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    VeriSign, Inc (VRSN)

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    VeriSign, Inc. (VRSN) is a global provider of critical internet infrastructure and domain name registry services, primarily enabling internet navigation for many of the world's most recognized domain names . The company plays a crucial role in the security, stability, and resiliency of the Domain Name System (DNS) and the internet by providing Root Zone Maintainer services, operating two of the thirteen global internet root servers, and offering registration services and authoritative resolution for the .com and .net top-level domains (TLDs), which support the majority of global e-commerce . VeriSign's business is heavily influenced by the growth in online advertising, e-commerce, and the number of internet users, with domain name registrations being a significant driver of revenue .

    1. Domain Name Registry Services - Provides registration services and authoritative resolution for the .com and .net top-level domains (TLDs), supporting global e-commerce.
    2. Root Zone Maintainer Services - Ensures the security, stability, and resiliency of the Domain Name System (DNS) by maintaining the root zone.
    3. Internet Root Servers Operation - Operates two of the thirteen global internet root servers, contributing to the overall stability and functionality of the internet.
    Initial Price$177.67July 1, 2024
    Final Price$187.14October 1, 2024
    Price Change$9.47
    % Change+5.33%

    What went well

    • VeriSign is actively returning excess cash to shareholders through share repurchases, spending $301 million to repurchase 1.7 million shares in the third quarter, with $1.28 billion remaining under the current share repurchase program.
    • New registrar marketing programs are showing promising results, and the company plans to engage more fully with registrars in 2025 to drive domain name base growth.**
    • VeriSign has historically benefited from economic growth in China, and as registrars in China adopt new programs, there is potential for positive impacts on the domain name base.**

    What went wrong

    • VeriSign experienced a decline of 1.1 million domain names in its domain name base during the third quarter, with 850,000 of this decline from the U.S. market, indicating challenges in maintaining growth.
    • U.S. registrars are prioritizing higher ARPU over customer acquisition by increasing retail prices, focusing on aftermarket sales, and reducing marketing spend, negatively impacting VeriSign's new registrations and renewal rates.
    • Weakness in the Chinese market due to a poor macroeconomic environment and increased regulations continues to impact VeriSign's growth, with no material improvement expected in the near term.

    Q&A Summary

    1. Growth Outlook
      Q: Is returning to growth in 2025 less certain now?
      A: Management indicated that registrars are not engaging quickly enough to implement programs, pushing some initiatives from 2024 into 2025, which could impact the goal of returning to growth in the second half of 2025.

    2. Registrar Strategies
      Q: How is the focus on ARPU affecting domain growth?
      A: Registrars are prioritizing higher ARPU through increased retail prices, aftermarket sales of premium domain names, and reduced marketing spend. This focus is creating headwinds for domain growth, particularly in the U.S. market, contributing to a decline of 850,000 domains in the U.S..

    3. China Outlook
      Q: Will you benefit if China's economy rebounds?
      A: Historically, the company benefited when China's economy was strong. Currently, the macroeconomic environment and increased regulation in China remain weak. Some registrars piloted programs last quarter with positive results, and the company is engaging with them into 2025 in hopes of benefiting if economic activity rebounds.

    4. Expense Growth
      Q: How will marketing efforts impact costs in 2024 and 2025?
      A: Expenses are expected to grow more in 2025 than in 2024. Investments, including hiring 12 people in the quarter, have been pushed into Q4 2024. The company will invest more in marketing programs that are proving accretive and reduce investment in those that are not.

    5. Capital Allocation
      Q: Will you increase leverage to boost buybacks?
      A: The company is cautious about financial stability and does not plan to increase leverage. While committed to returning excess cash to shareholders efficiently, leveraging up is not a priority, and they will continue their prudent capital allocation strategy.

    6. Marketing Initiatives
      Q: Can you provide examples of marketing programs?
      A: For competitive reasons, specifics were not disclosed, but the company is offering registrars multiple programs to align with different go-to-market strategies. This includes options that appeal to registrars focusing on selling more products or acquiring new customers, aiming for programs that are mutually beneficial.

    Guidance Changes

    Annual guidance for FY 2024:

