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VeriSign (VRSN) Up 2.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for VeriSign (VRSN). Shares have added about 2.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is VeriSign due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

VeriSign Beat Q1 Earnings Estimates, Revenues Up Y/Y

VeriSign reported first-quarter 2019 non-GAAP earnings of $1.31 that increased 22.4% from the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $1.24.

Revenues increased 2.4% year over year to $306.4 million and beat the consensus mark of $302.4 million.

Quarter Details

VeriSign ended the reported quarter with 154.8 million .com and .net domain name registrations, up 4.4% year over year. The figure reflects a net increase of 1.82 million registrations during the quarter.

Notably, there were 141 million .com and 13.8 million .net domain name registrations in first-quarter 2019.

In the reported quarter, VeriSign processed 9.8 million new domain name registrations for .com and .net compared with 9.6 million in the year-ago quarter.

The final .com and .net renewal rate for the fourth quarter of 2018 was 74.3% compared with 72.2% in the year-ago quarter. Renewal rates are not fully measurable until 45 days from the end of the quarter.

Management anticipates the renewal rate for first-quarter of 2019 to be about 75% compared with 75.3% in the year-ago period.

Operating Details

VeriSign’s research and development expenses (5.3% of total revenues) increased 4.9% from the year-ago quarter to $16 million.

General and administrative expenses (11.1% of total revenues) increased 2.8% to $34 million. However, sales and marketing expenses (3.4% of total revenues) declined 39.1% to $11 million. Total operating expenses also declined 6.8% year over year to $106 million.

In the reported quarter, non-GAAP operating income was $212.7 million, up 7.2% from the year-ago quarter. Non-GAAP operating margin expanded 310 basis points (bps) year over year to 69.4%.

Balance Sheet & Cash Flow

As of Mar 31, 2019, the company’s cash and cash equivalents (including marketable securities) were approximately $1.25 billion compared with $1.27 billion in the prior quarter.

Operating cash flow in the quarter was approximately $187 million compared with $90 million in the year-ago quarter. Moreover, free cash flow was $178 million compared with $82 million in the year-ago quarter.

VeriSign repurchased 1 million shares for $175 million in the quarter.

2019 Guidance

The company expects the domain name base growth rate to be between 2.5% and 4.25%. Moreover, revenues are expected to be $1.22-$1.235 billion from the earlier guided figure of $1.215-$1.235 billion. Non-GAAP operating margin is expected to be 67.5-68.5%.

Capital expenditure is anticipated to be $45-$55 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

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VGM Scores

At this time, VeriSign has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

VeriSign has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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