Endurance International Group is one of the largest web hosting companies who own many of the brands you see in the consumer space. EIG owns A Small Orange, BlueHost, HostGator, HostMonster and JustHost to name a few of their most well known brands.
What caught my eye was an article on Nasdaq, where EIGI (EIG's Stock Ticker) is up and at an all time high. A lot of analysts are rating it as a buy and the price surge seems to indicate people are listening. But I'm not a financial adviser, nor am I interested in making stock recommendations.
What does interest me is web hosting and considering that is the core of EIG's business, the underlying numbers are quite fascinating.
EIG had its first year with a positive operating income with $629.85 million in revenue and $617.37 million in total operating expense leaving $12.48 million in operating income. However, they weren't profitable because they have a lot of debt they are paying off. EIG's net income was a loss of $42.82 million.
"Total subscribers increased by 91,000 in the fourth quarter. Average monthly revenue per subscriber rose 12% year over year to $14.78. For all of 2014, the number of subscribers rose 17% to 4.087 million and the average monthly revenue per subscriber increased 11% to $14.48." - according to the article on Nasdaq
$14.48 per month, per subscriber. $173.76 per year per subscriber. It's easy to understand how they are paying such high commissions with those numbers. That number also seems to be trending up which is a good sign for the financial direction the company is going.
How does that compare to other companies?
I also found Web.com's latest 10K filing which stated monthly ARPU of $14.62. which is $175.44 annually.
EIG and Web.com look very similar just reaching positive operating income this year and very similar revenue per subscribers. It states pretty clearly in Web.com's filing "The growth in average revenue per subscriber continues to be driven principally by our up-sell and cross-sell campaigns focused on selling higher revenue products to our existing customers as well as the introduction of new product offerings and sales channels oriented toward acquiring higher value customers."
It seems like common knowledge to anyone in the web hosting industry that these companies are getting users in cheap. Those ~$5/month hosting plans are obviously not the only thing being sold. It would seem they are able to on average roughly triple that monthly figure by selling other services.
So the question in my mind becomes what do those new products look like? We're seeing a jump into the managed WordPress hosting space. Is there actual innovation that's going to happen or are these big companies simply going to carve out some of the high margin services provided by niche providers? Is that going to be a win for consumers?
I don't have the answers, but I'm certainly interested to see how it plays out.