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Why Is VeriSign (VRSN) Up 1.8% Since the Last Earnings Report?

Zacks Equity Research
Updated

It has been about a month since the last earnings report for VeriSign, Inc. VRSN. Shares have added about 1.8% in that time frame, outperforming the market.

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

VeriSign Q1 Earnings In Line, Revenues Beat Estimates

VeriSign first-quarter 2017 adjusted earnings of $0.86 a share, in line with the Zacks Consensus Estimate. Earnings increased from $0.77 reported in the year-ago quarter.

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Revenues increased 2.4% year over year to $288.6 million and beat the Zacks Consensus Estimate of $286.6 million.

Quarter Details

In the quarter, domain name registrations for .com and .net together grew 1% year over year to 143.6 million. VeriSign processed 9.5 million new domain name registrations for .com and .net, a decrease from 10 million processed in the year-ago quarter.

VeriSign’s renewal rate for the fourth quarter of 2016 was 67.6%, down 570 basis points (bps) year over year. For the reported quarter, the exact renewal rate figures will be available after 45 days from Mar 31, 2017. The company estimates it to be 72.2% compared with 74.4% in the year-ago quarter.

Margins

VeriSign reported non-GAAP operating income of $187.8 million, up 5.2% over the prior-year quarter. The company’s non-GAAP operating margin was 65.1% in the quarter, up from 63.3% in the prior-year quarter.

Non-GAAP adjusted EBITDA was $203.6 million, an increase of 3.9% year over year.

Other Financial Details

Exiting the quarter, the company’s cash and cash equivalents (including marketable securities) were approximately $1.79 billion compared with over $1.80 billion as of Dec 31, 2016.

Operating cash flow in the quarter was approximately $148.2 million, down 0.9% year over year, while free cash flow was $139 million, down 2.8% from the year-ago quarter.

VeriSign repurchased approximately $150 million worth of shares in the quarter. As of Mar 31, 2017, the company had $920 million available under its current share repurchase program.

Guidance

For 2017, VeriSign expects revenues between $1.145 billion and $1.160 billion. Non-GAAP operating margin is now expected within a range of 64.5% to 65.25%. Domain name

Capital expenditure is expected in a range of $35 million to $45 million.For 2017, Domain name base growth is expected to be in the range of 1% and 2.5%.

For second quarter of 2017, domain name base is expected to be in the bracket of unchanged to add 0.7 million net registrations.Seasonality will have an impact on the current quarter net new registrations along with China troubles.

How Have Estimates Been Moving Since Then?

It turns out fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

VeriSign, Inc. Price and Consensus

 

VeriSign, Inc. Price and Consensus | VeriSign, Inc. Quote

VGM Scores

At this time, VeriSign's stock has a strong Growth Score of  'A', though it is lagging a bit on the momentum front with a 'B'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for momentum and to a lesser degree value.

Outlook

The stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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