Marketing Programs Will Reengage Registrars And Stabilize Domain Name Base

Key Takeaways

• Enhanced marketing strategies and operational efficiency are expected to stabilize domain growth and revenue, despite challenges from reduced volumes in China.
  
• Share repurchases and cost management efforts are likely to drive EPS growth and improve net margins moving forward.
  
• Declines in domain registrations and market challenges in China and the U.S. may pressure revenue and profitability, increasing financial strain on net margins and shareholder value.

Catalysts

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

• VeriSign's marketing programs aimed at reengaging registrars and promoting new customer acquisition are expected to support domain name base growth, potentially increasing revenue over time.
  
• The reduction in China-based registrar domain volume is anticipated to have a diminishing impact, which could stabilize the domain name base, positively affecting revenue predictability.
  
• Ongoing share repurchase programs, with $1 billion remaining authorized and no expiration date, are likely to continue reducing shares outstanding, which could drive earnings per share (EPS) growth.
  
• Operating income is projected to increase in 2025, as the company maintains a focus on operational efficiency and cost management, potentially improving net margins.
  
• Adoption of more flexible marketing strategies by registrars may enhance renewal rates and high-quality registration cohorts, potentially stabilizing and boosting revenue streams over the long term.

VeriSign Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VeriSign's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 50.4% today to 50.3% in 3 years time.
• Analysts expect earnings to reach $899.0 million (and earnings per share of $10.07) by about March 2028, up from $785.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.1x on those 2028 earnings, down from 29.0x today. This future PE is lower than the current PE for the US IT industry at 43.7x.
• Analysts expect the number of shares outstanding to decline by 5.02% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

VeriSign Future Earnings Per Share Growth

Risks

• The domain name base in .com and .net experienced a decrease of 2.1% year-over-year, with a continuous decline expected in 2025, which could negatively impact revenue growth.
  
• The decline in the China registrar segment, although reduced, is expected to persist, potentially affecting revenue from a significant market.
  
• U.S. registrars are prioritizing ARPU over customer acquisition, leading to decreased marketing spend and potentially impacting new registrations and renewal rates, which could affect future earnings.
  
• Fourth-quarter operating expenses increased due to prior quarter spending delays, indicating potential challenges in managing costs that could pressurize net margins.
  
• Diluted earnings per share decreased significantly from the previous year, reflecting a potential risk to overall profitability and shareholder value.

Valuation

• The analysts have a consensus price target of $230.278 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 $260.0, and the most bearish reporting a price target of just $196.11.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $899.0 million, and it would be trading on a PE ratio of 26.1x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $240.47, the analyst price target of $230.28 is 4.4% lower. 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.