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VeriSign (VRSN) Q3 Earnings: Is Another Beat in the Cards?

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VeriSign Inc. (VRSN - Free Report) is set to report third-quarter 2017 results on Oct 26.

Last quarter, the company reported earnings of $1.05 per share, up 15.4% from the year-ago quarter and beat the Zacks Consensus Estimate of $1 per share. Notably, the company has beaten the Zack Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 5.52%.

Revenues marginally increased year over year to $288.6 million from $286.5 million and came ahead of the Zacks Consensus Estimate of $286.89 million as well.

Shares of VeriSign have gained 41.9% year to date, slightly underperforming the 28.4% rally of the industry it belongs to.

Domain Registration to Drive Growth

VeriSign holds a prime position in the highly regulated .com and .net domain industry. The company is the exclusive registrar of the .com, .net and .name domains per its agreements with The Internet Corporation for Assigned Names and Numbers (ICANN).

According to the company’s latest “The Domain Name Industry Brief”, domain name registrations across all top-level domains (TLDs) signal a positive trend, increasing 0.4% sequentially to approximately 331.9 million across TLDs at the end of the second quarter. Domain name registrations increased 6.7 million or 2.1% year over year.

On a combined basis, .com and .net domain names improved 0.8% year over year to approximately 144.3 million in the second quarter. Further, new generic TLDs (ngTLD) represented 7.3% of total domain name registrations.

We note that the company continues to benefit from strong demand in the United States as well as in international markets. Reportedly, in the last quarter, new .com and .net registrations were 9.2 million compared with 8.6 million in the year-ago quarter. VeriSign reported that .com continued to maintain its position as the largest TLD, followed by .cn (China) and .tk (Tokelau).

Thus, strong gTLD growth, international expansion through IDNs and investments in intellectual properties will boost results in our view. We believe that increasing domain name registration coupled with price hikes for domain names will drive the top line.

Moreover, VeriSign raised its domain name base growth rate guidance for 2017. The company anticipates the same to grow between 2% and 2.75%, up from its earlier forecast of 1% to 2.5%. For the third quarter, VeriSign projects domain name base registration to increase in the range of 0.8 million to 1.3 million.

However, the negative impact of search engine adjustments on domain monetization and increasing operating expenses related to sales and marketing remain primary headwinds.

VeriSign, Inc. Price and EPS Surprise

VeriSign, Inc. Price and EPS Surprise | VeriSign, Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

VeriSign has a Zacks Rank #3 and an Earnings ESP of +0.34% and that indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks That Warrant a Look

Here are a few companies that you may also want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Applied Materials (AMAT - Free Report) with an Earnings ESP of +0.37% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kemet Corporation (KEM - Free Report) with an Earnings ESP of +7.46% and a Zacks Rank #1.

NVIDIA Corporation (NVDA - Free Report) with an Earnings ESP of +1.06% and a Zacks Rank #1.

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