Verisign Sees Continued Domain Growth in Q1; $41 Fair Value

Verisign (NASDAQ:VRSN) reported its earnings for Q1 2012 on April 26, and it’s mostly business as usual for the number one domain registrar. It reported revenue of $206 million, up 13% year-over-year. The growth was driven primarily by the increase in registered domains and a marginal increase in domain pricing. It ended the quarter with roughly 116.7 million .com and .net domains, a net increase of 2.86 million over last quarter.

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We expect Verisign’s 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. Verisign’s entire revenue is currently derived from domain registrations, which is why any increase or decrease in .com and .net domain registrations will impact its stock value significantly.

Verisign may also generate a sizable amount of revenue by providing back-end registry services for customers using the new gTLDs (custom top-level domains) approved by ICANN. Verisign signed up around 220 customers for its gTLD registrar services in 2012, and is expected to sign up more going forward. It also applied directly for 14 gTLDs, for which it may sell domains in the coming years. However, this new business is expected to starting bringing in revenue only after 2013. ^[1]

Following the earnings, we have updated our model to reflect the latest financials. We are revising our estimates and are making slight adjustments to our price estimate.

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 $40 Trefis price estimate.

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1. VeriSign Management Discusses Q1 2012 Results – Earnings Call Transcript, SeekingAlpha [↩]