Verisign, Inc. (NASDAQ:VRSN) has added 1.2 million new names for the June quarter, which is better than the 0.9 million estimate by JPMorgan Chase & Co. (NYSE:JPM). From the point of view of distribution, name additions reflected a rough pattern, however, it was better in the second half of May and sluggish in the first three weeks of June with around 100,000 names added in the final week.
What to expect from Verisign?
JP Morgan analysts Sterling Auty, Saket Kalia and Lauren Choi have hiked their net adds estimates for the June quarter from 0.92 million to 1.25 million, based on the data available from the Verisign, Inc. (NASDAQ:VRSN) website. Analysts estimate that new names will add $600K-700K in the June quarter and $2.3 million in the full year 2013 forecast. In their research report, analysts added that price increase tailwinds will wear off and, as a result, revenue growth estimate is expected to decline in September to 7 percent.
Items to watch for
Verisign, Inc. (NASDAQ:VRSN) will post second quarter result on July 25th, and investors will look for a hike in the material increase over the regular share repurchase activity in the range of $76-132 million since 2Q12 as the recent debt levels have increased.
There is slim possibility of any material change to offshore cash for additional repurchase purposes on upcoming call. Operating margin will be one area to focus on, as the operating leverage can be seen in the naming business. However, it would be worth noting whether the company launches any new products to speed up the top line revenue and what effect that may have on margin profile.
ICANN’s new gTLD program, according to JP Morgan, is taking more time than investors estimated. There is no clarity over the applicant who will be awarded new gTLDs as there are many applicants who have applied.
No uncertainty after the verdict from DoC
There is no uncertainty over the .com contract after the latest decision by the Department of Commerce (Doc), however, core domain name volume growth and net price increase along with any contribution from new product areas will contribute primarily to top line growth as the company will not increase the price.
Analysts are expecting volume growth of 4-6 percent as the new normalized level, expecting an increased growth period after initiation of gTLD and IDNs.
Verisign, Inc. (NASDAQ:VRSN)’s stock may underperform if the growth rate of domain names slows. On the other hand, due to looser U.S. government taxes on foreign cash repatriation, VRSN could return more cash to shareholders.
JP Morgan is maintaining December 2013 price target of $48 and has set a Neutral rating on Verisign’s stock.
