Cautious Outlook Will Shape Domain Momentum And Share Buybacks Ahead

Key Takeaways

• Improving domain registration trends and successful marketing strategies may drive future revenue growth.
  
• Pursuing .web registry operations could enhance revenue potential, contingent on overcoming regulatory hurdles.
  
• VeriSign's financial stability and strategic initiatives, including dividends, buybacks, and effective refinancing, position it for positive revenue growth and investor confidence.

Catalysts

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

• VeriSign is experiencing sequentially improving trends in domain name registrations, with new registrations and renewal rates increasing, potentially boosting revenue growth in the coming quarters.
  
• The company is implementing new marketing programs which are showing early signs of success in increasing domain registrations, possibly enhancing revenue streams as these programs gain traction.
  
• Initiating and maintaining a quarterly cash dividend could lead to a perception of stability and maturity in the company’s financial practices, potentially impacting net income stability by distributing more predictable returns to shareholders.
  
• Improved domain base trends, notably in key geographical areas such as the U.S., EMEA, and Asia Pacific, suggest potential for future revenue growth if these trends continue and expand.
  
• VeriSign's intention to become the registry operator for .web could open a new revenue avenue if regulatory and legal challenges are overcome, possibly impacting overall earnings positively in the long run.

VeriSign Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VeriSign's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 50.0% today to 53.0% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $12.19) by about September 2028, up from $799.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.3x on those 2028 earnings, down from 33.4x today. This future PE is greater than the current PE for the US IT industry at 29.0x.
• Analysts expect the number of shares outstanding to decline by 2.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

VeriSign Future Earnings Per Share Growth

Risks

• VeriSign's strong start to the year, with a solid increase in the domain name base, suggests positive trends and an increase in new registrations and renewal rates, potentially supporting revenue growth.
  
• The company's decision to introduce a cash dividend reflects confidence in its financial stability and strength, which could enhance investor appeal and support earnings stability.
  
• The company's marketing programs and registrar engagement initiatives are showing promising results, potentially leading to increased customer acquisition and impacting revenue positively.
  
• The issuance of new senior notes to refinance maturing ones at the same interest rate indicates effective cash management and financial stability, which supports net income and profitability.
  
• The company's strategic return of excess cash to shareholders through dividends and buybacks demonstrates confidence in sustained cash flows and earnings growth.
  

Valuation

• The analysts have a consensus price target of $309.0 for VeriSign based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $340.0, and the most bearish reporting a price target of just $250.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 9.0%.
• Given the current share price of $285.71, the analyst price target of $309.0 is 7.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.