Verisign Stock Up 10% This Year- The Best Still To Come?

by Trefis Team
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VRSN
VeriSign
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Verisign stock (NASDAQ: VRSN) had seen a significant drop this year – dropping by about 21%, from $192 at the end of 2019 to close to $151 on 23rd March 2020, as growing fears around the coronavirus outbreak triggered a sell-off across global equity markets. But with the US government announcing a string of measures to keep businesses afloat, investor sentiment improved over recent weeks – helping VRSN stock to recover almost 40% in the last two and a half months to reach $210 as the market opened on 5th June 2020. Though the current stock price is still close to 10% higher than the level at the beginning of the year, we believe that VRSN stock could see further upside even though the world still awaits the sign of abatement of the pandemic. Our dashboard What Factors Drove 83.7% Change In Verisign Stock Between 2017 And Now? provides the key numbers behind our thinking.

Verisign’s stock price has increased between 2017 and 2019 from $114 to $192. The stock price increase between 2017 and 2019 was primarily driven by 6% growth in revenue, which was further accentuated by a 27% rise in profitability. The net income margin increased from 39.2% in 2017 to 49.7% in 2019. The sharp rise in profits since 2017 was due to reduction in cost of sales and S&M expenses, primarily from a focus on cost efficiencies and the impact of cost savings initiatives, which has driven the stock price higher. This led to a steady rise in EPS from $4.56 per share in 2017 to $5.17 in 2019.

The P/E multiple too, rose from 25.1x in 2017 to 37.3x in 2019 due to the sharp rise in profitability. Further, the P/E ratio rose in 2020 and stands at almost 41x currently. This rise in 2020 despite the impact of coronavirus, has been explained below.

Effect of Coronavirus

With almost all major cities being locked down due to the spread of coronavirus, there has been a slowdown in economic and industrial activity. However, VRSN stock is roughly unchanged since January 31 after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. Also, during the same period, the S&P 500 index saw a decline of only about 3.5%. The ongoing lock down of major cities and economic slowdown should aid the company’s web domain business, with an expected surge in new online businesses and blogging sites. The domain name business makes up 100% of the company’s revenues. Thus, the lockdown is having a somewhat positive impact on the entire business of Verisign.

VRSN Q1 2020 saw a 2% rise in revenues while profit more than doubled year-on-year. This was mainly due to rising domain registrations, and a further drop in operating expenses. Also, net income was mainly aided by a one-time tax benefit of around $143 million, as compared to $28 million that VRSN paid in taxes for the same period last year. Regardless, Q1 only saw a partial impact of the current crisis. Verisign’s Q2 results will likely reflect the impact of the situation on the company’s profitability, with revenues expected to see a further rise. Even if there are no signs of containment of the virus by the end of June 2020, we believe VRSN is a comparatively safe bet, as it it one of those companies whose revenues could benefit from the current situation. This reflects in VRSN stock price, which has already crossed its January 31 peak, and we believe in the near term it could hover around the early-$200 levels.

For more insights into how Covid-19 could benefit Verisign’s peer Akamai’s business, view our interactive dashboard Akamai Revenues: How Does AKAM Make Money?.

Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here

 

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