Key Takeaways From Verisign Q3 Earnings

by Trefis Team
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VRSN
VeriSign
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After a positive performance in the first half of the year, Verisign (NASDAQ:VRSN) performed decently in the third quarter with revenue of $292 million, implying slight growth over the same period last year. The company’s net income was around $115 million, in line with Q3 2016. Below we highlight some of the key takeaways from the earnings release.

Our price estimate for Verisign is about 15% below the current market price.

Key Highlights:

  • In the quarter, domain name registrations for .com and .net together grew 1.2% year over year to 145.8 million. VeriSign processed 8.9 million new domain name registrations for .com and .net, an increase from 0.6 million processed in the year-ago quarter.
  • The renewal rate for Q2 2017 stood at about 74%, marginally above Q3 2016. The news only comes now as renewal rates are not completely measurable until after 45 days from the end of the quarter. Domain growth is primarily driven by internet adoption rate, economic activity globally, e-commerce activity, and registrar go-to-market strategies.
  • In terms of geographical revenues, the U.S. and Europe, the Middle East and Africa (EMEA) regions continued their growth. However, revenues from China, which grew at a phenomenal rate over the past year owing to new registrations, slowed down in the quarter. This is possibly due to a lower renewal rate and unfavorable macro conditions.
  • For the reported quarter, the exact renewal rate figures will be available after 45 days from March 31, 2017. The company estimates that it will be around 74.3% compared with 73.0% in the year-ago quarter.

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The company holds a prime position in the highly regulated .com and .net domain industry. We expect the renewal of the .com contract and price hikes at .com and .net domain names will continue to push the top line going forward. Additionally, Verisign has the potential to greatly benefit from the significant growth opportunities in the Distributed Denial of Service (DDoS) security market.

For 2017, the company expects to record revenues in the $1.161 billion to $1.166 billion range, while its non-GAAP operating margin is expected to be between 65.0% and 65.5%.

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