Verisign’s Domain Name Registration Machine Rolls To $43

Verisign (NASDAQ:VRSN) reported its earnings for Q2 2012 on July 26, and it is mostly business as usual for the leading domain registrar. It reported revenue of $214 million, up 13% year-over-year. The growth was driven primarily by an increase in registered domains. It ended the quarter with roughly 118.5 million .com and .net domains, a net increase of 1.81 million over the last quarter. While Q2 2012 was Verisign’s second strongest quarter on record for new registrations with a figure of 8.4 million, lower-than-expected renewal rates led to a relatively modest increase in net new additions. ((VeriSign Management Discusses Q2 2012 Results – Earnings Call Transcript, SeekingAlpha))

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We expect Verisign’s total number of registered domains to exceed 121 million in 2012, but its market share may decline as the overall domain name market grows faster. Verisign derives almost all of its revenues from domain registrations, which is why any increase or decrease in .com and .net domain registrations will impact its stock value significantly.

However, in 2013, ICANN will begin introducing new domain names in groups of 500 (it had received a total of 1,930 requests).  The share of .com and .net domains is expected to go down then. Nevertheless, Verisign will provide back-end registry services for customers using the new top-level domains. Applicants for 220 new proposed top level domains have already signed up with Verisign. Also, the company itself has applied for 14 new top level domains.

These two developments will open up new revenue streams beginning next year. On the other hand, it has the potential to cannibalize .com and .net registrations since customers may opt for more specific and business-relevant domain names like “.autoinsurance”, “.google” and “.poker”.

Following the earnings, we have updated our model to reflect the latest financials. We are revising our estimates and are making slight adjustments to our price estimate.

Verisign competes with other domain name registry providers like NeuStar, Employ Media, and Afilias to win new and maintain existing registry rights. Its .com and .net domain registration business accounts for nearly 90% of its $43 Trefis price estimate.

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