The U.S. government's plan of relinquishing control of the
system for assigning website addresses is expected to hurt
) growth prospects going forward.
The National Telecommunications and Information Administration
(NTIA) intend to transfer key domain name functions to the global
multi-stakeholder community. As a first step, it has asked the
Internet Corporation for Assigned Names and Numbers (ICANN) to
bring together all global stakeholders to develop a proposal for
VeriSign, which operates the infrastructure for the .com, .net
and.gov, stated that the NTIA decision will not affect its
operations in any way as its Internet functions are much
different from those included in the announcement.
Further, the company clarified that functions performed by
VeriSign that come under the purview of the NTIA announcement
have been performed as a community service spanning three decades
without compensation and hence their non-renewal will not affect
profitability going forward.
Nevertheless, this announcement seems to be a major setback for
VeriSign. It is likely to be an overhang on the registration
business, which is a major contributor of revenues (contributed
nearly $1.0 billion revenue in 2013). We believe that the
less U.S. control will increase risk for VeriSign as it will
reduce company's ability to renew .com and .net contract price as
per its own terms.
Nevertheless, the whole process of relinquishing control will
take some-time. Hence, we believe that it will have no
significant negative impact on VeriSign's near term results.
We believe that increasing domain name registration, the renewal
of the .com contract and the price hike in .net domain name will
boost VeriSign's top-line in the near term. Additionally,
VeriSign has significant growth opportunities from its network
security products as Distributed Denial of Service (DDoS) attacks
continue to grow.
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 from
) in the network intelligence and availability (NIA) segment
remains a major concern.
Currently, Verisign has a Zacks Rank # 2 (Buy).
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