VeriSign Growth Trajectory Remains Strong: Time to Hold? - Analyst Blog
We updated our research report on VeriSign Inc. VRSN on Jun 24, 2015.
We believe that gTLD prospects, international expansion through IDNs and investments in intellectual properties will boost results over the long run. Additionally, VeriSign has significant growth opportunities in its network security products.
The renewal of the .com contract and price hikes for the .com and .net domain names drive VeriSign’s top line. VeriSign increased .net fees to $6.79 from $6.18, from Feb 1, 2015 onward, which is expected to be accretive to its long-term revenues. In addition, an expected increase in the domain name base will remain a key driver of its growth.
The introduction of new gTLDs is an adjacent growth opportunity. The company is in talks with ICANN for registering 14 new gTLD applications including 12 IDNs, which will expand the company’s business significantly. The company has already won registries for .comsec and 11 IDN TLDs, out of which 8 are transliterations of .com and 3 of .net. Additionally, international expansion through IDNs will increase Verisign’s penetration into the growing APAC markets. We believe that along with price increases this will aid results over the long term.
However, under the agreement with ICANN, VeriSign is subject to certain restrictions in the operation of .com, .net and .name domains on pricing, bundling and use of registrars. However, these restrictions do not apply to ccTLDs. The introduction of new IDN TLDs and gTLDs by ICANN will further intensify competition. An increase in domain name availability in the marketplace while introducing new choices for end-users could also contribute to their confusion around brand preference, which, in turn, could have an adverse effect on the company’s business.
However, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to marketing remain the primary headwinds in the near term. Moreover, intensifying competition in the NIA segment is a major concern.
VeriSign currently has a Zacks Rank #3 (Hold).
Better-ranked stocks in the technology sector include Attunity, Ltd. ATTU and AVG Technologies N.V. AVG, with both sporting a Zacks Rank #1 (Strong Buy) and Blue Nile Inc. NILE with a Zacks Rank #2 (Buy).
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