VeriSign to Benefit from Domain Name Renewal Trends

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An encouraging trend for VeriSign ( VRSN ) over the last few quarters has been the increasing renewal rates of its .com and .net domain name business. We expect that the declining market share trend for VeriSign in the .com and .net domain business could see a temporary stabilization in 2010 mainly due to healthy renewal rates. If VeriSign manages to maintain its market share in the long term as well, there could be an upside of 12% to our $38.82 Trefis price estimate for VeriSign stock .

VeriSign the Leader in Domain Name Registration

VeriSign currently controls the rights to the exclusive registry of .com and .net internet domain names. The company collects a fixed fee each time individuals or businesses register a new .com or .net domain name, or renew the registration of an existing domain name.

VeriSign's share in the domain name market has declined from around 54% in 2006 to around 50% in 2009, and we expect it to continue to decline to around 43% by the end of Trefis forecast period.

We believe the primary factor behind the declining market share trend for VeriSign has been the faster rise in country-specific domain names compared to .com and .net names. This effect is partially due to the fact that emerging markets like China, Russia and India, which seem to have a higher tendency to use country-specific domain names, have also shown faster GDP growth than the US. The majority of .com and .net domain names are registered in the US, which is one reason why the US economy's slow growth over the last few years has led to market share declines for VeriSign.

Renewal Rate Increase Could Present Upside

VeriSign's observed renewal rate has steadily increased from around 70% in Q2 2009 to 73% in Q3 2010. The increasing renewal rate means that the number of domain name registrations is expected to increase from 97 million in 2009 to 105 million in 2010, indicating that VeriSign could maintain its market share in 2010 at 50%. Hence we expect VeriSign's market share to show signs of stabilization despite the country-specific domain name growth described above.

There could be an upside of around 12% to our estimate for VeriSign stock if the company is able to maintain its market share at around 50% over the Trefis forecast period.

Modify the trend-line in the chart above to assess the impact of various market share scenarios on VeriSign's stock value.

See our full analysis for VeriSign here



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 , Investing Ideas , Stocks , US Markets

Referenced Stocks: VRSN

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