Verisign Makes a Come Back Riding On The .com Brand Value And Effective Marketing, After A Weak First Half

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Verisign CA

VeriSign (NASDAQ:VRSN), the forerunner in the Domain Name market with a 47% share, posted robust third quarter results, showing signs of recovery from the slack performance of the first half of 2014. VeriSign is the authoritative registry service provider for all .com and .net gTLDs (Generic Top-Level Domains), as well as the sole registry service provider for gTLDs like .cc, .tv, .gov, .jobs, .edu and .name. It reported revenues of $255 million with 4.7% year-on-year revenue growth. The GAAP operating income of $139 million registered a 5.1% year-on-year growth. GAAP operating margin for Q3 2014 was 54.7% compared to 54.5% in Q3 2013. GAAP net income of $95 million represented a 17% year-on-year growth, resulting in diluted GAAP earnings per share of $0.69 compared to $0.53 for the third quarter last year.

The company, having reached a matured stage in the industry, was riddled by problems such as saturation in the .com domain and intense competition from other gTLDs (Generic Top-Level Domains), especially ccTLDs (country code top-level domain names). However, in our Q3 2014 earnings preview article, we also discussed the marketing strategies which VeriSign is undertaking to sustain its leadership position and grow further. The Q3 results imply that the company has been successful in understanding the changing market dynamics and taking steps to maintain its leadership position.

In this article, we take a look at the trends that have shaped VeriSign’s Q3FY14 performance. We are in the process of revising our Trefis price estimate of $55.33 for VeriSign to incorporate the latest quarterly results.

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.com Domain Name Performed Strongly Though .net Growth Rate Still Remained Flat

VeriSign ended Q3 2014 with 130 million active domain names in the .com and .net zone, after adding 1.15 million net new names in the quarter which represented a 3.3% year-on-year growth. It also witnessed a marked increase in net new additions from .42 million in Q2 2014. It processed 8.7 million new domain name registrations in Q3 2014, as compared to 8.3 million in Q3 2013. The factors impacting .com and .net zone growth include rate of internet adoption, the economic and eCommerce scenario, and marketing initiatives by registrars.  The management attributes the Chinese market’s good performance as a prime factor for the improved results in the overseas front. In the domestic market, one of the US registrar’s strategies involving customer acquisition and offering discounts to acquire domain names for customers yielded positive results. The company guides to 0.7 million to 1.2 million net registrations for Q4 2014.

The renewal rate for .com and .net in Q2 2014 was 71.8% as against 72.7% in Q2 2013. Renewal rates are measurable only after 45 days after quarter end. The slack in the renewal rate is a consequence of a softer first time renewal rate due to changes in search engine algorithms, level of promotions by previous year registrars, and penetration in geographies reflecting lower first-time renewal rates.

The .net zone growth has been flat so far for 2014. A major factor impacting the growth was introduction of a new gTLD program which gained around 2.8 million registrations until now. Additionally, there is confusion involving the domain names for the new gTLDs, and .net is being adversely impacted by that as well. Conversely, .com being such a well established brand has created a niche in the market which is comparatively more resilient to competition, than the .net brand.

 

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