VeriSign Inc. (
reported an impressive fourth quarter with earnings of 54 cents
per share, which beat the Zacks Consensus Estimate by 6 cents.
The better-than-expected result was primarily driven by strong
revenue growth and margin expansion.
Total revenue increased 13.0% year over year and 3.0%
sequentially to $230.2 million, slightly ahead of the Zacks
Consensus Estimate of $229.0 million. Approximately 60% of the
total revenue was from the U.S, while the remaining came from
overseas. U.S. revenues increased 12.1% year over year, while
international revenues grew 14.5% from the year-ago quarter.
VeriSign Registry Services added 1.25 million net new names in
the quarter. Active domain names in the zone for .com and .net
increased 6.4% year over year to $121.1 million (.com 106.2
million and .net 14.9 million) in the quarter. VeriSign processed
8.0 million new domain name registrations for .com and .net, up
1.0% from the year-ago quarter.
VeriSign estimates renewal rate to be approximately 72.9% in
the fourth quarter compared with 73.5% in the year-ago quarter.
Exact renewal rate figures will be available post 45 days of the
end of the quarter. In the third quarter, renewal rate was
During the quarter, the U.S. Department of Commerce approved
VeriSign's renewal agreement with the Internet Corporation for
Assigned Names and Numbers (ICANN) to serve as the authoritative
operator for the .com registry for the term commencing Dec 1,
2012 through Nov 30, 2018.
VeriSign also announced hike in the registry fee for .net
domain names. The hiked rate of $5.62 (up from $5.11) will be
effective from Jul 1, 2013.
Operating expenses plunged 14.4% year over year and 11.7%
sequentially to $94.8 million. As a percentage of revenues,
operating expenses declined to 41.2% in the fourth quarter
compared with 54.4% in the year-ago quarter and 48.1% in the
previous quarter. These significant improvements in operating
expenses were primarily driven by sharp decline in sales &
marketing (S&A) and general & administrative (G&A)
Operating income improved significantly as a result of
lower-than-expected growth in operating expenses and higher
revenue base. Operating income surged 40.7% year over year and
16.9% sequentially to $135.9 million. Operating margin was 59.0%
in the quarter, much better than 47.4% in the year-ago quarter
and 52.0% in the previous quarter.
Net income surged 56.2% year over year and 14.2% sequentially
to $87.5 million. Earnings per share ("EPS") jumped 54.3% from
the year-ago quarter and 17.4% from the previous quarter to 54
Balance Sheet & Cash Flow
Cash and cash equivalents (including marketable securities)
were $1.56 billion compared with $1.49 billion in the previous
quarter. Long-term debt was $697.6 million compared with $100.0
million in the previous quarter. This significant jump in debt
was due to the addition of convertible debentures currently
valued at $598.0 million.
Operating cash flow was $171.0 million in the quarter, up from
$122.0 million in the third quarter. Free cash flow was $155.0
million in the fourth quarter of 2012. VeriSign repurchased
approximately 2.3 million shares for $94.0 million in the fourth
VeriSign intends to focus more on developing new revenue
streams in 2013. The company expects to add 2.0 million to 2.4
million net new names in the .com and .net registry in first
quarter of 2013.
For full year 2013, VeriSign forecasts revenues to be in the
range of $945.0 to $960.0 million, which represents an annual
growth rate of 8% to 10%. Non-GAAP gross margin is expected to be
at least 80%, while operating margin is forecasted to be at least
We believe that the renewal of the .com contract is a major
positive for VeriSign going forward. Moreover, the price hike in
.net domain name will boost its top-line growth. Additionally,
growing generic top-level domain ("gTLD") customer base,
international expansion through IDNs (internationalized domain
names) and strong growth in the Network Intelligence and
Availability ("NIA") services will further boost revenues and
However, continuing macro-economic headwinds particularly in
Europe, 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 from
AT&T Inc. (
Infoblox Inc. (
in the NIA segment remains a major concern.
Currently, VeriSign has a Zacks Rank #4 (Sell).
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