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VeriSign (VRSN) Q4 Earnings Miss Estimates, Revenues Beat

Zacks

VeriSign Inc. VRSN reported non-GAAP earnings per share of 96 cents for the fourth quarter of 2017, which missed the Zacks Consensus Estimate by a penny but marked an increase of 4 cents from the year-ago quarter.

Revenues increased 3.2% year over year to $296 million and came slightly ahead of the Zacks Consensus Estimate of $295 million. The year-over-year improvement was primarily driven by increase in domain name registrations in the global market.

However, increase in operating expense due to an increase in sales and marketing was an overhang on margins.

Quarter Details

In the quarter, domain name registrations for .com and .net together grew 2.9% year over year to 146.4 million. In absolute terms, domain name registrations grew 0.57 million year over year. VeriSign processed 9 million new domain name registrations for .com and .net, an increase from 8.8 million processed in the year-ago quarter.

Per management, during the quarter, 60% of the revenues came from U.S. customers while international customers contributed the rest.

For the reported quarter, the exact renewal rate figures will be available after 45 days from Dec 31, 2017. The company estimates it to be 72.2%. However, management noted that second time renewal rate in China was disappointing.

Margins

VeriSign reported non-GAAP operating income of $189.3 million compared with $183.1 million in the prior-year quarter. The company’s non-GAAP operating margin was 64.1% in the quarter, up 20 basis points (bps) from the prior-year quarter.

Non-GAAP adjusted EBITDA was $207.6 million, up 4.3% from the year-ago quarter.

VeriSign, Inc. Price, Consensus and EPS Surprise

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

Other Financial Details

As of Dec 31, 2017, the company’s cash and cash equivalents (including marketable securities) were approximately $2.4 billion compared with $1.8 billion as of Dec 31, 2016.

Operating cash flow in the quarter was approximately $199 million while free cash flow came in at $190 million. Moreover, in fiscal 2017, the company generated $703 million of cash flow from operational activities.

VeriSign repurchased 1.3 million shares for $145 million in the quarter. The company repurchased 6.3 million shares for $593 million in 2017.

VeriSign also announced that the board of directors has authorized an additional share repurchase worth approximately $586 million to a total of $1 billon, which has no expiration.

Outlook

For fiscal 2018, VeriSign expects revenues in the range of $1.195-$1.215 billion. Management noted that the revenue guidance does not take into consideration .web top-level domain as it is still uncertain whether the operation of .web will commence this year.

Non-GAAP operating margin is expected to be in the range of 65.5%-66.5%. Management expects increase in operating expenses related to sales and marketing to continue in the first half of the year as well.

Capital expenditure is anticipated to increase in the range of $45-$55 million.


VeriSign also provided domain name base growth rate guidance for 2018. The company now anticipates the same to grow between 2% and 3%.

For the first quarter, VeriSign projects domain name base registration to increase in the range of 1.5 million to 2 million.

Zacks Rank & Stocks to Consider

VeriSign carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Micron Technology Inc. MU, Lam Research Corporation LRCX and Twitter Inc. TWTR, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Micron, Lam Research and Twitter is projected to be 10%, 14.9% and 21.5%, respectively.

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