VeriSign (VRSN) Q3 Earnings Top Estimates, Revenues Rise Y/Y

VeriSign VRSN reported third-quarter 2020 adjusted earnings of $1.49 per share, which beat the Zacks Consensus Estimate by 18.3% and recorded an increase of 14.6% year over year.

Revenues increased 3.1% year over year to $317.9 million and beat the Zacks Consensus Estimate by 0.6%.

VeriSign, Inc. Price, Consensus and EPS Surprise

VeriSign, Inc. Price, Consensus and EPS Surprise

VeriSign, Inc. price-consensus-eps-surprise-chart | VeriSign, Inc. Quote

Quarter Details

VeriSign ended the reported quarter with 163.7 million .com and .net domain name registrations, up 4% year over year.

The company processed 10.9 million new domain name registrations for .com and .net compared with 9.9 million in the year-ago quarter.
Notably, renewal rates are not fully measurable until 45 days after the end of the quarter. The final .com and .net renewal rate for the second quarter of 2020 was 72.8% compared with 74.2% for the year-ago quarter.

The company expects the renewal rate for third-quarter 2020 to be around 73.4%. The renewal rate in the third quarter of 2019 was 73.7%.

VeriSign’s research and development (R&D) expenses rose 34.8% from the year-ago quarter to $19.7 million. As a percentage of revenues, R&D expenses increased 150 basis points (bps) year over year to 6.2%.

General and administrative (G&A) expenses increased 12.5% year over year to $38.1 million. As a percentage of revenues, G&A expenses increased 100 bps year over year to 12%.

However, sales and marketing expenses (S&M) declined 14.9% year over year to $8.4 million. As a percentage of revenues, S&M expenses decreased 60 bps year over year to 2.6%.

Operating income was $206.6 million, up 0.5% from the year-ago quarter. Operating margin contracted 170 bps year over year to 65%.

Balance Sheet & Cash Flow

As of Sep 30, 2020, the company’s cash and cash equivalents (including marketable securities) were approximately $1.15 billion compared with $1.19 billion as of Jun 30, 2020.

Cash flow from operating activities was $140 million in the third quarter compared with $215 million in the previous quarter. Free cash flow was $125 million in the reported quarter compared with $169 million in the previous quarter.

In the third quarter, Verisign repurchased 0.8 million shares for an aggregate cost of $170 million, which brings the total amount available for buybacks to $506 million.

Key Developments

Verisign announced that it will extend the freeze on registry prices for all its top-level domains, including .com and .net, through Mar 31, 2021.

Additionally, Verisign announced the extension of the waiver of the wholesale restore fee for expired domains through the end of 2020

2020 Guidance

Domain name base is expected to increase between 3.5% and 4%.

Moreover, VeriSign expects full-year revenues between $1.262 billion and $1.267 billion.

GAAP operating margin is expected in the 64.75-65.25% range.

Capital expenditure is anticipated in the range of $45-$50 million.

Zacks Rank & Stocks to Consider

VeriSign currently has a Zacks Rank #3 (Hold).

Avnet AVT, Avid AVID and Generac GNRC are a few better-ranked stocks from the broader computer and technology sector. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

All three companies are set to report their quarterly results on Oct 28.

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