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Why Is VeriSign (VRSN) Up 2.7% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for VeriSign (VRSN). Shares have added about 2.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is VeriSign due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

VeriSign Beat Q4 Earnings Estimates, Revenues Up Y/Y

VeriSign reported fourth-quarter 2018 non-GAAP earnings of $1.58 that surged 64.6% from the year-ago quarter. The figure crushed the Zacks Consensus Estimate by 37 cents.

On Dec 5, 2018, the company completed the previously announced sale of the rights, economic benefits, and obligations, in all customer contracts related to its Security Services business to NeuStar. The sale resulted in a pre-tax, non-operating gain of $54.8 million, which, for fourth-quarter 2018, increased non-GAAP net income by $42.8 million. The gain increased non-GAAP earnings by 36 cents.

Revenues increased 4.1% year over year to $307.5 million but lagged the consensus mark of $308 million.

Quarter Details

On Oct 26, 2018, VeriSign and the U.S. Department of Commerce (DOC) entered into Amendment 35 to the Cooperative Agreement, which, among other items, permits VeriSign, without further approval of the DOC, to agree with the Internet Corporation for Assigned Names and Numbers (“ICANN”) to change the .com Registry Agreement. The change will help in increasing wholesale prices for .com domain names up to 7% in each of the last four years of each six-year period of the .com Registry Agreement.

VeriSign ended the reported quarter with 153 million .com and .net domain name registrations in the domain name base, up 4.5% year over year. The figure reflects a net increase of 1.29 million registrations during the quarter.

In the fourth quarter, VeriSign processed 9.5 million new domain name registrations for .com and .net as compared to 9 million in the year-ago quarter.

The final .com and .net renewal rate for the third quarter of 2018 was 74.8% compared with 74.4% in the year-ago quarter. Renewal rates are not fully measurable until 45 days after the end of the quarter.

Operating Details

Non-GAAP adjusted EBITDA was $224.7 million, up 8.2% from the year-ago quarter. Adjusted EBITDA margin expanded 280 basis points (bps) to 73.1%.

VeriSign’s research and development expenses (4.9% of total revenues) increased 17.2% from the year-ago quarter to $15 million.

General and administrative expenses (10.7% of total revenues) decreased 0.3% to $33 million. Sales and marketing (5.6% of total revenues) also declined 32.5% to $17.2 million.

In the fourth quarter, non-GAAP operating income was $205.1 million, up 8.3% from the year-ago quarter. Non-GAAP operating margin expanded 260 bps year over year to 66.7%.

Balance sheet & Cash Flow

As of Dec 30, 2018, the company’s cash and cash equivalents (including marketable securities) were approximately $1.27 billion compared with $1.18 billion as of Sep 30, 2018.

Operating cash flow in the quarter was approximately $219 million.

VeriSign repurchased 1.2 million shares for $175 million in the quarter.

Effective Feb 7, 2019, the board of directors approved an additional authorization for share repurchases of approximately $603 million. VeriSign now has $1 billion available under its share repurchase program.

Guidance

For 2019, VeriSign expects the domain name base growth rate to be between 2.25% and 4.25%. Moreover, revenues are expected to be $1.215-$1.235 billion. Non-GAAP operating margin is expected to be 67.5-68.5%.

Capital expenditure is anticipated to be $45-$55 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.


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