We recently reiterated our Neutral recommendation on
VeriSign recently reported first-quarter earnings of $0.37 per
share, missing the Zacks Consensus Estimate of $0.39. Results
missed the Zacks Consensus Estimate by $0.02.
There is no consensus among analysts covering the stock. Three
out of the six analysts decreased their estimates while two
analysts upped theirs.
Consequently, the estimates for 2012 have come down by 1 cent in
the last thirty days. Estimates for 2013 are also down by 5
Internet Corporation for Assigned Names and Numbers (ICANN)
recently renewed Verisign's contract to serve as the authoritative
registry operator for the .net registry until 2017. Moreover, ICANN
recently announced its plan to increase the number of generic
top-level domains. At the end of March 2012, ICANN posted renewal
terms negotiated between Verisign and ICANN for the .com Registry
Verisign applied for 14 new gTLDs including 12 transliterations
of .com and .net through ICANN's new gTLD application process. This
is expected to close in May 2012. Additionally, applicants for
approximately 220 new gTLDs selected Verisign will provide back-end
registry services. This bodes well for VeriSign in the long run as
revenue from new gTLDs is not expected to be material before
VeriSign views the introduction of new gTLDs as an adjacent
growth opportunity. This should positively impact results in the
coming years. As of January 15, 2012, the registry fee for
.com domain names will increase from $7.34 to $7.85, and the
registry fee for .net domain names will increase from $4.65 to
$5.11. The fee increases should positively impact revenues in
In 2007, VeriSign decided to focus more on its core competencies
to provide highly scaleable, reliable and secure Internet
infrastructure services to customers around the world. In 2011,
VeriSign completed its four-year restructuring plans, which
included divesting or winding down non-core businesses, the sale of
Authentication Services business, while relocating its
Meanwhile, the company has a healthy cash balance with recent
divestitures and is making efforts to return the same to investors.
In 2011, VeriSign repurchased 16.3 million shares for $535 million.
The company has approximately $831 million shares left under its
current share authorization program.
However, top-line growth continues to be a challenge. The
company divested all of its 13 non-core businesses and at present
has just one significant business: Naming Services. It remains to
be seen how the streamlined company generates a growth trajectory
given the change in management.
We maintain our Neutral recommendation as we believe that most
of the positives are already discounted at current levels. Our
Neutral recommendation is supported by Zacks #3 Rank, which
translates into a short-term rating of Hold.
VERISIGN INC (VRSN): Free Stock Analysis Report
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