Innovative Marketing And Tactical Focus Promise A Bright Future For Domain Growth

Key Takeaways

• Strategic registrar initiatives and possible .com pricing adjustments could enhance future revenue and domain ecosystem health.
  
• Share repurchases signal potential EPS growth, while China market engagement aims for increased domain registrations and revenue.
  
• Challenges in domain name growth, regulatory pressures, and uncertainties in .com agreements may negatively impact VeriSign's revenue and financial stability.

Catalysts

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

• VeriSign is actively piloting new registrar marketing programs aimed at supporting the return to domain name base growth. Many registrars are expected to engage more fully with these programs in 2025, potentially enhancing revenue growth.
  
• Discussions with the NTIA regarding the .com pricing indicate potential mutually agreed solutions, which could positively affect the health of the .com ecosystem and possibly lead to higher pricing and revenue in the future.
  
• Despite a current decline, VeriSign is working on strategies like refocusing registrars towards higher renewal rate cohorts, which may enhance renewal rates in the future, positively impacting revenue and net margins.
  
• Continued share repurchase activities, with $1.28 billion remaining authorized under the program, indicate potential for EPS growth as stock buybacks typically boost earnings per share by reducing the number of outstanding shares.
  
• Efforts to engage the China market with new programs, if successful, could lead to increased domain name registrations, contributing to future revenue growth as the economic environment rebounds.

VeriSign Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VeriSign's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 55.7% today to 50.8% in 3 years time.
• Analysts expect earnings to reach $858.0 million (and earnings per share of $9.65) by about October 2027, down from $858.9 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 25.4x on those 2027 earnings, up from 20.0x today. This future PE is lower than the current PE for the US IT industry at 41.8x.
• Analysts expect the number of shares outstanding to decline by 2.55% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

VeriSign Future Earnings Per Share Growth

Risks

• A decrease in the domain name base by 1.1 million names year-over-year, reflecting challenges in customer acquisition and retention, which could negatively impact revenue growth.
  
• Ongoing weakness in China-related registrations, coupled with increased regulations, presents a risk to revenue growth from this significant market.
  
• U.S. registrars' focus on maximizing ARPU through higher pricing and reduced marketing for new customer acquisition may limit growth in new registrations and could adversely affect revenue.
  
• Delay in the adoption and integration of new registrar marketing programs, potentially pushing domain name base growth further into 2025, posing risks to revenue targets.
  
• Uncertainty surrounding the .com Registry Agreement renewal and discussions with the NTIA regarding .com pricing could impact revenue and financial predictability.

Valuation

• The analysts have a consensus price target of $201.05 for VeriSign based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.7 billion, earnings will come to $858.0 million, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $178.77, the analyst's price target of $201.05 is 11.1% higher.
  
• 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.