Verisign will continue to meet its contractual obligations and for the registry agreements to renew into perpetuity

Business Strategy and Outlook

Verisign provides registry services for several top-level domains, or TLDs, and infrastructure essential to the functioning of the Internet. Verisign plays a vital role in supporting the Domain Name System, or DNS, which is akin to a massive address book that matches human friendly domain names to the accompanying numbers-based Internet Protocol, or IP, address. This allows an end user to browse the Internet and access requested content via a network of interconnected servers. The company operates software and infrastructure globally to support the translation of domain names to IP addresses for its assigned domains, including managing zone files and registration and policies for the specified domain. Verisign also provides root zone maintenance services, operates two of the world’s 13 roots servers that are foundational to the DNS, and manages a shared registration system that allows registrars to query the availability of and manage second level domains. Verisign has exclusive registry rights for two of the world’s most popular TLDs, .com and .net, under renewable contracts with the Internet Corporation for Assigned Names and Numbers, or ICANN. The lucrative contracts run for six years and have a presumptive right of renewal provided Verisign meets its contractual obligations. The .com and .net contracts are up for renewal in 2024 and 2023, respectively.

Per the current contract terms, Verisign may raise .com pricing by up to 7% per year for the last four years of the contract and .net by up to 10% per year. Verisign currently charges $8.39 per year for a new or renewed .com domain and $9.02 for .net domain. Verisign will maximise price increases for .com within the limits of the contract, the company can still generate attractive returns in the event of tighter pricing controls. Verisign will continue to meet its contractual obligations and for the registry agreements to renew into perpetuity, underpinning the wide moat rating. The company has provided uninterrupted DNS services for over 25 years and continues to invest in infrastructure and cybersecurity measures to mitigate the risk of service disruptions.

Financial Strength

Verisign is in a sound financial position. As of year-end fiscal 2021, the company had a net debt position of about $580 million and reported $1.79 billion of long-term debt from senior unsecured notes. The company also has access to at least $200 million of liquidity under an unsecured revolving credit facility. Under these agreements, Verisign is subject to certain operating and financial covenants and must not exceed certain gearing ratios. Verisign will remain compliant with these covenants and meet interest and maturity payments on outstanding debt over the forecasted period. Verisign does not pay dividends but instead returns capital to shareholders through a substantial share repurchase program. The company has returned about $3.5 billion of capital to shareholders over the five years to fiscal 2021, which was funded through the company’s strong free cash generation and debt. As of February 2022, Verisign’s board has authorized an additional $1 billion of share repurchase, with no expiration.

Bulls Say’s

Verisign is to maximise price increases for the .com domain within the contractual limits, supporting further margin expansion.
Verisign’s relationship with ICANN continues to strengthen as the company’s powerful track record of performance extends.
While Verisign faces competitive pressure from competing TLDs, it is expected that .com is to remain the world’s most popular TLD.

Company Profile

Verisign is the sole authorized registry for several generic top-level domains, including the widely utilized .com and .net top-level domains. The company operates critical Internet infrastructure to support the domain name system, including operating two of the world’s 13 root servers that are used to route Internet traffic. In 2018, the firm sold off its Security Services business, signalling a renewed focus on the core registry business.

(Source: MorningStar)

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