VeriSign is the manager of the .com and .net domain registers – they serve as a monopolistic gatekeeper to the Internet.
There are three catalysts for this company’s stock appreciation: pricing powers, the Internet’s global expansion, and share buybacks.
Through agreements with not-for-profit Internet watchdog Internet Corporation for Assigned Names and Numbers (ICANN) and the US Department of Commerce, VeriSign has gained exclusive rights to manage the .com and .net domain registers worldwide (also they manage the .cc, .tv, and .name registers, but I will focus on the two big ones). They also manage the infrastructure behind these registers.
In plain English, VeriSign manages who owns which web addresses (such as google.com or att.net). They charge a fee each year to the owners of the web addresses. VeriSign’s exclusive rights to the .com domain register run through late 2024 and the .net domain register through mid-2023. Even past 2023, VeriSign’s business model appears to be safe. According to the company’s 2016 10-k, “the .com and .net Registry Agreements with ICANN contain a “presumptive” right of renewal upon the expiration of their current terms.”
Catalyst 1: Regulated Monopoly, with some pricing powers
Great news, VeriSign has a monopoly! However, serving as the sole gatekeeper for the above-mentioned domains means ICANN feels it is necessary to regulate VeriSign’s pricing power. Currently, VeriSign can charge a maximum for $7.85 per .com registry and $8.20 per .net registry.
The .com, .net, and .name domain rates are regulated by ICANN, but others, such as .cc and .tv do not have those restrictions. Those prices can be raised more aggressively by VeriSign going forward. I will not try to estimate these figures, but my point is that revenue for VeriSign can only go up as price per domain increases (even if volume of domains sold is flat – but I doubt that will happen in the long term……)
Catalyst 2: Internet’s Global Expansion
The growth of .com and .net domain registries has slowed the past few years. VeriSign’s domain growth was roughly 10% the 2000s decade. That growth has been cut to the mid-single digits during the 2010 decade. Despite this growth slowdown, I believe a long-term catalyst is still viable – the Internet’s global expansion.
Interntlivestats.com reports roughly 8% worldwide Internet growth in each of the past three years with only 46.1% of the world’s population currently using the Internet. As more areas of the world obtain the Internet and demographics change to a population more technologically savvy, the number of Internet users will increase – and with them, more small businesses, charities, and blogs that all need websites. More websites = more revenue for VeriSign.
Catalyst 3: Share Buybacks/Capital Returns
The company has been repurchasing shares at a decent rate for the past few years, dedicating $4.8 billion to buybacks since 2010. The buybacks have lowered dilutive shares outstanding by over 50 million during the 2010-2016 year-end time frame.
The above is an abbreviated version of a SeekingAlpha report on the company.