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Verisign is a global provider of domain name registry services and internet infrastructure, enabling internet navigation across the globe. Although the company is a part of the IT industry, its unique business model separates Verisign from other companies in the industry.2019 has been an exceptional year for Verisign with its stock gaining almost 50% from the beginning of the year even in the absence of clear catalysts.
In this dashboard, Trefis analyzes why Verisign stock has outperformed the market and how it is likely to trend in the near future.
Will New Domain Name Registrations Drive Verisign’s Growth in Q1?
All Internet & Software Services Data
1. Verisign has achieved steady revenue growth over recent quarters
Change in Verisign Revenues (Y-o-Y)
Verisign has seen a steady growth in revenues over the last five quarters, increasing from less than $300 million in Q1 2018 to more than $306 million in Q1 2019. Higher revenue has been mainly driven by an increase in the domain name base for .com and the increase in the .net domain name registration fees. It should be noted that VeriSign owns exclusive rights to the registry of .com and .net Internet domain names.
Verisign entered into Amendment 35 to the Cooperative Agreement late last year, allowing it to engage with ICANN to amend the COM Agreement and to raise .com registration and renewal prices 7% in the latter four years of each six-year period. This is helping the company charge a higher price for its products and, in turn, aiding its margins growth.This monopolistic quality inherent in the domain registration process has allowed Verisign to see an expansion in its revenues and profitability.
2. At The Same Time, Verisign's Operating Expenses Have Fallen Steadily
Total Operating Expenses
Change in Verisign Operating Expenses (Y-o-Y)
Verisign's total operating expenses have trended lower over the recent quarter, declining from $119 milion in Q4 2017 to about $113 million in Q4 2018. This metric declined by 7% year-over-year to $106 million in Q1 2019 primarily driven by lower sales and marketing expenses.
3. Lower Operating Expenses Coupled With Strong Revenue Growth Have Provided A Boost To The Company's Bottom Line
*Figure for Q4 2018 was unusually high due to gains from the sale of Verisign's Security Services Business
Net Income [ A x B ]
Net income margin [A]
Revenue = [ B ]
3.1 Higher net income has nudged Verisign's EPS figure higher over recent quarters
Net Income [A]
Number of Shares [ B ]
Verisign's net margin has increased from 44% in Q1 2018 to more than 53% in Q1 2019 driven by a combination of strong revenue growth and lower operating expenses.
This has helped Verisign's EPS increase from $1.09 in Q1 2018 to about $1.35 in Q1 2019. The figure was unusually high in Q4 2018 due to one-time gains from the sale of a unit.
4. What Is The Outlook for Verisign's Revenues and Profits In 2019?
4.3 Estimating Verisign's Total Operating Profit
EBT Margin = [ C / A]
Earnings Before Tax C = [ A - B ]
Verisign Revenues [ A ]
Total Expenses [ B ]
Strong revenue growth coupled with a decline in operating expenses has helped Verisign's operating profit expand from 46% in 2015 to almost 60% in 2018.
Verisign’s operating expenses have trended lower in recent times led by lower sales and marketing expenses.
Moreover, the company sold off all its customer contracts related to its Security Services business to Neustar. This should also help the expenses to go down in the near future.
Strong revenue growth coupled with improving operating leverage should help Verisign’s operating margin cross 64% in 2019.
5. Estimating Verisign's Fair Value
5.1. Estimating VeriSign EPS
Based on our forecast, Verisign’s adjusted EPS for full-year 2019 is likely to be around $5.36.
Diluted EPS [ A / B ]
Non-GAAP Net Income [ A ]
Number of Shares [ B ]
5.2 Estimating Verisign's Share Price
Verisign stock is valued at about 32x its projected 2019 earnings per share.
Price Estimate = [ A x B ]