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No Safety in VeriSign

Adam Lashinsky

I stand on Herb Greenberg's sturdy shoulders in warning investors to be careful, very careful, about shares of security-software company VeriSign(VRSN Quote).

VeriSign's shares have been tumbling of late on concerns that the rest of the security-software segment is coming unglued. Never mind the 52-week high of $214.38 -- that's a relic of a bygone era. VeriSign's shares, at Wednesday's close of $47.24, are down 25% from their recent high of $63.22 earlier this month.

Even so, VeriSign trades for about 75 times Wall Street's estimates of this year's earnings. Nearly the entire Street is defending VeriSign and its subscription (and therefore predictable) revenue model. But the fact remains that the company's growth is dependent on continued big spending in corporate IT departments for its security business, and continued expansion of Internet usage for its domain-name registry and registrar businesses.

UBS Warburg analyst Jordan Klein, a VeriSign bull, suggests one key metric all investors should watch when VeriSign reports. He forecasts deferred revenue will rise 8% sequentially to $584 million. This figure is key. Because VeriSign collects cash that it books as revenue over time, the deferred revenue figure points to how business is going now -- and forecasts future revenue. If sequential deferred revenue growth is anything less than 4%, Klein suggests, investors won't be happy.