What Has Driven Verisign’s Stock Rally This Year?

by Trefis Team
+2.59%
Upside
156
Market
160
Trefis
VRSN
VeriSign
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Verisign‘s (NASDAQ:VRSN) stock price has increased by around 40% so far in 2017, despite a comparatively marginal jump in its top line and bottom line performance, which is a testament of its prime position in the highly regulated .com and .net domain industry. Earlier in the year, Verisign renewed its .net Registry Agreement with the Internet Corporation for Assigned Names and Numbers (ICANN), and will remain the sole registry operator for the .net registry for the next 6 years. As more and more companies rely on digitally growing their business, Verisign’s strong position in the domain registration market will help it grow in the near term.

We have a price estimate of $103 for Verisign is about 10% below the current market price.

Revenues increased by 2% year-over-year during the first three quarters of 2017, primarily due to an increase in revenues from the operation of the registries for the .com and .net TLDs. This was driven by a 1% increase in the domain name base for .com and the increase in the .net domain name registration fees in February 2016 and 2017 by 10% each. With a contractual right to increase the fees by up to 10% each year during the term of its agreement with ICANN, through June 30, 2023, we expect Verisign to sustain its growth momentum going forward.

Domain name registrations for .com and .net together grew 1% year over year to 145.8 million. VeriSign processed 27.6 million new domain name registrations for .com and .net, an increase of around 700,000 from the year-ago comparable period.

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 in the previous year, slowed down in 2017. This is largely due to a relatively lower renewal rate and unfavorable macro conditions. However, the signs of recovery in the economy mark a substantial opportunity for VeriSign. The company now has the potential to increase sales from the region at a dramatic pace given the popularity of the TLDs in question globally. Additionally, VeriSign has the potential to greatly benefit from the significant growth opportunities in the Distributed Denial of Service (DDoS) security market.

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