EUR 850.00 For Business Accounts Only

Morningstar | Despite Robust Competitive Positioning, VeriSign Valuation Rich

It’s a .com world, and we’re just living in it. Despite the introduction of new generic top-level domains, VeriSign’s leadership position as the sole registry for .com and .net and the operator of two root name servers (of 13 globally) leaves the firm advantageously positioned. The firm’s ability to generate constant uptime yields consistent contract renewals from the U.S. Department of Commerce and Internet naming governing body ICANN.VeriSign’s crown jewel assets are its registries for the two most widely adopted top-level domains in the world: .com and .net. Together, these domains represent roughly 43% of all registered websites globally and remain the best-recognized top-level domains among businesses and Internet users. The company retains the rights for managing these domains by securing multiyear contracts with ICANN; these contracts offer both exclusivity and long-term visibility. VeriSign’s existing contracts for .net and .com run through 2023 and 2024, respectively. VeriSign’s status as a highly successful root name server operator entrenches the company’s positioning as a vital component of the Internet’s infrastructure, which we believe limits renewal risks when contract negotiations begin.Still, there are limits to VeriSign’s power. Price increases have been limited, and caps are dictated by the terms of the firm’s contracts. Further, the introduction of new generic top-level domains, or gTLDs, remains a modest threat. While VeriSign has branched out its portfolio to include other TLDs, including internationalized versions of .com, net new domain registrations have slowed to the low single digits in recent years, with renewals hovering in the low to mid-70s. On a positive note, the firm’s recently amended .com registry agreement will allow the firm to raise prices in the future, which should provide a future revenue boost, and the company will be better focused after selling its entire security services business to Neustar. Overall, given VeriSign’s virtually flawless operational record and significant market share, we think the firm’s business model and robust operating margins will remain intact over the long term.