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Tucows Inc. Shows Buyout-Powered Growth, Plans to Expand Broadband Services

Network service provider Tucows (NASDAQ: TCX) reported second-quarter results on Tuesday evening. In the first full quarter after the acquisition of domain name registrar Enom in January, Tucows posted strong top-line performance alongside subscriber growth in the Ting Mobile cellphone service.

Tucows' second-quarter results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$84.2 million

$47.2 million

78%

Net income

$5.2 million

$4.1 million

29%

GAAP earnings per share (diluted)

$0.50

$0.39

28%

Data source: Tucows.

What happened with Tucows this quarter?

  • Thanks to the Enom buyout, Tucows boosted its domain services revenue by 120% compared to the year-ago quarter. This segment accounted for 75% of Tucows' total sales in the second quarter, up from 60% in the same period of 2016.
  • Ting Mobile sales rose 14% year over year, driven by low customer churn and organic growth in Ting's established service footprint.
  • The Ting Internet broadband network service continued its buildout in a handful of smaller cities, with an eye toward a larger-scale implementation in the future. Tucows is using the early test markets to figure out how to scale up a broadband service efficiently.

What management had to say

In a conference call with analysts, Tucows CEO Elliot Noss kept coming back to the importance of Ting Internet. That service accounted for the lion's share of Tucows' capital expenses in the second quarter, and you should expect the fiberoptic-based internet service to continue growing for years to come. Ting Internet was always intended as a companion to the Ting Mobile network, Noss explained, and that thesis is playing out largely as planned:

Around three years ago, when we first shared our broad plans to pursue a fiber-to-the-home strategy, we talked about a simple hypothesis for the future of telecom. Fixed networks would always outperform mobile networks. Therefore, people would use fixed networks when they could and mobile networks when they have to. That way, the availability of fixed networks would naturally increase. Over the last three years, we have seen that trend develop and evolve.

Noss still expects to have several new Ting Internet markets to announce before the end of 2017, but couldn't comment on anything specific as negotiations with local authorities are underway.

Image source: Getty Images.

Looking ahead

Ting Mobile is maturing, step by step, while the newer Ting Internet service is learning how to crawl. Meanwhile, the much-larger internet domain name service provides a stable financial platform from which to launch these consumer-oriented network services. Together, these operations add up to an exciting growth story.

Tucows shares rose significantly on this solid report, and have now more than doubled in 52 weeks. To keep this market momentum going, Tucows needs to continue its strong execution of a multipronged business plan. In particular, investors might want to look for any updates regarding new Ting Internet service areas.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tucows. The Motley Fool has a disclosure policy.