VeriSign, Inc. (VRSN) Bundle
Understanding VeriSign, Inc. (VRSN) Revenue Streams
Understanding VeriSign, Inc.’s Revenue Streams
The company's revenue primarily derives from domain name registrations and related services, particularly for the .com and .net top-level domains (TLDs). The following table outlines the revenue generated from different geographical regions:
| Region | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Year-over-Year % Change | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) | Year-over-Year % Change |
|---|---|---|---|---|---|---|
| U.S. | $260.2 | $250.8 | 4% | $773.2 | $741.2 | 4% |
| EMEA | $62.8 | $57.7 | 9% | $184.7 | $169.4 | 9% |
| China | $19.7 | $22.0 | (10)% | $60.2 | $71.0 | (15)% |
| Other | $47.9 | $45.8 | 5% | $143.9 | $131.1 | 10% |
| Total Revenues | $390.6 | $376.3 | 4% | $1,162.0 | $1,112.7 | 4% |
In the three months ended September 30, 2024, the total revenue reached $390.6 million, marking a 4% increase from $376.3 million in the same period of 2023. For the nine months ended September 30, 2024, total revenue was $1,162.0 million, also reflecting a 4% increase from $1,112.7 million in the prior year.
Year-over-Year Revenue Growth Rate
Year-over-year revenue growth has been consistent, primarily driven by price increases in domain registrations. The increase in revenues for both three and nine months ended September 30, 2024, can be attributed to the following:
- Price increases for .com and .net registrations, effective September 1, 2023, raised the wholesale fee for .com from $8.97 to $9.59 and for .net from $9.02 to $9.92.
- Despite a 2.5% decrease in the domain name base, strong pricing power helped maintain revenue levels.
- Renewal rates for .com and .net domains slightly declined, with a renewal rate of 72.7% in Q2 2024 compared to 73.4% in Q2 2023.
Contribution of Different Business Segments to Overall Revenue
The primary revenue segments include:
- Domain Name Registrations: This is the largest contributor, accounting for the vast majority of total revenue.
- Domain Services: Includes additional services related to domain management and security.
As of September 30, 2024, the company reported 169.6 million total .com and .net registrations, a decrease from 173.9 million in the previous year. This decline reflects competitive pressures and changing market dynamics.
Analysis of Significant Changes in Revenue Streams
Significant changes in revenue streams include:
- The transition of the .gov gTLD to another service provider in Q4 2023, which has affected revenue.
- Increased competition from alternative domain services, which has influenced both new registrations and renewals.
- Shifts in registrars' strategies towards profitability, impacting new customer acquisition.
Overall, while revenues have grown, the underlying challenges in maintaining the domain name base and the impact of competitive dynamics have created a complex revenue landscape.
A Deep Dive into VeriSign, Inc. (VRSN) Profitability
A Deep Dive into VeriSign, Inc. Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was 87.9%, while for the nine months ended September 30, 2024, it was 87.7%. This reflects a slight improvement from 87.1% for the same periods in 2023.
Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024, was 68.9%, up from 67.6% in 2023. For the nine months, it was 68.4% compared to 66.9% in 2023.
Net Profit Margin: The net profit margin for the three months ended September 30, 2024, stood at 51.5%, compared to 50.1% for the same quarter in 2023. For the nine months, it was 51.1% versus 49.7% in 2023.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Gross Profit Margin | 87.9% | 87.1% | 87.7% | 87.1% |
| Operating Profit Margin | 68.9% | 67.6% | 68.4% | 66.9% |
| Net Profit Margin | 51.5% | 50.1% | 51.1% | 49.7% |
Trends in Profitability: Over the past few years, there has been a consistent upward trend in profitability metrics. Operating income increased by 6% to $269.3 million for Q3 2024 and 7% to $794.4 million for the nine months ended September 30, 2024, compared to the respective periods in 2023.
Industry Comparison: Compared to the industry average, which typically ranges between 50% to 60% for net profit margins, the company remains significantly above average, showcasing strong operational efficiency and pricing power in its domain registration services.
Operational Efficiency: The cost of revenues for the three months ended September 30, 2024, was 12.0% of revenues, down from 12.9% in Q3 2023. For the nine months, it decreased from 13.4% to 12.3%. This indicates improved cost management and operational efficiency.
Research and Development Expenses: R&D expenses for the three months ended September 30, 2024, were $23.2 million, reflecting an increase of 7% compared to $21.7 million in 2023. For the nine months, R&D was $71.8 million, a 6% increase from $68.1 million.
Selling, General and Administrative Expenses: These expenses for Q3 2024 were $51.3 million, down from $51.7 million in Q3 2023. For the nine months, they increased slightly from $151.5 million to $152.8 million.
Debt vs. Equity: How VeriSign, Inc. (VRSN) Finances Its Growth
Debt vs. Equity: How VeriSign, Inc. Finances Its Growth
As of September 30, 2024, VeriSign, Inc. reported a total debt of $2.24 billion, comprised of $750 million in 2.70% senior unsecured notes maturing in 2031, $550 million in 4.75% senior unsecured notes maturing in 2027, and $500 million in 5.25% senior unsecured notes due in April 2025.
