We have recently reiterated our Neutral recommendation on
Earnings estimates for VeriSign have been more or less static
in 2012 after the company reported its third quarter results.
VeriSign posted a net income of 44 cents per share, in line with
the Zacks Consensus Estimate.
However, earnings estimates for 2013 have gone down by 6 cents
as all the 4 analysts covering the stock lowered their
VeriSign's registry, security and communications services are
essential for the smooth functioning of the online world.
However, as expected, growth in domain name addition has slowed
down. The company added 1.37 million net new domain names in the
third quarter, below its guidance of 1.6 million - 1.9
This was primarily due to continuous changes in search
algorithms and weak economic environment in Europe. The guidance
was also disappointing as management expects to add 0.9 million
to 1.3 million net names in the fourth quarter. In addition, the
company also narrowed its revenue guidance to $870 million and
$875 million in 2012, from the previous guidance of $870 million
- $880 million.
Meanwhile, under the Cooperative Agreement between the
Department of Commerce and VeriSign, the latter submitted its
agreement on June 26, 2012 with ICANN relating to the renewal
agreement to serve as the authoritative registry operator for the
However, the Commerce Department is currently conducting a
review of pricing with the Department of Justice and this review
in all probability will continue beyond the stipulated deadline
of November 30, 2012. In such a case, a 6-month extension of the
.com registry agreement would come into effect. The delay causes
uncertainty over the renewal agreement and terms of
Competition continues to be stiff for VeriSign from the likes
) and others. 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
Our Neutral recommendation is supported by a Zacks #3 Rank,
which translates into a short-term rating of Hold.
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