largely due to an increase of $12.6 million to $16.5 million for Ting's mobile device and service sales
made during Fiscal 2013, as well as the success that our retail marketing initiatives and improved websites are having on our
ability to attract new customers and retain existing ones for Hover.
As of December 31, 2013, Ting had 48,000 subscribers and 74,000 mobile devices under its management compared
to 10,000 subscribers and 15,000 devices under management as of December 31, 2012.
Portfolio
During Fiscal 2013, Portfolio revenue increased by $1.5 million, or 25%, to $7.5 million when compared to
Fiscal 2012. This increase primarily resulted from payments we received on our withdrawal for the domain related rights for
our .media and .marketing new gTLD applications being partially offset by lower sales of big ticket domains and certain of
our vendors electing not to repeat market development programs that they undertook during fiscal 2012.
We have two primary buyers for our domain names - domain investors and businesses. While businesses domain
sales continue to grow, we have begun to see evidence of domain investors interest slowing as they attempt to assess the
impact the introduction of new gTLD’s may have on their businesses. Accordingly, until the impact of new gTLD’s can be
appropriately assessed, we will be shifting our efforts towards appealing more to businesses while continuing to work with
domain investors.
The market for monetization of domain names is rapidly evolving and is being impacted by uncertainty around the
implementation of ICANN’s new gTLD Program.
43
COST OF REVENUES
Wholesale
OpenSRS Domain Service
Cost of revenues for domain registrations represents the amortization of registry fees on a basis consistent with the
recognition of revenues from our customers, namely ratably over the term of provision of the service. Registry fees, the
primary component of cost of revenues, are paid in full when the domain is registered, and are initially recorded as prepaid
domain registry fees. This accounting treatment reasonably approximates a recognition pattern that corresponds with the
provision of the services during the period. Market development funds that do not meet the criteria for revenue recognition
under ASC 605-50 “Customer Payments and Incentives”, are reflected as cost of goods sold and are recognized as earned.
Value-Added Services
Costs of revenues for Value-Added Services include licensing and royalty costs related to the provisioning of certain
components of related to hosted email, fees paid to third-party service providers, primarily for trust certificates and for