Morningstar | VeriSign’s Operating Margin Hits Peak With In-Line Results; Maintain $89 FVE
VeriSign reported second-quarter results in line with our expectations, with a peak in non-GAAP operating margins and an update on its progress toward dot-web. Registrations for dot-com increased sequentially by 1.7 million, coming in at 135.6 million, with dot-net registrations at 14.1 million. Domain name registrations grew by 1.4 million on a net basis, with 9.6 million new registrations processed. We are maintaining our $89 fair value estimate for this narrow-moat name as we continue to believe shares remain steeply overvalued.Second-quarter revenue rose 4.8% year over year to $302 million. Renewal rates continued to improve as they increased from 72.5% in the prior-year period to 75.3% this past quarter. In net adds, VeriSign noted that the weighting among U.S. and China registrars was fairly balanced.
VeriSign has yet to complete the transfer of ownership of dot-web operations and noted that they are discussing amendments related to the Cooperative Agreement with NTIA. We are not dismayed by the delay and potential for a falling out considering dot-web operations won’t significantly contribute to long-term revenue growth, in our opinion, if transferred to VeriSign.
Reported non-GAAP operating margin for the second quarter peaked at an all-time high of 68.2% and was guided to hover between 66% and 67% for the full year due to heightened marketing expenses in the back half of the year. We’re relieved by increasing marketing spending to come, as we believe it will maintain steady top-line growth that could have stalled from continued cost cutting.
Verisign is a provider of domain name registry services and internet infrastructure, enabling internet navigation for domain names. The company enables the security, stability, and resiliency of main internet infrastructure and services, including providing root zone maintainer services, operating internet root servers, and providing registration services and authoritative resolution for the .com and .net top-level domains, which support the majority of global e-commerce. The company operates the authoritative directory of and/or the back-end systems for all .com, .net, .cc, .tv, .gov, .jobs, .edu and .name domain names, among others. The company also provides internationalized domain name services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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