Cogent's New IPv4 Address Securitization Offering - $174.4 Million

Cogent Communications recently announced a secured notes offer of $174.4 million backed by their IPv4 assets as collateral. Nearly a year ago, Cogent also made the same secured notes offer of $206 million using the same assets as collateral to attract lenders and other investors. It’s a unique form of collateral because it’s nowhere near the traditional form of assets. But it’s an asset nonetheless and assures lenders that the company is in good faith in terms of payment. A closer look at the business of IPv4 also reveals it’s an increasingly lucrative business that has helped Cogent Communications thrive.

Playing The Oldest Book In Business - Demand And Supply

The company is banking on the value of IPv4 because of its increasing demand. Connectivity is at an all-time high and it doesn’t seem to be stopping soon which means every connected device online should be using IP addresses. Public IPv4 addresses are essential to websites and other connected devices so they could communicate to each other.

The demand for public IPv4 is very high because public IPv4 addresses have been exhausted - the supply is no longer there. Companies looking to use a public IPv4 address are resorting to leasing and this is where Cogent Communications gets part of their revenue - making it an attractive asset to lenders.

Based on their Q4 2024 Financial Highlights, their IPv4 leasing is going through a double-digit increase in earnings, “Revenue from leasing IPv4 addresses increased by 11.8%, sequentially, and was $12.6 million for Q4 2024 and was $11.2 million for Q3 2024.” It should be noted that the earnings indicated is only limited in leasing their IPv4addresses. Like last year, their secured notes are “secured by certain of Cogent’s IPv4 addresses, customer IPv4 address leases and customer accounts receivables.”

IPv4 Limitations

The demand for IPv4 addresses is only expected to increase because of its inherent limitation. An IPv4 address consists of four sets of numbers from 0 to 255 separated by a dot (for example, 192.168.0.1). At first glance, it seems that there should be a good number of combinations available for everyone but there are actually only 4.3 billion unique IPv4 addresses - a staggeringly small number of addresses especially when you consider the need to connect nearly every device and website.

The depletion of public IPv4 addresses has given rise to temporary solutions such as NAT or Network Address Translation which uses a single IP address on public but assigns multiple IP addresses in local or private networks. ISPs are also employing dynamic IP addresses that allow them to change the assigned IP address of their client as they see fit.

The Future Of IP Addresses

While IPv4 addresses have been depleted another IP protocol has been in place to replace it. Since 2012, IPv6 is already in place and ready for adoption. Compared to IPv4, IPv6 offers more public IP addresses (trillions of addresses), a robust connectivity since it removes the need to implement NAT and better security.

Speaking of availability of IP addresses of IPv6, InternetSociety.org perfectly explains its significance:

“The IPv6 address notation is eight groups of four hexadecimal digits with the groups separated by colons, for example 2001:db8:1f70:999:de8:7648:3a49:6e8, although there are methods to abbreviate this notation. For comparison, the IPv4 notation is four groups of decimal digits with the groups separated by dots, for example 198.51.100.1.”

But even with the advantage of IPv6, hardware and software migration especially for large companies is costly. This is the reason why adoption is slow and companies would just opt to use existing technologies such as IPv4 to avoid additional spending. As long as migration to IPv6 is not fully implemented to replace IPv4, companies like Cogent Communications will continue to lease their assets with massive quarterly earnings.