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VeriSign (VRSN) Earnings & Revenues Increase Y/Y in Q2

Zacks Equity Research

VeriSign Inc. VRSN, a global provider of domain name registry services, recently reported second-quarter 2016 adjusted earnings of 87 cents a share, up from 69 cents reported in the year-ago quarter.

The company reported non-GAAP earnings of 91 cents per share compared with 74 cents in the year-ago quarter.

Revenues increased 9.1% year over year to $286.5 million, easily surpassing the Zacks Consensus Estimate of $283.9 million.

As per the ICANN agreement, VeriSign increased annual fee for a .net domain name registration from $7.46 to $8.20, which will be in effect from Feb. 1, 2017.

In the quarter, VeriSign Registry Services added 0.78 million net new names. Domain names in the zone for .com and .net together grew 7.3% year over year in the reported quarter to 143.2 million. VeriSign processed 8.6 million new domain name registrations for .com and .net, a slight decrease from 8.7 million processed in the year-ago quarter.

VeriSign’s renewal rate for the last quarter was 74.4%, up 100 basis points (bps) year over year. For the reported quarter, the exact renewal rate figures will be available after 45 days from Jun 30, 2016. However, the company estimates it to be 73.7% compared with 72.7% in the year-ago quarter.

VERISIGN INC Price, Consensus and EPS Surprise

VERISIGN INC Price, Consensus and EPS Surprise | VERISIGN INC Quote

Margins

VeriSign reported non-GAAP operating income of $187.4 million, up from $161 million in the prior-year quarter. The company’s non-GAAP operating margin was 65.4% in the quarter, up from 61.3% in the prior-year quarter.

Non-GAAP adjusted EBITDA was $202.8 million compared with $178.3 million in the year-ago quarter.  

Other Financial Details

Exiting the quarter, the company’s cash and cash equivalents (including marketable securities) were nearly 1.906 billion compared with $1.915 billion at the end of 2015.

Operating cash flow in the first half of the year was approximately $304.3 million, down 1.1% year over year.

VeriSign repurchased approximately $150 million worth of shares in the quarter. As of Jun 30, 2016, the company had $766 million available under its current share repurchase program.

Our Take

VeriSign is a name to reckon with in the highly regulated .com and .net domain industry. The renewal of the .com contract and price hikes for the .com and .net domain names will continue to drive VeriSign’s topline. Also, 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 the Distributed Denial of Service (DDoS) security market.

VeriSign also has significant growth opportunities in the network security products space. Plus, VeriSign and ICANN have reportedly finalized the proposed new root zone maintainer agreement and the extension of the .com Registry agreement and reportedly could submit it to the DoC for approval in August.

However, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to marketing remain primary near-term headwinds.

Currently, VeriSign has a Zacks Rank #3 (Hold). Better-ranked stocks in the tech space include Facebook Inc FB, pdvWireless, Inc. PDVW and Ellie Mae, Inc ELLI. Facebook sports a Zacsk Rank #1 (Strong Buy) while the other two carry a Zacks Rank #2 (Buy).

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