Verisign (NASDAQ:VRSN) reported its earnings for Q3 2012 on October 25, and it is mostly business as usual for the leading domain registrar. It reported revenue of $224 million, up 13% year-over-year. The growth was driven primarily by an increase in registered domains. It ended the quarter with roughly 120 million domain names, a net increase of 1.4 million over the last quarter. The renewed .com registry agreement with ICANN is currently pending approval from the Department of Commerce, and the company expects the review to extend beyond the November 30 deadline, as a result of which, the 6-month extension will become effective. While we expect the company to retain the .com registry in the future, we are looking for any development on this front over the next couple of months.
.com and .net user-base continues to grow
The company ended the quarter with 105 million registered .com names and 14.9 million registered .net names. Combined, these represent a 7% y-o-y or a 1% sequential increase. The domain name renewal rate stood at a healthy 72% compared to 73% during the same period last quarter. The company believes that the renewal rates are lower on account of the prevailing economic conditions in Europe and changes made in search algorithms by dominant search engines which negatively effected the monetization of some domains which were subsequently not renewed.
We expect the total number of registered domains to exceed 121 million in 2012, but its market share may decline as the overall domain name market grows even faster.
Moreover, in 2013, ICANN will begin introducing new domain names in groups of 500 (it had received a total of 1,930 requests). The share of .com and .net domains is expected to go down then. Nevertheless, Verisign will provide back-end registry services for customers using the new top-level domains. Applicants for 220 new proposed top level domains have already signed up with Verisign. Also, the company itself has applied for 14 new top level domains.
These two developments will open up new revenue streams beginning next year. On the other hand, it has the potential to cannibalize .com and .net registrations since customers may opt for more specific and business-relevant domain names like “.autoinsurance”, “.google” and “.poker”.
Verisign competes with other domain name registry providers like NeuStar, Employ Media, and Afilias to win new and maintain existing registry rights. Its .com and .net domain registration business accounts for nearly 90% of its value. We have a $49 estimate for VeriSign which is being revised.