Revitalizing Domain Registrations And Enhancing Shareholder Value Through Innovative Marketing And Decisive Buybacks

Key Takeaways

• Initiatives to boost domain name registrations aim to counter declining trends and rejuvenate growth, potentially increasing revenue from these activities.
  
• Strengthening financial stability and investor attractiveness through an expanded share repurchase program and a solid balance sheet, underpinning operational flexibility and future growth opportunities.
  
• Diminishing domain name base and customer retention, alongside regional weaknesses and uncertain new marketing strategies, may negatively affect future revenue and earnings.

Catalysts

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

• : VeriSign has rolled out new marketing programs aimed at supporting registrar entities, encouraging growth in new registrations. These initiatives are designed to counteract the declining trend in domain name registrations by providing marketing support, aiming to rejuvenate growth in the latter half of 2025. This could lead to increased revenue from registration activities if these programs succeed in boosting domain name registrations.
  
• : The company has increased the authorized amount for its share repurchase program by $1.11 billion, bringing the total authorized amount to $1.5 billion. This buyback program, by potentially reducing the number of shares outstanding, can lead to an increase in earnings per share (EPS), making the stock more attractive to investors and potentially undervalued at its current price.
  
• : VeriSign's continued demonstration of a stable financial and liquidity position, highlighted by $690 million in cash, cash equivalents, and marketable securities, provides the company with a solid foundation to invest in growth opportunities, manage operational challenges, or return more value to shareholders. A strong balance sheet can contribute to operational flexibility and financial stability, impacting net margins positively.
  
• : Despite a decrease in the domain name base in the second quarter, VeriSign's proactive steps towards returning to domain name base growth by the second half of 2025, through new registrar marketing programs, could signal potential for future revenue growth. The ability to stabilize and then grow the domain name base is critical for long-term revenue sustainability and could positively affect earnings.
  
• : VeriSign's achievement of 27 years of 100% uninterrupted availability for the .com/.net domain name resolution system underpins its strong operational competency and reliability as a critical Internet infrastructure provider. This unparalleled operational track record not only reinforces its competitive moat but also supports its long-term contractual relationships and pricing power, which are essential for sustained earnings growth.

Assumptions

• Analysts are assuming VeriSign's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 55.4% today to 50.6% in 3 years time.
• Analysts expect earnings to reach $854.7 million (and earnings per share of $9.51) by about August 2027, up from $846.1 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 23.9x on those 2027 earnings, up from 20.2x today. This future PE is lower than the current PE for the US IT industry at 28.3x.
• Analysts expect the number of shares outstanding to decline by 5.37% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Risks

• The domain name base decrease of 1.8 million names in the second quarter reflects declining growth, potentially leading to decreased revenue projections if the trend continues.
  
• Lower new registration rates and a decrease in renewal rates from 73.4% to 72.6% indicate diminishing customer retention and acquisition, potentially impacting future revenue growth.
  
• Focused efforts on ARPU (Average Revenue Per User) over customer acquisition by U.S. registrars, leading to reduced marketing spending, may lead to further declines in both new registrations and renewals, affecting revenue.
  
• The ongoing impact of China-related weakness and a sequential decline attributed mostly to this region could persist, thereby negatively impacting international revenue streams.
  
• The introduction of new registrar marketing programs aims to support growth in domain name base, but if these initiatives fail to perform as expected, it could lead to insufficient growth or further decline in the domain name base, adversely affecting future earnings.

Valuation

• The analysts have a consensus price target of $203.22 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 $854.7 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $175.22, the analyst's price target of $203.22 is 13.8% 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.