Thinking Of Buying Verisign Stock? Check Out Akamai Instead

VRSN: Verisign CA logo
Verisign CA

The stock price for Akamai (NASDAQ: AKAM) is up roughly 66% since the beginning of 2018. In comparison, Verisign (NASDAQ: VRSN) has seen its stock grow by 82% during the same period, 1.2x the growth in Akamai’s stock. This difference in the stock price growth makes no sense when we look at the revenue growth for Akamai since 2017, which came in at 20%, 4x higher than the 5% growth in Verisign’s revenues.

Further, Akamai’s net margins jumped almost 2x over the same period, from 8.9% in 2017 to 16.5% in 2019. In comparison, Verisign saw its margins rise from 39.2% in 2017 to 49.7% in 2019. Verisign’s net margins of 50% make it a safer bet, but with 4x faster revenue and margins growth, we believe Akamai is a better investment at the moment compared to Verisign, as investors seek to ride the rally in technology stocks in the current Covid-19 crisis. Our dashboard, Akamai Sees 4x Higher Margin And Revenue Growth Than Verisign- But Verisign Stock Grows 1.2x Faster, has the underlying numbers.

Akamai Has Witnessed Strong Revenue and Margin Growth And Stands To Benefit More Than Verisign From The Current Crisis

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Let’s look at both companies a little more closely. Verisign is a web domain provider, whose revenue has seen slow but steady growth, rising from $1.17 billion in 2017 to $1.23 billion in 2019. Furthermore, the company saw its net margins grow from 39.2% in 2017 to 49.7% in 2019, owing to a gradual drop in cost of sales and operating expenses. Also, Verisign reported strong numbers for Q1 ’20 in late April, with revenue coming in at $312 million vs $306 million in Q1 ’19, and a slight improvement in operating margins.

Akamai is a web hosting company, providing a worldwide network of servers to help its clients deliver Internet content faster to their end users. Akamai’s revenue grew 1.2x between FY’17 and FY’19. Further, revenue rose in Q1 ’20, coming in at $764 million vs $706 million, up 8% Y-o-Y. Net income too, came in at $123 million vs $107 million for the same period last year. This growth is expected to continue further, as demand for Akamai’s server business has been rising over the past few months as more and more businesses and companies move online.

While both companies stand to benefit from the current crisis, we believe Akamai’s business looks quite attractive compared to Verisign, especially at current valuations. With Akamai trading at a P/E multiple of 37x vs 40x for Verisign, Akamai’s strong revenue and margin growth make it a better bet.

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