Wells Sees Slower Growth, Aggressive Buybacks from Verisign (VRSN) on .com Renewal

November 30, 2012 10:06 AM EST
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Price: $80.06 -0.45%

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Verisign, Inc. (Nasdaq: VRSN) shares are getting higher following renewal of its .com registry agreement with Internet Corporation for Assigned Names and Numbers (ICANN).

In part, the renewal stipulates: "...Verisign's current pricing of $7.85 per domain name registration will continue for the six-year term of the Agreement....Verisign no longer has the right to four price increases of up to seven percent over the six-year term. Price increases are limited to circumstances based on the imposition of new Consensus Policy or extraordinary expenses related to security or stability threats, and now require Commerce Department prior approval....pricing restrictions may be removed entirely if Verisign demonstrates to the Commerce Department's satisfaction that market conditions no longer warrant such restrictions."

Wells Fargo, which rates Verisign at Outperform, issued comments on the news today. The firm stated that it was pleased with the steady $7.80 per domain rate, but noted that "investors were clearly disappointed by the removal of price increases from the contract."

Wells noted that Verisign gets about 85 percent of its revenue from the .com domain. The company previously enjoyed 7 percent .com price increases every six years and the new measure has Wells estimating a 4 percent hit to top-line results moving forward. The firm now expects revenue growth of seven percent, down from 11 percent prior. The firm noted that new gTLD's could add about 1 point or more to growth starting in late 2013, something its estimate doesn't take into consideration.

On Verisign's management commenting that it would re-evaluate its capital structure, Wells sees the company taking on more debt and being more aggressive with buybacks.

Wells has a valuation range of $44 to $46 on the stock. Shares are down about 14 percent to 15 percent Friday.

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