Verisign’s Dropping .com And .net Is A Troubling Trend

VeriSign (NASDAQ:VRSN), primarily known as the authority for the registration of .com and .net generic top-level domains released its industry brief for the second quarter of 2012 this Tuesday. It estimates more than 240 million domain name registrations ^[1] across all Top-Level Domains (TLDs) at the end of the period, an increase of almost 7 million or 3 % over the first quarter. The combined market share of .com/.net domains stood at 49%, a drop of almost 2% from the first quarter. We think that the drop may be reflecting the declining preference of .com and .net domain names among all the TLDs and may signal tough times ahead for the company.

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.com and .net continue to lose market share

The .com and .net Top Level Domains reached a combined total of approximately 118 million domain names at the end of second quarter 2012. This represents approx. a 2% increase over the first quarter and an 8% increase over the same quarter in 2011. The base of .com and .net domains were approximately 104 million and 15 million respectively. New .com and .net registrations totaled 8.4 million during the quarter. This reflects approximately 4% year-over-year increase in new registrations. However, the growth rate declined by 4 percentage points from the previous quarter’s rate of 8% year-over-year. Combined, the two domain names commanded a market share of almost 49% approximately inline with our estimate of 50% for the current year. We believe that the declining growth rate of .com and .net registrations signals further loss of market share for the two domains.

The renewal of a domain name is primarily influenced by whether it resolves to a website or is a dummy held by an individual or company for another purpose. Traditionally, domains which resolve to a website are more likely to be renewed. The company estimated that 87 % of the .com and .net names resolved to a website for the quarter, down from the 88% in the first quarter.

We expect the company to continue to lose market share in the domain name markets as country code domains (.de, .uk, etc) and other generic TLDs (.biz, .org, etc) gain popularity. .com and .net domain names constitute 90% of our price estimate for the company and a drop in market share and revenues from these would have a negative effect on our estimates. However the company will look to mitigate the impact by utilizing the permitted price hikes which are part of its renewed agreement with ICANN.

We have a $49 estimate for VeriSign which is at par with the market price.

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1. The Domain Name Industry Brief, VeriSign Inc., October 2012 [↩]