Macroeconomic Uncertainties Will Pressure Pricing While Domain Momentum Lifts Outlook

Key Takeaways

• Macroeconomic uncertainties and limited pricing power may hinder revenue growth and customer acquisition.
  
• Dividends suggest confidence but may limit resources for buybacks or reinvestment, affecting long-term earnings.
  
• Strong demand for domain registrations and increased renewal rates suggest robust revenue growth and positive impact on earnings and shareholder returns.

Catalysts

Provides internet infrastructure and domain name registry services that enables internet navigation for various recognized domain names worldwide.

• VeriSign's growth prospects might be impacted by the current macroeconomic uncertainties, which could dampen registrar activities and new customer acquisitions, potentially affecting future revenues.
  
• The reduction in .net price increases could indicate limited pricing power, constraining revenue growth opportunities in future fiscal periods.
  
• Despite the introduction of marketing programs, it appears that the positive impacts might be limited to early adopters, leading to constrained improvement in new registrations and thus potentially capping revenue growth.
  
• The expected renewal rate increase, while positive, might not be sufficient to offset macroeconomic headwinds, affecting net revenue stability.
  
• The initiation of regular quarterly dividends, while showcasing confidence, could imply fewer funds available for buybacks or reinvestment, possibly pressuring longer-term earnings growth.

VeriSign Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on VeriSign compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming VeriSign's revenue will grow by 6.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 50.2% today to 50.9% in 3 years time.
• The bearish analysts expect earnings to reach $953.9 million (and earnings per share of $11.28) by about July 2028, up from $790.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, down from 34.4x today. This future PE is lower than the current PE for the US IT industry at 27.6x.
• Analysts expect the number of shares outstanding to decline by 3.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

VeriSign Future Earnings Per Share Growth

Risks

• VeriSign's domain name base increased by 777,000 from the end of 2024 to March 2025, with new registrations rising from 9.5 million in the previous quarter to 10.1 million, indicating a potential strong demand that contributes positively to revenue growth.
  
• The company reported a significant renewal rate increase, expected to be 75.3% compared to 74.1% a year ago, which could lead to increased recurring revenue and positively impact expected net income.
  
• VeriSign expanded its dividend policy, now including regular cash dividends in addition to share repurchases, suggesting a strong cash flow that supports both shareholder returns and potential earnings growth.
  
• The company's revenue guidance for 2025 was raised to between $1.635 billion and $1.650 billion, based on positive trends observed in the first quarter, indicating confidence in sales growth and impacting overall revenue positively.
  
• There is an upward revision in revenue expectations, driven by stronger-than-anticipated new registrations and renewals, which may improve earnings and net margins if these trends continue throughout the year.

Valuation

• The assumed bearish price target for VeriSign is $217.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of VeriSign's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $330.0, and the most bearish reporting a price target of just $217.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $953.9 million, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 8.3%.
• Given the current share price of $289.36, the bearish analyst price target of $217.0 is 33.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.