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VeriSign (VRSN) Down 5.5% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for VeriSign (VRSN - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is VeriSign due for a breakout? 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’s Q3 Earnings Top Estimates, Revenues Rise Y/Y
VeriSign reported third-quarter 2020 adjusted earnings of $1.49 per share, which beat the Zacks Consensus Estimate by 18.3% and recorded an increase of 14.6% year over year.
Revenues increased 3.1% year over year to $317.9 million and beat the Zacks Consensus Estimate by 0.6%.
Quarter Details
VeriSign ended the reported quarter with 163.7 million .com and .net domain name registrations, up 4% year over year.
The company processed 10.9 million new domain name registrations for .com and .net compared with 9.9 million in the year-ago quarter.
Notably, renewal rates are not fully measurable until 45 days after the end of the quarter. The final .com and .net renewal rate for the second quarter of 2020 was 72.8% compared with 74.2% for the year-ago quarter.
The company expects the renewal rate for third-quarter 2020 to be around 73.4%. The renewal rate in the third quarter of 2019 was 73.7%.
VeriSign’s research and development (R&D) expenses rose 34.8% from the year-ago quarter to $19.7 million. As a percentage of revenues, R&D expenses increased 150 basis points (bps) year over year to 6.2%.
General and administrative (G&A) expenses increased 12.5% year over year to $38.1 million. As a percentage of revenues, G&A expenses increased 100 bps year over year to 12%.
However, sales and marketing expenses (S&M) declined 14.9% year over year to $8.4 million. As a percentage of revenues, S&M expenses decreased 60 bps year over year to 2.6%.
Operating income was $206.6 million, up 0.5% from the year-ago quarter. Operating margin contracted 170 bps year over year to 65%.
Balance Sheet & Cash Flow
As of Sep 30, 2020, the company’s cash and cash equivalents (including marketable securities) were approximately $1.15 billion compared with $1.19 billion as of Jun 30, 2020.
Cash flow from operating activities was $140 million in the third quarter compared with $215 million in the previous quarter. Free cash flow was $125 million in the reported quarter compared with $169 million in the previous quarter.
In the third quarter, Verisign repurchased 0.8 million shares for an aggregate cost of $170 million, which brings the total amount available for buybacks to $506 million.
Key Developments
Verisign announced that it will extend the freeze on registry prices for all its top-level domains, including .com and .net, through Mar 31, 2021.
Additionally, Verisign announced the extension of the waiver of the wholesale restore fee for expired domains through the end of 2020.
2020 Guidance
Domain name base is expected to increase between 3.5% and 4%.
Moreover, VeriSign expects full-year revenues between $1.262 billion and $1.267 billion.
GAAP operating margin is expected in the 64.75-65.25% range.
Capital expenditure is anticipated in the range of $45-$50 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, VeriSign has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, VeriSign has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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VeriSign (VRSN) Down 5.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for VeriSign (VRSN - Free Report) . Shares have lost about 5.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is VeriSign due for a breakout? 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’s Q3 Earnings Top Estimates, Revenues Rise Y/Y
VeriSign reported third-quarter 2020 adjusted earnings of $1.49 per share, which beat the Zacks Consensus Estimate by 18.3% and recorded an increase of 14.6% year over year.
Revenues increased 3.1% year over year to $317.9 million and beat the Zacks Consensus Estimate by 0.6%.
Quarter Details
VeriSign ended the reported quarter with 163.7 million .com and .net domain name registrations, up 4% year over year.
The company processed 10.9 million new domain name registrations for .com and .net compared with 9.9 million in the year-ago quarter.
Notably, renewal rates are not fully measurable until 45 days after the end of the quarter. The final .com and .net renewal rate for the second quarter of 2020 was 72.8% compared with 74.2% for the year-ago quarter.
The company expects the renewal rate for third-quarter 2020 to be around 73.4%. The renewal rate in the third quarter of 2019 was 73.7%.
VeriSign’s research and development (R&D) expenses rose 34.8% from the year-ago quarter to $19.7 million. As a percentage of revenues, R&D expenses increased 150 basis points (bps) year over year to 6.2%.
General and administrative (G&A) expenses increased 12.5% year over year to $38.1 million. As a percentage of revenues, G&A expenses increased 100 bps year over year to 12%.
However, sales and marketing expenses (S&M) declined 14.9% year over year to $8.4 million. As a percentage of revenues, S&M expenses decreased 60 bps year over year to 2.6%.
Operating income was $206.6 million, up 0.5% from the year-ago quarter. Operating margin contracted 170 bps year over year to 65%.
Balance Sheet & Cash Flow
As of Sep 30, 2020, the company’s cash and cash equivalents (including marketable securities) were approximately $1.15 billion compared with $1.19 billion as of Jun 30, 2020.
Cash flow from operating activities was $140 million in the third quarter compared with $215 million in the previous quarter. Free cash flow was $125 million in the reported quarter compared with $169 million in the previous quarter.
In the third quarter, Verisign repurchased 0.8 million shares for an aggregate cost of $170 million, which brings the total amount available for buybacks to $506 million.
Key Developments
Verisign announced that it will extend the freeze on registry prices for all its top-level domains, including .com and .net, through Mar 31, 2021.
Additionally, Verisign announced the extension of the waiver of the wholesale restore fee for expired domains through the end of 2020.
2020 Guidance
Domain name base is expected to increase between 3.5% and 4%.
Moreover, VeriSign expects full-year revenues between $1.262 billion and $1.267 billion.
GAAP operating margin is expected in the 64.75-65.25% range.
Capital expenditure is anticipated in the range of $45-$50 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
VGM Scores
At this time, VeriSign has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, VeriSign has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.