    • Revenue: $1.554–$1.559 billion (lowered from $1.553–$1.563 billion )
    • Operating Income: $1.054–$1.059 billion (raised from $1.048–$1.058 billion )
    • Interest Expense and Nonoperating Income Net: $32 million–$42 million (raised from $25 million–$35 million )
    • Capital Expenditures: $25 million–$35 million (lowered from $30 million–$40 million )
    • GAAP Effective Tax Rate: 21%–24% (no change from prior guidance )
    NamePositionStart DateShort Bio
    D. James BidzosExecutive Chairman, Chief Executive Officer, and Incoming PresidentAugust 2009 (Chairman), August 2011 (CEO), April 2024 (President)D. James Bidzos has been serving as the Executive Chairman since August 2009 and as the Chief Executive Officer since August 2011. He also took on the role of President in April 2024 .
    Todd B. StrubbePresident and Chief Operating Officer (Retiring effective April 5, 2024)February 2020 (President), April 2015 (COO)Todd B. Strubbe has served as the President and Chief Operating Officer since February 2020. He initially joined as COO in April 2015. He will retire effective April 5, 2024 .
    George E. Kilguss, IIIExecutive Vice President, Chief Financial OfficerMay 2012George E. Kilguss, III has served as the Chief Financial Officer since May 2012. Before joining VeriSign, he was the CFO of Internap Network Services Corporation .
    Danny R. McPhersonExecutive Vice President, Engineering, Operations, and Chief Security OfficerApril 2022Danny R. McPherson has served as Executive Vice President, Engineering, Operations, and Chief Security Officer since April 2022. He previously held various positions at the company .
    Thomas C. IndelicartoExecutive Vice President, General Counsel, and SecretaryNovember 2014Thomas C. Indelicarto has served as Executive Vice President, General Counsel, and Secretary since November 2014. He was previously Vice President and Associate General Counsel .
    1. Given the domain name base decreased by 1.1 million names in Q3 2024, and with U.S. registrars prioritizing ARPU over customer acquisition, what specific strategies are you implementing to reverse this trend and drive growth in domain registrations, especially considering the challenges in returning to growth in the second half of 2025?

    2. Can you provide more insight into the new registrar marketing programs you've developed, and explain why their adoption is taking longer than expected? What are the main obstacles, and how do you plan to encourage registrars to engage with these programs sooner?

    3. With China-related weakness significantly impacting the domain name base, what steps are you taking to mitigate this influence, and how confident are you that improvements in the Chinese economy will lead to better performance for Verisign?

    4. You mentioned that operating expenses are expected to grow more in 2025, particularly due to investments in marketing programs; can you elaborate on which areas will see increased spending and how these investments will contribute to profitable growth?

    5. Considering your strong cash position and substantial share buybacks, have you evaluated the possibility of leveraging your balance sheet further to enhance shareholder returns, or are there strategic reasons for maintaining a conservative financial stance?

    Program DetailsProgram 1
    Approval DateJuly 25, 2024
    End Date/DurationNo expiration date
    Total additional amount$1.11 billion
    Remaining authorization amount$1.28 billion
    DetailsPurchases can be made through open market transactions, block purchases, accelerated share repurchase agreements, or other negotiated transactions.

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      • Revenue: $1.554 billion to $1.559 billion .
      • Operating Income: $1.054 billion to $1.059 billion .
      • Interest Expense and Nonoperating Income Net: Expense of $32 million to $42 million .
      • Capital Expenditures: $25 million to $35 million .
      • GAAP Effective Tax Rate: 21% to 24% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Revenue: $1.553 billion to $1.563 billion .
      • Operating Income: $1.048 billion to $1.058 billion .
      • Interest Expense and Nonoperating Income Net: Expense of $25 million to $35 million .
      • Capital Expenditures: $30 million to $40 million .
      • GAAP Effective Tax Rate: 21% to 24% .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Revenue: $1.555 billion to $1.57 billion .
      • Operating Income: $1.047 billion to $1.062 billion .
      • Interest Expense and Nonoperating Income Net: Expense of $25 million to $35 million .
      • Capital Expenditures: $30 million to $40 million .
      • GAAP Effective Tax Rate: 21% to 24% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Revenue: $1.56 billion to $1.58 billion .
      • Operating Income: $1.45 billion to $1.65 billion .
      • Interest Expense and Nonoperating Income Net: Expense of $30 million to $40 million .
      • Capital Expenditures: $35 million to $45 million .
      • GAAP Effective Tax Rate: 21% to 24% .

    Competitors mentioned in the company's latest 10K filing.

    • China Internet Network Information Center (CNNIC) - Competes in the domain name registry space.
    • DENIC eG - Competes in the domain name registry space.
    • Nominet - Competes in the domain name registry space.
    • Identity Digital - Competes in the domain name registry space.
    • Public Interest Registry (PIR) - Competes in the domain name registry space.
    • CentralNic - Competes in the domain name registry space.
    • Google - Competes in the domain name registry space.
    • .xyz - Competes in the domain name registry space.
    • GoDaddy - Competes in the domain name registry space.
    • Radix - Competes in the domain name registry space.
    • Facebook - Competes as a social media network for online identity.
    • Instagram - Competes as a social media network for online identity.
    • TikTok - Competes as a social media network for online identity.
    • WeChat - Competes as a social media network for online identity.
    • Amazon - Competes as an e-commerce platform.
    • Etsy - Competes as an e-commerce platform.
    • eBay - Competes as an e-commerce platform.
    • Taobao - Competes as an e-commerce platform.
    • X (formerly Twitter) - Competes as a microblogging tool.