VeriSign Inc. (VRSN): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
VeriSign reported second-quarter 2014 results with earnings and revenues both registering year over year growth. However, the company provided tepid full-year guidance. We believe that growing gTLD customer base, international expansion through IDNs, strong growth in the NIA services and investments on developing new intellectual properties will boost revenues and profitability in the long run. Additionally, VeriSign has significant growth opportunities from its network security products as DDoS attacks continue to grow. The company's partnership with Juniper is a positive in this regard. However, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to the .com contract renewal remain the primary headwinds in the near term. Moreover, significant competition in the NIA segment remains a major concern. Also the entry of some big names like Google in the market is a headwind. Thus, we maintain our Neutral recommendation and set a price target of $57.00.

Overview:

Based in Reston, CA, VeriSign Inc. (VRSN) provides Internet infrastructure services that include domain name registry services and infrastructure assurance services. Through its only reportable segment Naming Services, the company provides Registry services and Network Intelligence and Availability (NIA) services.

Registry services operate the authoritative directory of .com, .net, .cc, .tv, and .name domain names. With respect to the .com, .net and .name, the company has agreements with the Internet Corporation for Assigned Names and Numbers (ICANN) that makes it the exclusive register of these domain names. With respect to .com the company has an agreement with the U.S. Department of Commerce (DOC).

In Jun 2012, ICANN approved the renewal of the company's agreement to serve as the authoritative registry operator for the .com registry. The term period for the agreement started from Dec 1, 2012 through Nov 30, 2018. Subsequently, in Nov 2012, DOC also approved VeriSign's renewal agreement with ICANN.

Besides ICANN, the company has agreements that make it the exclusive registry for the .tv and .cc country code top-level domains (ccTLDs). Additionally, the company provides back-end systems for all .gov, .jobs and .edu domain names based on these agreements. It also provides internationalized domain name (IDN) services that enable web-users to access websites in their local language.

VeriSign charges fees for operating different domain names except .edu registry. The .com and .net fees are charged as per agreement terms with ICANN and any price increase is subject to prior approval of the DOC for the .com domain. The .name fees are charged as per terms of agreement with ICAAN, while fees received for operating the .gov registry are based on the terms of agreement with the U.S. General Services Administration (GSA).

NIA provides infrastructure assurance services to organizations and also offers iDefense, Managed Domain Name System and Distributed Denial of Service protection Services.

VeriSign reported revenues of $965.1 million in 2013. The U.S. contributed 60.6% of revenues, while Europe, the Middle East and Africa (EMEA), Australia, China, India, and other Asia Pacific countries (APAC) and other countries (that include Canada and Latin American countries) contributed 17.6%, 13.5% and 8.3%, respectively.

VeriSign faces competition in the domain name registry market from 16 registries for the operation of 18 generic top-level domains (gTLDs) who have agreements with ICANN. The company also competes with more than 250 Latin script ccTLD registries and 38 IDN ccTLD registries as well as from outsourced domain name service providers such as Neustar, Inc., Afilias Limited, ARI Registry Services and Nominet UK, Inc.

The company also competes with search engine providers such as Google, Microsoft and Yahoo! and social networking services provider Facebook.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: DOC , IDN , VRSN

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