Q2 2024 Earnings Summary
- VeriSign increased its share repurchase authorization by $1.11 billion, bringing the total authorized and available to $1.5 billion. This move demonstrates the company's strong financial position and commitment to returning capital to shareholders.
- Management expressed confidence in their capital allocation strategy, emphasizing a long track record of effective capital allocation that continues to serve the company well. They highlighted their focus on delivering consistent financial results and efficiently returning capital to shareholders.
- VeriSign has launched new marketing programs for .com and .net domains, with positive initial feedback from registrars. These initiatives aim to support registrars and are part of the company's strategy to return to domain name base growth in the second half of 2025.
- VeriSign lowered its full-year 2024 guidance for the domain name base, now expecting a decline between negative 3% to negative 2%, indicating ongoing weakness in new registrations and renewals.
- Competitive pressure from low-cost new gTLDs is impacting VeriSign, particularly in China, as these domains are capturing speculative demand and potentially taking market share from .com.
- Registrars prioritizing ARPU over customer acquisition are negatively affecting VeriSign's growth, with higher retail pricing and reduced marketing spend leading to weaker trends in 2024.
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Risk to .com Contract
Q: Is there a risk to the .com contract?
A: Jim Bidzos asserted that there is no risk to the .com contract. There's no provision in the Cooperative Agreement to rebid .com, and even if the Department of Commerce decides to sunset the agreement—which they are not seeking—VeriSign would continue to operate the .com registry under the ICANN contract, which has a presumptive right of renewal. -
Guidance and Registration Trends
Q: How should we think about the updated guidance?
A: George Kilguss explained that they are down about 2 million names in the first half of the year, and the midpoint of their guidance suggests this trend will continue in the second half. If their marketing programs take effect or if the Chinese market improves, they could perform better. Conversely, if trends worsen, they could reach the lower end of guidance. -
Impact of new gTLDs on .com
Q: Are new gTLDs taking share from .com?
A: Jim Bidzos acknowledged that very low-cost new gTLDs are picking up some demand, primarily from China. However, these domains tend to have lower renewal rates and lower lifetime values compared to traditional cohorts. New gTLDs operate under more flexible contracts, offer very low pricing, and can still be profitable due to low overhead, but they are not as transparent and have different business models. -
Capital Allocation Strategy
Q: Will you reconsider capital allocation due to .com growth?
A: Jim Bidzos stated they do not guide on potential changes to capital allocation. They have pursued growth through the pursuit of the .web TLD, which continues in litigation. Their long track record of capital allocation has served them well, and they focus on their primary mission of operating critical infrastructure. -
Pricing Structure and Contract Details
Q: Where does the pricing part of the contract sit?
A: Jim Bidzos clarified that pricing was negotiated with the Department of Commerce in 2018, and through Amendment 3 in 2020, it was moved into the .com agreement with ICANN as required. They cannot change pricing in negotiations with ICANN due to the Cooperative Agreement. -
Registrar Focus on ARPU Impact
Q: How is registrar focus on ARPU affecting demand?
A: Jim Bidzos noted that U.S. weakness is primarily due to registrars focusing on ARPU and reducing marketing spend. Registrars have increased prices more than VeriSign's limited wholesale pricing, with some increasing prices 3x or more, impacting demand and lasting longer than expected. -
Marketing Programs with Registrars
Q: Update on marketing programs with registrars?
A: George Kilguss reported that they have launched new programs for .net in late Q2 and for .com this quarter. Initial feedback has been positive, but it's early, and it will take time for registrars to integrate these programs into their strategies. They plan to enhance programs for 2025 based on feedback. -
Reaction to Congressional Letter to NTIA
Q: What's your reaction to the congressional letter on .com?
A: Jim Bidzos acknowledged the letter and stated that such questions occur every six years around the contract renewal. He emphasized that VeriSign's pricing is transparent and regulated, but the benefit of their capped wholesale prices is not always passed on to consumers, especially in the secondary market where .com domains average $1,600, about 166 times the wholesale price. -
Importance of Secondary Market Pricing
Q: How do secondary market prices affect consumers?
A: Jim Bidzos highlighted that the secondary market for .com domains is estimated at over $2 billion per year, exceeding VeriSign's revenue. Businesses buying domains at high prices pass the cost to consumers. This issue hasn't been sufficiently addressed in discussions about the .com domain market. -
Clarification on Contracts and Sunset Provisions
Q: Are the Cooperative Agreement and ICANN contract interrelated?
A: Jim Bidzos explained that while separate, the Cooperative Agreement restricts changes to termination provisions, performance requirements, and pricing in the ICANN agreement. The Department of Commerce can choose to sunset the Cooperative Agreement, but if they do nothing, it renews automatically for six years with all provisions intact.