Tucows Inc. Earnings: 55% Earnings Growth; Shares Jump on Tuesday

Image source: Tucows.

Domain name registrar and network service operator Tucows (NASDAQ: TCX) reported third-quarter results on Monday night. The Toronto-based company beat analyst expectations on both the top and bottom lines. Tucows shares were up 6.4% at 11:15 a.m. EST Tuesday.. The stock has now gained roughly 45% year to date.

Here's a closer look at Tucows' third quarter.

Tucows' third-quarter results: The raw numbers

YOY = year over year. EBITDA = Earnings before interest, taxes, depreciation, and amortization. Data source: Tucows.

What happened with Tucows this quarter?

Mobile services led the way with a 20% year-over-year revenue boost, followed by 16% higher retail domain name revenue. Other services in both the network access division and the wholesale internet tools business saw their revenues edging lower instead.

  • Operating margins landed at 14.8%, up from 11.5% in the year-ago quarter.
  • Management now expects to spend nearly $4 million in 2016 on network infrastructure for its budding Ting Internet operations. That's about $1.5 million more than previously thought, based on lessons learned in the early fiber-rollout process.
  • When the current Ting Internet expansion plans are finished, the company will reach five smaller towns and a total of 85,000 households. Management hopes to achieve a 50% penetration rate in these markets by 2021, based on current trends. The Ting Internet operation is still too small to break out revenue and operating profit figures in these quarterly reports, but the five-year goal is to deliver annual fiber-based gross profits of roughly $42 million.

Tucows is not known for its detailed financial guidance targets. CEO Elliot Noss simply updated his full-year view of adjusted EBITDA profits, which was set at $30 million nine months ago.

What management had to say

As promising as the Ting Internet business may be, Noss does not seem interested in adding any more markets anytime soon. In a conference call with analysts, Noss compared his fiber plans to the stalled implementation of Google Fiber because the two companies appear to be learning similar business lessons right now:

Looking ahead

Tucows is in a learning phase these days. The Ting Mobile wireless business is already picking up steam, and the Ting Internet operation is expensive now, but should pay back in spades in a few years.

The company is spending freely on sales and marketing, research and development, and infrastructure-related capital expenses. Even so, earnings growth is outpacing the revenue line as the fastest-growing operations come with generous operating margins.

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Anders Bylund owns GOOGL. The Motley Fool owns shares of and recommends GOOG and GOOGL. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. The Motley Fool recommends TCX. Try any of our Foolish newsletter services free for 30 days.

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