VeriSign (NASDAQ:VRSN) Misses Q3 Revenue Estimates
Domain name registry operator Verisign (NASDAQ:VRSN) fell short of analysts' expectations in Q3 FY2023, with revenue up 5.44% year on year to $376.3 million. Turning to EPS, VeriSign made a GAAP profit of $1.83 per share, improving from its profit of $1.58 per share in the same quarter last year.
Is now the time to buy VeriSign? Find out by accessing our full research report, it's free.
VeriSign (VRSN) Q3 FY2023 Highlights:
Revenue: $376.3 million vs analyst estimates of $379.2 million (0.75% miss)
EPS: $1.83 vs analyst estimates of $1.81 (1.23% beat)
Free Cash Flow of $216.7 million, up 56.1% from the previous quarter
Gross Margin (GAAP): 87.1%, up from 86% in the same quarter last year
“We remain focused on our long-term strategy of value creation and return to shareholders through responsible expense management and efficient capital allocation, which has produced another solid quarter,” said Jim Bidzos, Executive Chairman and Chief Executive Officer.
While the company is not a domain registrar and does not directly sell domain names to end users, Verisign (NASDAQ:VRSN) operates and maintains the infrastructure to support domain names such as .com and .net.
E-commerce Software
While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales Growth
As you can see below, VeriSign's revenue growth has been unimpressive over the last two years, growing from $334.3 million in Q3 FY2021 to $376.3 million this quarter.
VeriSign's quarterly revenue was only up 5.44% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $4.3 million in Q3 compared to $7.6 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Looking ahead, analysts covering the company were expecting sales to grow 7.58% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. VeriSign's free cash flow came in at $216.7 million in Q3, down 15.1% year on year.
VeriSign has generated $818 million in free cash flow over the last 12 months, an eye-popping 55.3% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.
Key Takeaways from VeriSign's Q3 Results
With a market capitalization of $21.3 billion, a $943.5 million cash balance, and positive free cash flow over the last 12 months, we're confident that VeriSign has the resources needed to pursue a high-growth business strategy.
Nothing was overly surprising about this quarter. Revenue missed by a bit, operating income beat by a bit, and EPS beat by a bit. The company did not provide forward guidance. If nothing else, things are on track. The stock is flat after reporting and currently trades at $204.53 per share.
VeriSign may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
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The author has no position in any of the stocks mentioned in this report.
