Rebound in Internet Display Ad Market Will Boost VeriSign’s Domain Names Business

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Higher demand for the .com and .net domain names offered by VeriSign (NASDAQ:VRSN) is being driven in part by the revival of the internet display ad market.  Recent earnings results from Yahoo (NASDAQ:YHOO) and Google (NASDAQ:GOOG) indicate that a rebound in the display ad market is underway.

Domain Names 55% of VeriSign’s Stock

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 exclusive registry rights and the fees that it charges for registration are determined by agreements with the Internet Corporation for Assigned Names and Numbers (ICANN) and the U.S. Department of Commerce.  We estimate that the Domain Names business constitutes 55% of the $36 Trefis price estimate for VeriSign’s stock.

.Com and .Net Domain Names Increased 60% in Three Years

The number of VeriSign domain name registrations has risen from 120 million in 2006 to 193 million in 2009.  Demand for new domain name registrations and renewals is influenced by internet ad rates (such as earnings-per-click or CPM).  New internet sites and ventures often dependent on internet advertising for income and prevailing internet ad rates have an impact on the number of new sites that are launched.

In Q4 of 2009, VeriSign saw an increase of 1.8 million .net names added to the domain name base compared to 1 million in Q4 2008.  This growth has come in part based on the revival of the display ad market, which has led to higher demand for .com and .net domain names.  Domain name renewal rates, which have improved sequentially in the last two quarters, stand at around 70% currently.

Total Number of Internet Domain Names to rise to 407 million

We expect the Total Number of Internet Domain Names to exceed 400 million by the end of Trefis forecast period.  Growth in the number of internet domain names will benefit VeriSign significantly, since around half of all the domain names are .com and .net, for which VeriSign has exclusive registration rights.

You can modify our forecast below to see how VeriSign’s stock would be impacted if the total number of domain names were to grow faster or slower than we forecast.

You can see our complete analysis for VeriSign’s stock here.

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