VeriSign Earnings Review: Registrations Beat Guidance, Driven By Demand In Asia-Pacific

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Verisign CA

VeriSign (NASDAQ:VRSN) released earnings for Q4 2015 on February 11th. The company performed solidly in the final quarter of the year while continuing to deliver security and stability to customers. The quarter witnessed higher revenues than the same quarter last year,  driven primarily due to higher registration activity in China.  Yet earnings fell short of analyst estimates. That being said though, the number of registrations increased at a much higher rate than the same period in the previous year, beating guidance by a large percentage. On the whole, 2015 turned out to be a good year for the company. Revenues and earnings both increased year over year. It also marked five years since the completion of the divestiture process and the sale of the Authentication Services business, which seems to have worked in the company’s favor as EPS has risen almost 200% since 2010. [1]

Highlights from the Quarter:

  • Full year revenues came in at around $1.059 billion. This reflects an increase of about 4.9% year over year. In the quarter, the company achieved revenues of $273 million, which is up by 6.5% year over year.
  • In terms of GAAP operating incomes, the company recorded $606 million for the full year, up from $564 million recorded in the same quarter last year. For the quarter, GAAP operating incomes came in at $158 million, which is up from $142 million in Q4 last year.
  • 12.2 million new gross registrations were processed during the quarter, while 4.6 million net names were added to the domain name base, bringing the total names added  in .com and .net to 139.8 million.

Looking forward, the management expects the growth momentum to continue well into the first three quarters of 2016. However, the last quarter seems to be unique in the sense that the expiring domain name base then will have the largest percentage of first-time renewing names that have been witnessed as a result of the strong Q4 2015 performance.

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Asian Markets, Especially China, Drive Growth:

During the quarter, 59% of the business came from the U.S., while 41% of the business came from international customers. Of the 4.6 million names added to the domain name base, almost 3.5 million names came from the Asia Pacific region. Of these a large majority of the registrations came from China. According to feedback received from registrars, the increase in the gross volume could be attributed to higher domain investment activity in the region. However, it would also be worthwhile to mention here that the renewal rates in emerging markets, specifically in the Asia Pacific region, tend to be significantly lower than renewal rates in more developed markets. This is particularly why, as mentioned previously, the company expects Q4 2016 to be a very unique year in terms of renewals.

Update on the Transfer of NTIA’s Stewardship Program:

In a historic process that began in March 2014, the U.S. National Telecommunications and Information Administration (NTIA) had decided to transfer its stewardship role related to the Internet’s domain name system to the global multistakeholder community. In March 2015, in planning for the implementation process, NTIA had asked VeriSign and ICANN to submit a proposal highlighting how best to remove the NTIA’s administrative role associated with root zone management. These root zone management functions relate directly to the role of Root Zone Maintainer function obligations fulfilled by VeriSign as per the Cooperative Agreement with the Department of Commerce. In response to this, a proposal was written and submitted to NTIA in August last year. This document redefines the role of VeriSign as the Root Zone Maintainer under a new agreement that would kick in once the previous agreement with the Department of Commerce lapses.

In addition, both ICANN and VeriSign are currently undergoing discussions to extend the term of the .com Registry Agreement to coincide with the expected 10-year term of the Root Maintainer Agreement. This ensures that the terms of both agreements are the same, enabling stability of root operations, while removing potential instability that could otherwise arise if the terms did not match.

Currently, ICANN and VeriSign are in the final stages of preparing the Root Zone Maintainer Agreement and the .com Registry Agreement extension documents. At the moment, it is hard to tell when these documents will be completed.

In conclusion, the company has had a very good year and expect similar numbers from 2016 as well. The management expects revenues for the year to lie between $1.110 billion to $1.135 billion, reflecting a growth rate of about 5 to 7% annually.

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Notes:
  1. VeriSign’s Q4 2015 Earnings Call Transcript, www.seekingalpha.com []