VeriSign (VRSN), as one of the firms that provides the backbone of the Internet naming system behind the “.com” structure, is like a utility stock offering a tech growth story within. While it is hard for the company to raise rates, thanks to a global regulator, its position in the industry allows it to develop cybersecurity and other products that corporations need to assure continued online service to clients.
VeriSign provides domain name (such as “.com”) registry and Internet infrastructure assurance services. The company enables domain name registration through registrar partners and provides network availability for registrars and Internet users alike.
The company has one one reportable segment, Naming Services, which consists of Registry Services and Network Intelligence and Availability Services. VeriSign has operations inside as well as outside the United States.
Registry Services operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain names and the back-end systems for all .gov, .jobs and .edu domain names. NIA Services provides infrastructure assurance services to organizations and is comprised of Verisign iDefense Security Intelligence Services, Managed Domain Name System Services, and Distributed Denial of Service Protection Services.
Domain names can be registered for between one and 10 years, and the fees charged for .com and .net may only be increased according to adjustments prescribed in agreements with the Internet Corporation for Assigned Names and Numbers (ICANN) over the applicable term.
Revenues for registrations of .name are not subject to the same pricing restrictions as those applicable to .com and .net; however, .name fees charged are subject to agreement with ICANN over the applicable term.
Revenues for .cc and .tv domain names are based on a similar fee system and registration system, though the fees charged are not subject to the same pricing restrictions as those imposed by ICANN. The fees received from operating the .gov registry are based on the terms of Verisign’s agreement with the U.S. General Services Administration.
The fees received from operating the .jobs registry infrastructure are based on the terms of Verisign’s agreement with the registry operator of .jobs. No fees are received from operating the .edu registry infrastructure.
iDefense provides 24 hours a day, every day of the year, access to cyber intelligence related to vulnerabilities, malicious code, and global threats. Customers include financial institutions, large corporations, and governmental and quasi-governmental organizations. Customers pay an annual fee for iDefense.
Managed DNS is a hosting service that delivers DNS resolution, improving the availability of web-based systems. Managed DNS provides DNS availability through a globally distributed, securely managed, cloud-based DNS infrastructure, allowing enterprises to save on capital expenses associated with DNS infrastructure deployment and reduce operational costs and complexity associated with DNS management.
DDoS Protection Services supports online business continuity by providing monitoring and mitigation services against DDoS attacks. “We help companies stay online without needing to make significant investments in infrastructure or establish internal DDoS expertise. As a cloud-based service, it can be deployed quickly and easily, with no customer premise equipment required,” VeriSign management said in a recent filing.
VeriSign operations infrastructure consists of three primary company-operated secure data centers in Dulles, Virginia; New Castle, Delaware; and Fribourg, Switzerland as well as approximately 70 globally distributed resolution sites, which includes both regional resolution sites and supersites.
“In 2011, we deployed DNS Security Extensions in the .com domain, to protect the integrity of domain name system data,” management said. “In 2010, we announced an approximately $300 million new initiative called ‘Project Apollo’ to meet infrastructure challenges expected over the next decade.”
“We expect to grow capacity 1,000 times today’s level of 4 trillion queries to manage 4 quadrillion queries per day to support normal and peak system load and attack volumes based on what we have experienced historically, as well as to accommodate projected Internet attack trends,” the company said.
VeriSign has a market cap of $6.25 billion in a sector, Internet software and services, where the average company size is $7.48 billion. Its trailing 12-month P/E ratio is 39.58 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.76, compared to 1.44 for the sector.
Its projected earnings per share growth for the coming year is 17.74 percent, compared to a sector average of 30.13 percent.
Analysts are mixed on VeriSign. Stifel Nicolaus and Citigroup rate the stock a buy. Merrill Lynch has it rated at underperform.
Standard & Poor’s rated the stock at neutral, in part on a recently high share price. “While VRSN still trades at a premium P/E relative to peers, we note its strong market position, competitive advantages, and business model,” S&P analysts wrote on May 18, putting the target price at $40.
“We think management has proven to be very shareholder-oriented over the years. We also see potential for multiple positive catalysts.”
VeriSign next reports on July 26.
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