Web hosts around the world are coming up with strategies to boost profits, and the UK host iomart recently announced an impressive 11 percent pre-tax spike in profits of £10.8 million in the first quarter of 2015 alone. Based in Glasgow, iomart reveals that the overall revenues are up 18 percent from last year, citing “web hosting” as the major reason for the uptick, and an incredible £65.8 million in overall revenues. In web hosting alone the group enjoyed a 23 percent rise from this time last year, with that branch of the company raking in £55 million.
Why the sudden boost in the web hosting sector? iomart cites the relationship with Backup Technology and Redstation, two companies iomart acquired in the autumn of 2013. ServerSpace was picked up at the end of 2014, and it has taken a few months to see the full impact of these acquisitions. However, even without accounting for these purchases, iomart’s web hosting segment would have grown nine percent according to analysts. Clearly, iomart is doing something right—and something other web hosts around the world are eager to copy.
The Numbers Game
It wasn’t all good news for iomart, given that their domain registration service Easyspace took an £11 million hit in 2015. However, spokespeople for the company say it was “as expected over the year,” and it’s unclear whether the company will re-focus on domain registration revenues or not in the future. Still, this year’s margin is at 67.4 percent, which is just slightly below the 68 percent enjoyed last year. Plus, after making adjustments for tax margins, the numbers may be even closer than what’s been reported.
According to iomart, the pre-tax margin reduction is an indicator of depreciation rates. The disparity is around 2.5 percent, and most are due to “write-downs” thanks to the acquisitions in combinations with charges for depreciation. The data center in Maidenhead required some cash funneling as it was just finished at the close of the last financial year. However, considering the adjusted basis, iomart overall reports an uptick of £16.6 million compared to 2014’s £14.6 million. It was a quick recovery from six months ago, when shares plummeted 16 percent following Cinven (an equity firm’s) announcement that it would no longer do business with iomart. Cinven was ambitious in trying to purchase iomart, but ultimately all three bids were rejected including the impressive £320 million offer.
Angus MacSween, Chief Executive of iomart, notes that the deal following through would make a few future acquisitions impossible, but maintains that it was the best strategy for the company. “Clearly private equity have the ability to leverage more than we can, so they will get up to six times EBITA (earnings before interest, tax, depreciation and amortization) and debt into their vehicles and we as a public company couldn’t get anywhere near that,” he explains. However, “we are unlikely to win some of the bigger acquisition targets, but we believe that we have been very good at buying stuff under the radar and not paying over the odds for them, so that is really where we are going to continue to focus.”
Only time will tell if iomart will continue to dominate in the UK web hosting market, but with savvy deals left and right, it will likely remain a mainstay of British web hosting prowess.