What Is VeriSign’s Fair Value?

by Trefis Team
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VeriSign‘s (NASDAQ:VRSN) stock price has increased by around 41% in 2018 so far, as a result of the steady improvement in its top line and bottom line performance through the first nine months of the year. The solid performance was driven by growth in domain name registrations and improved renewal rates. VeriSign’s recently announced deal with NeuStar, to sell customer contracts of its Security Services business, should further drive its value in the coming quarters. Additionally, the company renewed its .net Registry Agreement with the Internet Corporation for Assigned Names and Numbers (ICANN) back in 2017, ensuring it will remain the sole registry operator for the .net registry until mid-2023. As more companies rely on growing their businesses digitally, VeriSign’s leading position in the highly regulated domain industry should warrant continued improvement in revenues and earnings.

We have a price estimate of $160 per share for the company, which is slightly higher than its current market price. View our interactive dashboard – VeriSign’s Outlook For 2018 – and modify the key drivers such as revenue and margins to gauge the impact on the company’s valuation.

VeriSign controls the rights to the exclusive registry of .com and .net Internet domain names. It collects a fixed fee each time individuals or businesses register a new .com or .net domain name, or renew the registration of an existing domain name. In 2017, Verisign renewed its .net Registry Agreement with the ICANN, and will remain the sole registry operator for the .net registry through June 30, 2023, with a contractual right to increase pricing by 10% annually. As more and more companies depend on digitally growing their business, we expect the pricing flexibility to provide a decent medium term opportunity.

VeriSign has entered into an agreement with NeuStar for the sale of its customer contracts related to its Security Services business. The deal will include the sale of VeriSign’s customer agreements related to its Distributed Denial of Service (DDoS) Protection, Managed Domain Name System (DNS), DNS Firewall, and Recursive DNS services. The deal will not only allow VeriSign to focus on its core business, but will also result in additional cash flows that the company could reinvest into its business and deliver higher returns to its shareholders.

As a result of the above factors, we expect 4% revenue growth in 2018 to $1.2 billion, driven by 3% growth in domain registrations and 1% growth in average price per domain. Additionally, the reduction in the corporate tax rate from 35% to 21% should boost the company’s net margin by over 600 basis points.

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