VeriSign, Inc
. (
VRSN
) recently announced that the U.S. Department of Commerce has
approved the renewal of VeriSign's agreement with the Internet
Corporation for Assigned Names and Numbers (ICANN) to serve as
the authoritative registry operator for the .com registry. The
term of this agreement, effective from December 1, 2012, would
continue through November 30, 2018.
Under the Cooperative Agreement between the Department of
Commerce and VeriSign, the latter submitted its agreement on June
26, 2012 with ICANN with a proposal for renewal of the contract
to serve as the authoritative registry operator for the .com.
The Commerce Department, which was conducting a review of the
agreement, concluded that the agreement is in the public interest
under Amendment 30 of the Cooperative Agreement.
However, the agreement includes certain new terms and
conditions. VeriSign's current pricing of $7.85 per domain name
registration will continue for the six-year term of the
agreement. It also mentions that VeriSign is now no longer
entitled to four price escalations of up to 7% during the six
year period.
The price increase has now been limited to circumstances
relating to imposition of new Consensus Policy or extraordinary
expenses that emanate from security or stability threats; and
thus it will require prior approval of Commerce Department prior
approval.
However, pricing restrictions might be removed entirely if
only VeriSign can convince the Commerce Department sufficiently
that market conditions no longer warrant such restrictions.
The price increase constraint in the contract led to an almost
14% decline in the stock price after hours trading to close at
$34.15.
Competition continues to be stiff for VeriSign from the likes
of
Tucows Inc.
(
TCX
) and others. Estimates have been more or less static in the few
days for Tocows as the company reported third quarter results
which beat estimates by a penny. Revenues surged 12% with broad
based performance across the portfolio.
Hence, we maintain our Neutral recommendation as we believe
that most of the positives are already discounted at current
levels and the current environment demands caution from the
investors.
Our Neutral recommendation is supported by a Zacks #3 Rank,
which translates into a short-term rating of Hold.
TUCOWS INC (TCX): Free Stock Analysis Report
VERISIGN INC (VRSN): Free Stock Analysis
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