2015-04-02

Verisign, .COM Monopoly, High-Single Digit FCF Yield, Double-Digit Growth

Interesting Seeking Alpha article on Verisign (domain name registry operator for .COM and .NET and other TLDs), published March 31, 2015, by Oligopoly Investor, who, according to the author profile, is "a private and public-equity value investor in durable monopolies, oligopolies and/or industry leaders with a differentiated business model or technology ..." The article, summary below, gives a bullish outlook on Verisign stock, symbol VRSN, trading on the NASDAQ.
Verisign: .Com & .Net Monopolies Offer High-Single Digit FCF Yield And Double-Digit Growth - VeriSign, Inc. (NASDAQ:VRSN) | Seeking Alpha"Summary -
  • Durable .com and .net monopolies. 
  • Continued revenue growth drivers with high variable contribution. 
  • FCF greater than earnings. 
  • Efficient capital management. 
  • Potential CPI inflator upon .com renewal ...." (read more at link above)
The author deals with new gTLDs, social media and apps, and also points out that unlike .COM pricing, .NET pricing increases of 10% per year will contractually continue through 2017. The author also cites and quotes extensively from a US Department of Justice Antitrust Division letter (pdf) analyzing the market dominance of the .COM brand among all top-level domains, and the impact, if any, of new gTLDs:

"... registrants frequently purchase domains in TLDs other than .com as complements to .com domains, not as substitutes for them. In other words, registrants of a particular .com domain (e.g., google.com) will frequently also perceive a need to register the same domain in all or most available TLDs (e.g., google.info and google.biz) because of a desire to expand their presence on the Internet and to protect their brands from being exploited by others... the network effects that make .com registrations so valuable to consumers will be difficult for other TLDs to overcome. Due to first-mover advantage and high brand awareness, .com registrations account for the overwhelming majority of gTLD registrations. As a result, when users do not know the TLD in which a domain is registered, they most often simply append ".com" to a product or company name when attempting to find the desired website. This phenomenon creates a strong preference for .com… Further, the introduction of new gTLDs is not likely to constrain the exercise of market power by existing gTLDs or ameliorate the continuing need for restraints to prevent Verisign from exercising market power in the sale of .com domains." (source: US Department of Justice, Antitrust Division; emphasis added)

Background:

"…the .COM Registry Agreement ... [Verisign] has a presumptive right of renewal provided that we perform on our obligations, which are basically SLAs performance requirements, and the only way that the contract would be in jeopardy is if we had a breach without a cure. And so that is the sole relationship between VeriSign and ICANN in terms of the .COM Registry Agreement, everything else is completely unrelated, ICANN has no role in that. Would never have any additional methods or consent to renew or not renew that agreement." --Verisign Chairman D. James Bidzos at JPM Global TMT Conference, May 19, 2014

The Verisign .COM Registry Agreement with ICANN is an exhibit to the 8-K filed on 11/30/12, as is Amendment 32 to the Cooperative Agreement (between US Department of Commerce and Verisign); the .NET Registry Agreement with ICANN is available in the 8-K filed on 6/28/11.

Finally, Oligopoly Investor takes a real swipe at Google--
"... while direct navigation share of traffic may be declining, $7.85 is a relatively low price point to have attractive .COM domain. Thus, Google search revenue may be more impacted than Verisign registration revenue by the growth in social media and apps..." (source: Oligopoly Investor, supra, emphasis added)
Caveat Emptor! (Note disclaimer at the bottom of this web page.)


No comments:

Domain Mondo posts: