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VeriSign (VRSN) Down 8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for VeriSign (VRSN - Free Report) . Shares have lost about 8% 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 its most recent earnings report in order to get a better handle on the important drivers.

VeriSign Q4 Earnings Top Estimates, Revenues Rise Y/Y

VeriSign reported fourth-quarter 2020 adjusted earnings of $1.38 per share, beating the Zacks Consensus Estimate by 7%. The reported figure also increased 9.5% year over year.

Revenues climbed 3.1% year over year to $320.3 million, in line with the Zacks Consensus Estimate.

Quarter Details

VeriSign ended the reported quarter with 165.2 million .com and .net domain name registrations, up 4% year on year. This uptick was driven by contributions from the North America and Europe, Middle East and Africa (EMEA)-based registrars. This was, nonetheless, moderately offset by reduced activity from the China-based registrars.

The company processed 10.5 million new domain name registrations for .com and .net compared with the year-earlier quarter’s 10.3 million.

Notably, renewal rates are not fully measurable until 45 days after the end of a quarter. The final .com and .net renewal rate for the third quarter of 2020 was 73.7%, flat year over year.

The company expects the renewal rate for fourth-quarter 2020 to be 73.5%. The renewal rate in the fourth quarter of 2019 was 73.8%.

VeriSign’s research and development (R&D) expenses flared up 28.5% from the prior-year quarter to $19.4 million. As a percentage of revenues, R&D expenses expanded 120 basis points (bps) year over year to 6.1%.

General and administrative (G&A) expenses shot up 2.6% to $37.5 million, year over year. As a percentage of revenues, G&A expenses contracted 10 bps year on year to 11.7%.

However, sales and marketing expenses (S&M) declined 6.9% year over year to $12.9 million. As a percentage of revenues, S&M expenses shrunk 40 bps to 4%, year on year.

Operating income totaled $204.5 million, up 3% from the year-ago period. Operating margin contracted 10 bps year over year to 63.9%.

Balance Sheet & Cash Flow

As of Dec 31, 2020, the company’s cash and cash equivalents (including marketable securities) were $1.17 billion compared with $1.15 billion as of Sep 30, 2020.

Cash flow from operating activities was $195.2 million in the October-December quarter compared with the previous quarter’s $139.6 million. Free cash flow was $188.8 million in the reported period compared with the July-September quarter’s $124.5 million.

During the fourth quarter, VeriSign repurchased 0.8 million shares for $170 million, which brings the total amount of shares repurchased in 2020 to 3.7 million shares for $735 million.

Also, as approved by the board of directors, the amount of shares authorized for share repurchase was increased by close to $747 million, effective Feb 11, 2021. This brings the total amount available for buybacks to $1 billion.

Key Announcements

VeriSign announced that from Sep 1, 2021, it will increase the annual registry-level wholesale price for new and renewal .com domain name registration by 54 cents from $7.85 to $8.39.

2021 Guidance

Domain name base is expected to lie between 2.5% and 4.5%.

Moreover, VeriSign projects full-year revenues between $1.3 billion and $1.32 billion.

GAAP operating margin is estimated in the 64-65% band.

Capital expenditure is anticipated in the range of $55-$65 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted -9.93% due to these changes.

VGM Scores

Currently, VeriSign has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

VeriSign has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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