Digital Transformation Will Fuel Global Domain Expansion

Key Takeaways

• Accelerating growth in global domain registrations and renewal rates, especially in Asia-Pacific and emerging markets, signals upside potential for revenue and customer acquisition.
  
• Exclusive registry agreements, robust infrastructure, and rising demand for secure digital services position VeriSign for durable earnings growth and expanded pricing power.
  
• Heavy dependence on core legacy contracts and limited diversification make VeriSign vulnerable to regulatory, competitive, and technological disruptions impacting sustained growth and profitability.

Catalysts

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

• While analyst consensus views sequential improvement in domain registrations and renewal rates as driving modest revenue growth, the broad-based acceleration across all global regions, especially outsized strength in Asia-Pacific, points to a re-acceleration of top-line growth beyond current forecasts, with substantial upside if emerging market momentum persists.
  
• Analysts broadly agree that new marketing programs have begun to lift domain volumes, but the increasing diversification and engagement of the registrar channel plus continuous data-driven optimization signal these marketing efforts could unlock a multi-year step change in customer acquisition, directly supporting sustained higher revenue and margin expansion.
  
• The renewal of VeriSign's exclusive .com and .net registry agreements for another six years entrenches its de facto monopoly and ensures exceptional earnings visibility, while ongoing global digital transformation and regulatory demand for trusted infrastructure set the stage for durable, compounding free cash flow and net income growth over the long term.
  
• The accelerating migration of critical services and content online-amplified by trends like AI-generated web content and Internet of Things adoption-will fuel exponential growth in new domain needs, directly driving a prolonged upcycle in domain base expansion and reinforcing VeriSign's core recurring revenue model.
  
• Continued investments in infrastructure reliability, nearly three decades of 100% uptime, and rising cyberthreat sophistication increase the premium on secure DNS services, positioning VeriSign not merely as an indispensable utility but as a critical gatekeeper, with significant future pricing power and margin leverage as digital trust becomes even more central to the global Internet ecosystem.

VeriSign Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on VeriSign compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming VeriSign's revenue will grow by 6.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 50.0% today to 52.6% in 3 years time.
• The bullish analysts expect earnings to reach $1.0 billion (and earnings per share of $12.13) by about August 2028, up from $799.5 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 bullish analyst cohort, the company would need to trade at a PE ratio of 35.1x on those 2028 earnings, up from 32.0x today. This future PE is greater than the current PE for the US IT industry at 27.7x.
• Analysts expect the number of shares outstanding to decline by 4.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.03%, as per the Simply Wall St company report.

VeriSign Future Earnings Per Share Growth

Risks

• Overreliance on the .com and .net domain registry contracts, which make up the majority of revenue, leaves VeriSign highly exposed to risks of non-renewal or unfavorable renegotiation with ICANN or the U.S. Department of Commerce, potentially threatening both future revenue growth and profit margins.
  
• Growing competition from new generic top-level domains (gTLDs) and alternative naming systems, such as blockchain-based domains or wallet-based web identities, could diminish demand for VeriSign's legacy extensions, negatively impacting long-term sales volumes and overall market share, thus pressuring top-line revenue.
  
• Minimal diversification outside of core registry services means that any stagnation or disruption in domain name registrations-whether from changes in consumer web behavior, technology innovation, or shifting digital identity trends-could lead to a material decline in earnings and cash flows.
  
• Rising global regulatory scrutiny and potential antitrust actions against dominant internet infrastructure providers could jeopardize VeriSign's exclusive operating agreements or restrict contractual pricing power, posing risks to both revenue stability and net profitability.
  
• The accelerating frequency and sophistication of cyber threats require increasing investments in security and infrastructure, which could raise operating expenses at a faster rate than revenue growth and erode net margins over time.

Valuation

• The assumed bullish price target for VeriSign is $340.0, which is the highest 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 bullish end of the spectrum.
  
• 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 bullish analysts, 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 35.1x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $273.99, the bullish analyst price target of $340.0 is 19.4% 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.