EUR 850.00 For Business Accounts Only

Morningstar | Verisign Wins Big With Amended .Com Agreement; Better Growth Outlook; Shares Still at a Premium

Verisign and the Department of Commerce amended their .com domain cooperative agreement, with the DOC determining the terms of the amendment were in the public’s interest. Notably, Verisign gained pricing flexibility for its .com domain business. The amendment will allow Verisign to pursue up to a 7% price increase in .com domain names in each of the last four years of its six-year .com registry agreement with ICANN. Justification for the price increase was that .com had been in a price freeze at $7.85 per .com domain for the last six years, pricing flexibility was needed due to changing market conditions, and the change represents a similar pricing structure prior to 2012’s price freeze. Price increases are only permitted for the last four years of the six-year .com agreement as it will allow for registrants to plan for the price changes (Verisign will also be required to provide a six-month notice prior to the implementation of price increases). We view the amendment as a significant win for Verisign and its large, lucrative .com domain business. After the initial two-year stand down period, we expect considerable top-line growth as regular year-over-year .com net additions are combined with 7% price increases. As a result, we shift our five-year top-line CAGR outlook from the low single digits to midsingle digits. Our significantly revised growth forecast moves our fair value estimate to $118 per share from $89 for this narrow economic moat name. Still, our revised price remains well under the stock’s current price and we’d recommend a wider margin of safety before committing capital to the name.