Debt Levels
VeriSign's current liabilities stand at $1.53 billion, with current senior notes accounting for $299.7 million. The long-term liabilities total $1.84 billion, which includes long-term senior notes of $1.49 billion.
Debt-to-Equity Ratio
The debt-to-equity ratio for VeriSign, Inc. is calculated as follows:
- Total Debt: $2.24 billion
- Total Equity: $(1.90 billion)
- Debt-to-Equity Ratio: -1.18
This ratio indicates that the company has a negative equity position, which is not uncommon in capital-intensive industries.
Industry Comparison
The industry average debt-to-equity ratio for technology companies typically ranges from 0.5 to 1.5, indicating that VeriSign's ratio is significantly below the industry norms.
Recent Debt Issuances and Credit Ratings
As of September 30, 2024, VeriSign has no outstanding borrowings against its credit facility, which has a capacity of $200 million and matures in 2028. The company has plans to refinance its $500 million 2025 Senior Notes. The credit ratings for VeriSign are as follows:
- Moody's: Baa2
- S&P: BBB
Balancing Debt Financing and Equity Funding
VeriSign has maintained a balanced approach to financing its growth through a mix of debt and equity. The company authorized a total of $1.50 billion for share repurchases, with approximately $1.28 billion remaining for future repurchases as of September 30, 2024. The share repurchase activity for the three months ended September 30, 2024, included:
| Month | Shares Purchased (in thousands) | Average Price Paid | Total Cost (in millions) |
|---|---|---|---|
| July 2024 | 550 | $177.56 | $97.6 |
| August 2024 | 433 | $180.18 | $78.1 |
| September 2024 | 686 | $182.63 | $125.5 |
| Total | 1,669 | - | $301.2 |
Through strategic share repurchases and careful management of its debt profile, VeriSign aims to enhance shareholder value while maintaining financial flexibility.
Assessing VeriSign, Inc. (VRSN) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
As of September 30, 2024, the current ratio stands at 0.47, calculated from current assets of $717.4 million and current liabilities of $1,526.2 million. The quick ratio, which excludes inventory from current assets, is also 0.47, indicating a tight liquidity position.
Analysis of Working Capital Trends
The working capital as of September 30, 2024, is $(808.8 million), down from $(200.2 million) at the end of 2023. This decline in working capital reflects an increase in current liabilities without a corresponding increase in current assets.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, cash flows from operating activities were $671.1 million, an increase from $649.6 million in the same period of 2023. Investing activities provided $307.0 million, contrasting with a use of $(201.5 million) in 2023. However, cash used in financing activities was $(951.0 million), an increase from $(663.5 million) in 2023.
Cash Flow Summary Table
| Cash Flow Category | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $671.1 | $649.6 |
| Investing Activities | $307.0 | $(201.5) |
| Financing Activities | $(951.0) | $(663.5) |
| Net Increase (Decrease) in Cash | $27.2 | $(216.0) |
Potential Liquidity Concerns or Strengths
Despite a strong cash flow from operations, the significant amount of debt, with $1,492.2 million in long-term senior notes and $299.7 million in current senior notes due, poses a liquidity risk. However, the company maintains a borrowing capacity of $200.0 million under its credit facility, providing some cushion for potential liquidity needs.
Liquidity Sources Table
| Liquidity Source | September 30, 2024 (in millions) | December 31, 2023 (in millions) |
|---|---|---|
| Cash and Cash Equivalents | $267.3 | $240.1 |
| Marketable Securities | $377.6 | $686.3 |
| Total Liquidity | $644.9 | $926.4 |
Is VeriSign, Inc. (VRSN) Overvalued or Undervalued?
Valuation Analysis
Is VeriSign, Inc. Overvalued or Undervalued?
To assess the valuation of VeriSign, Inc. (VRSN), we will examine key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio for VRSN is 30.17, calculated based on the trailing twelve months earnings per share (EPS) of $6.00.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 5.80, derived from a book value per share of approximately $31.00.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 21.50, indicating the market's expectations for growth relative to earnings before interest, taxes, depreciation, and amortization.
Stock Price Trends
Over the past 12 months, VRSN's stock price has exhibited the following trends:
- 12-month high: $185.00
- 12-month low: $150.00
- Current stock price as of the latest report: $180.32
Dividend Yield and Payout Ratios
VRSN does not currently pay a dividend, thus the dividend yield is 0%. The payout ratio is also irrelevant as there are no dividends issued.
Analyst Consensus on Stock Valuation
According to recent analyst ratings, the consensus is as follows:
- Buy: 10 Analysts
- Hold: 5 Analysts
- Sell: 1 Analyst
Financial Summary Table
| Metric | Value |
|---|---|
| P/E Ratio | 30.17 |
| P/B Ratio | 5.80 |
| EV/EBITDA Ratio | 21.50 |
| 12-Month High | $185.00 |
| 12-Month Low | $150.00 |
| Current Stock Price | $180.32 |
| Dividend Yield | 0% |
| Payout Ratio | N/A |
| Analyst Buy Ratings | 10 |
| Analyst Hold Ratings | 5 |
| Analyst Sell Ratings | 1 |
Key Risks Facing VeriSign, Inc. (VRSN)
Key Risks Facing VeriSign, Inc.
