2016-02-21

Verisign Form 10-K for 2015, Domain Name Industry 'Must Read'

VeriSign, Inc. (verisign.com), domain name registry operator (.COM, .NET, and other TLDs), and Internet Root Zone Maintainer, has filed its 2015 annual report (Form 10-K) required by the United States Securities and Exchange Commission (SEC). It is a annual 'must read' for VeriSign investors (NASDAQ:VRSN), and the domain name industry. The entire report, including exhibits, can be accessed via the SEC's EDGAR here, or via the Verisign Investor Relations website.

Excerpts from the VeriSign, Inc., 2015 Form 10-K (emphasis added) embedded below:



Takeaways:
  • Verisign Registry Services operates the authoritative directory of all .com, .net, .cc, .tv, and .name domain names, among others and the back-end systems for all .gov , .jobs, and .edu domain names, among others... 
  • Verisign also administers and operate two of the 13 root zone servers that contain authoritative data for the very top of the DNS hierarchy. Our domain name servers provide the associated authoritative name servers and IP addresses for every .com and .net domain name on the Internet and a large number of other TLD queries, resulting in an average of over 120 billion transactions per day. These name servers are located in resolution sites which are in a controlled and monitored environment, incorporating security and system maintenance features. This network of name servers is one of the cornerstones of the Internet’s DNS infrastructure... 
  • Verisign faces competition in the domain name registry space from other gTLD and ccTLD registries that are competing for the business of entities and individuals that are seeking to obtain a domain name registration and/or establish a Web presence .... there are over 840 other operational gTLD registries, over 250 Latin script ccTLD registries and more than 40 IDN ccTLD registries ...
  • Under Verisign's agreements with ICANN, Verisign is subject to certain restrictions in the operation of .com , .net and .name on pricing, bundling, marketing, methods of distribution, the introduction of new registry services and use of registrars that do not apply to ccTLDs and other gTLDs and therefore may create a competitive disadvantage ...
  • We also face competition from service providers that offer outsourced domain name registration, resolution and other DNS services to organizations that require a reliable and scalable infrastructure. Among the competitors are Neustar, Inc.Afilias plc, Donuts Inc., RightSide Group, Ltd., and CentralNic Ltd... 
  • In addition, to the extent end-users navigate using search engines or social media, as opposed to direct navigation, we may face competition from search engine operators such as Google, Microsoft, and Yahoo!, operators of social networks such as Facebook, and operators of microblogging tools such as Twitter. In addition, we may face competition from these social media businesses to the extent they are used to establish an online presence by end users instead of through the use of a domain name. Furthermore, to the extent end-users increase the use of web and phone applications to locate and access content, we may face competition from providers of such web and mobile applications ... 
  • .com Registry Agreement: On November 29, 2012, we renewed our Registry Agreement with ICANN for the .com gTLD (the “ .com Registry Agreement”). The .com Registry Agreement provides that we will continue to be the sole registry operator for domain names in the .com gTLD through November 30, 2018. The .com Registry Agreement includes pricing restrictions for .com domain name registrations consistent with the terms of the Cooperative Agreement [with the US government which ends November 30, 2018, unless sooner terminated or extended]... Verisign pays $0.25 to ICANN for each annual increment of a domain name registered or renewed during such quarter. 
  • ICANN and Verisign are in the final stages of drafting the new Root Zone Maintainer agreement ... to ensure that root operations continue to perform at the same high level during the expected 10-year term of the Root Zone Maintainer agreement, ICANN and Verisign are in discussions to extend the term of the .com Registry Agreement to coincide with the expected 10-year term of the Root Zone.
  • One customer [GoDaddy?] accounted for approximately 31% of revenues in 2015 and 2014, and 30% in 2013. VeriSign does not believe that the loss of this customer would have a material adverse effect on VeriSign's business because, in that event, end-users of this customer would transfer to Verisign's other existing customers. 
Risk Factors:
  1. Risks arising from our agreements governing our Registry Services business could limit our ability to maintain or grow our business.
  2. Governmental regulation and the application of new and existing laws in the U.S. and overseas may slow business growth, increase our costs of doing business, create potential liability and have an adverse effect on our business.
  3. Undetected or unknown defects in our service, security breaches, and large-scale DDoS attacks could expose us to liability and harm our business and reputation.
  4. Changes to the present multi-stakeholder model of Internet governance could materially and adversely impact our business.
  5. We operate two root zone servers and are contracted to perform the Root Zone Maintainer function. Under ICANN’s new gTLD program, we face increased risk from these operations.
  6. The evolution of Internet practices and behaviors and the adoption of substitute technologies may impact the demand for domain names.
  7. Many of our target markets are evolving, and if these markets fail to develop or if our products and services are not widely accepted in these markets, our business could be harmed.
  8. We may face operational and other risks from the introduction of new gTLDs by ICANN and our provision of back-end registry services.
  9. The business environment is highly competitive and, if we do not compete effectively, we may suffer lower demand for our products, price reductions, reduced gross margins and loss of market share.
  10. We must establish and maintain strong relationships with registrars and their resellers to maintain their focus on marketing our products and services otherwise our Registry Service business could be harmed.
  11. If we encounter system interruptions or failures, we could be exposed to liability and our reputation and business could suffer.
  12. Our operating results may be adversely affected as a result of unfavorable market, economic, social and political conditions.
  13. Our international operations subject our business to additional economic and political risks that could have an adverse impact on our revenues and business.
  14. We rely on our intellectual property rights to protect our proprietary assets, and any failure by us to protect or enforce, or any misappropriation of, our intellectual property could harm our business.
  15. We could become subject to claims of infringement of intellectual property of others, which could be costly to defend and could harm our business.
  16. We could become involved in claims, lawsuits or investigations that may result in adverse outcomes.
  17. We continue to explore new strategic initiatives, the pursuit of any of which may pose significant risks and could have a material adverse effect on our business, financial condition and results of operations.
  18. We depend on key employees to manage our business effectively, and we may face difficulty attracting and retaining qualified leaders.
  19. Changes in, or interpretations of, tax rules and regulations or our tax positions may adversely affect our effective tax rates.
  20. Our foreign earnings, which are indefinitely reinvested offshore, constitute a majority of our cash, cash equivalents and marketable securities, and there is a high cost associated with a change in our indefinite reinvestment assertion or a repatriation of those funds to the U.S.
  21. Our marketable securities portfolio could experience a decline in market value, which could materially and adversely affect our financial results.
  22. We are subject to the risks of owning real property.
  23. We have anti-takeover protections that may discourage, delay or prevent a change in control that could benefit our stockholders.
  24. We have a considerable number of common shares subject to future issuance.
  25. Our financial condition and results of operations could be adversely affected if we do not effectively manage our indebtedness.
source: Feb 19, 2016, VeriSign, Inc. 2015 Form 10-K / Annual Report

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