Domain Name Registrations Should Continue To Drive Growth For VeriSign
In continuation with its strong performance through Q3, VeriSign (NASDAQ: VRSN) delivered another solid Q4. The company reported steady growth in revenue, driven by growth in domain name registrations and improved renewal rates compared to the previous year, a trend which we expect to continue into 2019. Further, its renewed .net agreement until 2023 should further aid growth in domain name registrations – as more companies rely on growing their businesses digitally. In addition, the Neustar agreement provides a decent medium-term opportunity for VeriSign. The deal should not only help the company streamline its operations and focus on its core business, but also present ample opportunity to invest in its internet naming and related services. This deal, coupled with the company’s leading position in the highly regulated domain industry, should drive its value in the near term. However, we expect the sale of these customer contracts to slightly dampen its 2019 outlook. Below we take a look at what to expect from the company in 2019.
We have a price estimate of $160 per share for the company, which is lower than its current market price. We are in the process of updating our model based on the Q4 results. View our interactive dashboard – what to expect from VeriSign in 2019 – and modify the key drivers such as revenue and margins to gauge the impact on the company’s valuation.
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VeriSign controls the exclusive rights to the registry of .com and .net Internet domain names. The company’s domain name registration grew by just under 5% in 2018 as a result of improved adoption of the internet and increased e-commerce activity. Further, the renewed .net Registry Agreement with ICANN makes VeriSign the sole registry operator for the .net registry through June 30, 2023, with a contractual right to increase pricing by 10% annually. Additionally, it also entered an agreement with the U.S. Department of Commerce (DOC), which allows VeriSign to agree with ICAAN to increase wholesale prices for .com domain names by up to 7% in each of the last four years of each six-year period of the .com Registry agreement. Consequently, the company is expected to witness a rise in its domain name registrations driven by a strong internet adoption rate, global economic growth, e-commerce activity, and registrar go-to-market strategies. Further, as more and more companies depend on digitally growing their business, we expect the pricing flexibility to provide a boost. In addition, its deal with NeuStar for the sale of its customer contracts related to its Security Services business should allow VeriSign to focus on its core business and reinvest the additional cash flows into its business. Owing to the above factors, we expect 4% revenue growth for full-year 2018 to $1.2 billion, driven by 3% growth in domain registrations and 1% growth in average price per domain.
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