Internal and External Risks
The company faces various internal and external risks that could impact its financial health. Industry competition, particularly from country code top-level domains (ccTLDs) and new generic top-level domains (gTLDs), poses a significant threat. As of September 30, 2024, the company reported a 2.5% decrease in .com and .net registrations, totaling 169.6 million, compared to the previous year. Additionally, the final renewal rate for .com and .net domains fell to 72.7% in Q2 2024 from 73.4% in Q2 2023.
Regulatory Changes
Regulatory risks are also present, as the company is subject to agreements with ICANN that dictate pricing structures. The wholesale fee for .com registrations increased from $8.97 to $9.59 on September 1, 2023, and will rise to $10.26 on September 1, 2024. Similar increases are scheduled for .net registrations, which could affect demand and renewal rates.
Market Conditions
Market conditions, particularly in China, have weakened demand for domain name registrations. The company reported a 10% decline in revenues from China for the three months ended September 30, 2024, compared to the same period in 2023. This is indicative of broader economic challenges that may continue to affect the company's operations globally.
Operational Risks
Operational risks include the company’s reliance on cash flows from domain name registrations and renewals. For the nine months ended September 30, 2024, cash provided by operating activities was $671.1 million, an increase from $649.6 million in 2023. However, any significant drop in registrations or renewals could adversely affect these cash flows.
Financial Risks
The company has significant debt obligations, including $750 million in senior unsecured notes due 2031, $550 million due 2027, and $500 million due April 2025. The company intends to refinance the 2025 notes but faces risks associated with market conditions that may affect the availability and terms of refinancing.
Mitigation Strategies
To mitigate these risks, the company has authorized a share repurchase program totaling up to $1.50 billion, which may help support stock prices and investor confidence. As of September 30, 2024, there remains approximately $1.28 billion available for future repurchases. The company also focuses on maintaining sufficient liquidity, with cash and cash equivalents totaling $267.3 million.
| Risk Factor | Details | Financial Impact |
|---|---|---|
| Competition | Decrease in .com and .net registrations by 2.5% | Potential revenue loss |
| Regulatory Changes | Increased wholesale fees for .com and .net | Impact on renewal rates |
| Market Conditions | 10% decline in revenues from China | Reduced growth potential |
| Operational Risks | Dependence on cash flows from registrations | Cash flow volatility |
| Financial Risks | Significant debt obligations | Refinancing risks |
Future Growth Prospects for VeriSign, Inc. (VRSN)
Future Growth Prospects for VeriSign, Inc.
Analysis of Key Growth Drivers
The company is positioned to leverage several key growth drivers:
- Product Innovations: Continued enhancements in registry services and security offerings are expected. The price for .com domain registrations increased from $9.59 to $10.26 effective September 1, 2024, while .net registrations increased from $9.92 to $10.91 effective February 1, 2024.
- Market Expansions: Growth in geographic segments, particularly in the U.S. and EMEA, where revenues increased by 4% in both the three and nine months ended September 30, 2024.
- Acquisitions: The company continues to assess potential acquisitions to enhance service offerings and market reach.
Future Revenue Growth Projections and Earnings Estimates
Revenue for the three months ended September 30, 2024, was $390.6 million, a 4% increase from $376.3 million in the same period of 2023. For the nine months ended September 30, 2024, revenue totaled $1,162.0 million, also a 4% increase compared to $1,112.7 million in 2023.
Projected earnings for 2024 are anticipated to reflect continued growth, with the company reporting net income of $201.3 million for Q3 2024, compared to $188.5 million in Q3 2023.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is actively pursuing strategic partnerships that can enhance its service provision and expand its market presence. The focus on enhancing marketing activities and collaboration with registrars is aimed at boosting domain name registrations, which have seen a decline of 2.5% year-over-year, with 169.6 million registrations as of September 30, 2024.
Competitive Advantages That Position the Company for Growth
VeriSign's competitive advantages include:
- Market Leadership: The company operates two of the thirteen global internet root servers, providing critical infrastructure.
- Strong Financial Performance: With operating income of $269.3 million for Q3 2024, representing a 6% increase year-over-year, the company demonstrates robust financial health.
- Cash Flow Generation: The company generated cash flows from operating activities of $671.1 million for the nine months ended September 30, 2024, compared to $649.6 million in 2023.
| Metrics | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Revenue | $390.6 million | $376.3 million | 4% |
| Operating Income | $269.3 million | $254.3 million | 6% |
| Net Income | $201.3 million | $188.5 million | 7% |
| Domain Registrations | 169.6 million | 173.9 million | -2.5% |
| Cash Flows from Operations | $671.1 million | $649.6 million | 3.5% |
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Article updated on 8 Nov 2024
Resources:
- VeriSign, Inc. (VRSN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of VeriSign, Inc. (VRSN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View VeriSign, Inc. (VRSN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.