Report Suggests Domain-Name Pain May Be Past

After shrinking for nine months, domain name registrations finally grew in July, offering a ray of hope for embattled registrars VeriSign (VRSN Quote - Cramer on VRSN - Stock Picks) and Register.com (RCOM Quote - Cramer on RCOM - Stock Picks).

The total number of domain names ending with .com, .net and .org grew by 128,874 to 27.1 million in July, according to the Zooknic Internet Geography Project, which tracks Internet domain names. July marks the first full calendar month of growth in total number of domain names since September.

Zooknic's results generally concur with results to be released Wednesday by research firm SnapNames in its latest "State of the Domain" report, said publisher Mason Cole. SnapNames found that total .com, .net and .org names grew by 129,419 to 27.2 million in July. (The numbers differs from Zooknic because the two groups do not count names at the exact same time.)

Total domain names have declined by about 3.6 million between October and June, according to Zooknic and SnapNames. VeriSign, the largest domain name registrar, in particular has suffered a large drop in names as it has deleted promotional names initially given away for free and speculative names that were not renewed.

"The total number of domain names is starting to grow, and what this means for Register.com and VeriSign is a stabilization in their domain name holdings," said Matthew Zook, who started Zooknic as part of his doctoral studies at UC Berkeley and is now an assistant professor of economic geography at the University of Kentucky. "I don't want to say growth necessarily, but stabilization, meaning they're not going down in that deep dive that they had been."

Cole agreed it's too early to call July's growth in domain names a trend and conclude the domain names market has reached a bottom. But "the July numbers indicate that yes, there is going be some more stability to the com, net and org part of the domain name world."

Zooknic reported that VeriSign, whose total registered domain names shrunk by more than 4 million since the beginning of 2002, saw a slowdown in those losses in July as they trend toward zero. Zooknic estimated that VeriSign's com, net and org names totaled 9.01 million July 31, with a margin of error of 0.7%.

VeriSign has told investors it expected its total domain names to bottom at between 9 million and 10 million by the end of June. Zook stopped short of saying his numbers confirm that prediction by VeriSign because they are based on a sample and VeriSign's numbers only began to flatten out in the last couple of weeks of July. But he did say his numbers definitely do not contradict VeriSign's forecast.

SnapNames declined to provide market share figures for specific registrars.

Zooknic's market share count for Register.com, meanwhile, is more definitive than that for VeriSign, Zooknik said. Zooknic reported that Register.com's losses of com, net and org names appear to have reversed, to reach 2.7 million names from just over 2.6 million names at the beginning of June.

Tim Leehealey, an analyst at Wedbush Morgan Securities, called the Zooknic numbers "encouraging," but said he doubts the market will give VeriSign and Register.com a break on just one month of figures.

"Certainly the bears are going to say one month a trend doesn't make," Leehealey said. But "if this is in fact a solid number and it stabilizes and it doesn't get blown out next month, then I think we finally hit the bottom." Leehealey has a buy rating on VeriSign and a hold rating on Register.com and his firm has done banking with Register.com.

Shares of VeriSign have lost 84% of their value since the beginning of the year, while shares of Register.com have lost 59% of their value. VeriSign shares rose 47 cents, or 8.4%, to $6.08, and Register.com shares inched up 6 cents, or 1.3%, to $4.51 in recent trading.