Will New Domain Name Registrations Drive Verisign’s Growth in Q1?

Verisign (NASDAQ: VRSN) is scheduled to announce its first quarter results on Thursday, April 25. The company continues to see strong growth, and now has approximately 153.0 million .com and .net registrations in the domain name base driven by continued growth in online advertising, e-commerce, and the number of internet users. This note details Trefis’ forecasts for Verisign, as well as some of the key trends we will be watching when the company reports earnings.

How have Verisign’s revenues changed over recent quarters, and what’s the forecast for Q1 2019?

• Total Revenues for Verisign have largely trended higher over recent quarters. Revenues grew from $299 million in Q1 2018 to $308 million in Q4 2018.
• The growth can primarily be attributed to surge in domain name registrations and improved renewal rates.
• We forecast the revenues to grow to $303 million in Q1 2019 (+1.2% y-o-y) as a result of the increased volume of domain registrations and continued growth in the domain name base.

How have Verisign’s total expenses changed over recent quarters, and what’s the forecast for Q1 2019?

• Total operating expenses for have remained fairly stable around $112 million over the last 8 quarters, with the exception of Q4 2017, when the operating expenses were relatively high ($119 million) due to a surge to in sales and marketing expense.
• We forecast the operating expenses to decline by 5.6% (y-o-y) primarily due to decrease in advertising and marketing expenses.

Which are the key factors to watch out for in Verisign’s Q1 results?

Increasing Domain Name Registrations

• During 2018, Verisign processed 38.2 million new domain name registrations for .com and .net, which represents an increase of 4% increase compared to 2017. We expect this increasing trend to continue in Q1 2019.
• Domain name growth will likely be driven by continued internet growth and marketing activities carried out by Verisign and its registrars.
• Moreover, improving renewal rates for .com domain names will further aid top-line growth for Verisign.

Improving Profitability

• EBT surged by 31% (q-o-q) to $234 million in Q4 2018 primarily due to one-time pre-tax gain of $55 million recognized on the sale of Verisign Security Services customer contracts.
• Verisign’s pre-tax profit has largely trended upwards over the recent quarters and we expect this increasing trend to continue.
• We forecast EBT to increase by 23.7% (y-o-y) to $189 million driven by increase in revenues and lower sales and marketing expenses.

What will be the impact of the above on VRSN’s EPS?

• We expect the earnings to be $1.26 per share on an adjusted basis in Q1. This reflects a 15.6% growth to prior year quarter.
• The growth in earnings will likely be due to higher revenues and improved margins.

We currently have a price estimate of $171 per share for VRSN, which is approximately 10% behind the current market price. We have summarized our quarterly and full year expectations for VRSN based on the company’s guidance and our own estimates, on our interactive dashboard  What Has Driven Verisign’s Revenues & Expenses Over Recent Quarters, And What’s the forecast for Q1? You can modify any of our key drivers to gauge the impact changes would have on its valuation, and see all Internet & Software Services Data here.