It has been about a month since the last earnings report for VeriSign, Inc. (VRSN - Free Report) . Shares have added about 7.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
VeriSign reported better-than-expected third-quarter 2017 results, which also improved year over year.
On a non-GAAP basis, the company posted earnings of $1 per share, up 7.5% from the year-ago quarter. Earnings beat the Zack Consensus Estimate of 98 cents.
Revenues increased 1.7% year over year to $292.4 million and came slightly ahead of the Zacks Consensus Estimate of $291.8 million. The year-over-year improvement was primarily driven by increase in domain name registrations in the United States as well as in international markets.
In the quarter, domain name registrations for .com and .net together grew 1.2% year over year to 145.8 million. In absolute terms, domain name registrations grew 1.47 million year over year. VeriSign processed 8.9 million new domain name registrations for .com and .net, an increase from 8.63 million processed in the year-ago quarter.
Per management, during the quarter, 59% of the revenues came from U.S. customers while international customers contributed the rest.
For the reported quarter, the exact renewal rate figures will be available after 45 days from Sep 30, 2017. The company estimates it to be 74.3% compared with 73% in the year-ago quarter. It provided renewal rate for the second quarter of 2017, which came in at 74% compared with 73.8% in the year-ago quarter.
VeriSign reported non-GAAP operating income of $195.2 million compared with $187.6 million in the prior-year quarter. The company’s non-GAAP operating margin was 66.7% in the quarter, up 140 basis points (bps) from the prior-year quarter.
Non-GAAP adjusted EBITDA was $214.1 million, up 4.6% from the year-ago quarter.
Other Financial Details
Exiting the quarter, the company’s cash and cash equivalents (including marketable securities) were approximately $2.4 billion compared with $1.81 billion as of Jun 30, 2017.
Operating cash flow in the quarter was approximately $175 million while free cash flow came in at $153 million. Moreover, in the first nine months of 2017, the company generated $503.6 million of cash flow from operational activities.
VeriSign repurchased 1.5 million shares for $147 million in the quarter. As of Sep 30, 2017, the company had $622 million available under its current share repurchase program.
VeriSign raised its full-year guidance. The company now expects revenues in the range of $1.161-$1.166 billion, up from the prior guidance of $1.155-$1.165 billion. The Zacks Consensus Estimate for 2017 revenues is $1.16 billion.
The company increased its non-GAAP operating margin guidance range to 65%-65.5% from the earlier guidance of 64.5%-65.25%.
Capital expenditure is now anticipated to increase in the range of $45-$55 million compared with the previous guidance of $40-$50 million.
Management expects an increase in operating expenses related to sales and marketing in the fourth quarter.
VeriSign also raised its domain name base growth rate guidance for 2017. The company now anticipates the same to grow between 2.8% and 3.1%, up from its earlier forecast of 2% to 2.75%.
Going ahead, for the fourth quarter, VeriSign projects domain name base registration to increase in the range of 0.4 million to 0.9 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, VeriSign's stock has an average Growth Score of C, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is equally suitable for momentum and growth investors.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.