VeriSign’s Renewal Rates Improve For Q2 2015, While It Plans Rollout of New IDNs And A Price Hike For .net

VeriSign (NASDAQ:VRSN), the leader in the domain name and internet security market, released its Q2 2015 earnings on July 23^rd.  VeriSign’s revenues witnessed a 4.9% year-on-year growth to reach $263 million. The company derived 61% of its revenues from its domestic U.S. market and the rest from international markets. The increase in revenue can be attributed to a growth in its registrations and renewal rates of its domain names. VeriSign is planning a second set of price hikes for its .net domain in February 2016. The price elasticity of the .net brand does come into question now, given that it already suffers from a lack of traction (as compared to the .com brand). Finally, it is planning the phased release of 11 internationalized domain names  (IDNs) by the end of this year. This is expected to increase VeriSign’s market hold in the international markets.

After processing 8.7 million new registrations, the company added 0.52 million net new names thus ending the second quarter with a sum of 133.5 million (118.5 million .com and 15 million .net) domain names, reflecting a 3.1% increase over the base of Q2 2014. The renewal rate for Q1 2015 was 73.4%, reflecting a 80 basis point increase over Q1 2014. Renewal rates are measurable 45 days post the quarter end. The company predicts renewal rates for Q2 2015 to be around 72.6%, an 80 basis point increase over  Q2 2014. ^[1]

VeriSign has narrowed its earlier revenue guidance range for 2015  and now expects revenues to lie between $1.045 billion to $1.055 billion, with an annual growth rate of 3.5% to 4.5%.

We are in the process of updating our Trefis price estimate of $62 for VeriSign.

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VeriSign Plans Yet Another Price Hike For .net in 2016

VeriSign will raise the annual wholesale fee for its .net domain from $6.79 to $7.46 on February 21, 2016. ^[2] Earlier in February 2015, .net prices were hiked from $6.18 to $6.79.

The .net zone growth had been flat in 2014. At the end of Q4 2014, the total base of active registered domain names in .net was 15 million. ^[3]  The primary reasons for the flat growth of the .net zone can be attributed to:

•  The introduction of rival gTLD programs that are providing stiff competition to .net growth
• Confusion regarding similar sounding domain names among the newly introduced gTLDs, which adversely impacted their own demand, as well as .net’s demand
•  .net is a relatively lesser known brand, as compared to .com. ^[4]

It seems that the company is trying to compensate for the sluggish volume growth in the .net domain, with an increase in price to generate more revenue. However, this might lead to further erosion of .net demand. Also, with the increased influx of competition from rival gTLDs, the existing VeriSign users might decide to switch loyalties.

However, the management believed that .net is fairly priced and pointed out that many  of its competitors charge even higher prices. Though the brand’s demand has been flat so far, the company has confidence in .net’s brand value and legacy. ^[2]

New Policies For IDNs

VeriSign is participating in a new gTLD program organized by ICANN by applying for internationalized domain name (IDN) versions of .com and .net. IDN allows users to use a domain name in their native script or language. (For more details, see here.)

VeriSign has revised its IDN launch strategy and the new IDN top-level domains will now be offered as standalone domain names, available to all new gTLDs. This will result in end users enjoying a greater degree of flexibility, as it won’t require ICANN approval and it will be simpler for registrars too, to sell it in the market. The company believes this simpler framework will increase the acceptance of the IDNs. The staged rollout of 11 of its IDNs is expected to begin by the end of 2015. The rollout in different geographies will depend on the size and complexities of the different markets. ((VeriSign’s Q2 2015 Earnings Call Transcript, Seeking Alpha, July 23, 2015))

We expect that this step will increase VeriSign’s acceptability even further in the international markets and increase its global market share. VeriSign gains over 60% of its sales from the U.S. market, in the event that its IDNs gain popularity in emerging markets (with high scope for internet penetration) such as India and China, VeriSign will have a stronger hold of the domain name markets in the future. The declining shares of the company in the global domain name market might be recovered to a great extent, if this measure is successful.

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1. Verisign Reports Second Quarter 2015 Results, VeriSign Investor Relations, July 23, 2015 [↩]
2. VeriSign’s Q2 2015 Earnings Call Transcript, Seeking Alpha, July 23, 2015 [↩] [↩]
3. VeriSign’s Q3 2014 Earnings Call Transcript, Seeking Alpha, October 2014 [↩]
4. VeriSign’s Q4 2014 Earnings Call Transcript, Seeking Alpha, February 2014 [↩]