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Is VeriSign Buying Revenue?

It finally reports an acquisition it made in August. Also, Pre-Paid's hollow smile and Take-Two talk.

Editor's Note: Herb Greenberg's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Jan. 8 on RealMoney.

Vexed by VeriSign:

Apparently

VeriSign

(VRSN) - Get Report

has been making acquisitions and not telling anybody. On Monday the company announced that it acquired .TV Corp. on Dec. 31, a registrar of ".tv" domain names. The deal was the subject of speculation last week, but there was also chatter that the company had acquired eNic, the registrar of ".cc" names.

Rumblings about acquisitions were so loud that analyst Drew Brosseau of SG Cowen, a die-hard VeriSign bull, wrote in a report to clients: "News commentary on Friday about another small acquisition this quarter of dot-cc registrar eNic was misleading; the acquisition actually closed in August."

August?!

That was a quarter ago, and the company never announced the eNic acquisition. In fact, during the third-quarter conference call on Oct. 25, CEO Stratton Sclavos said the company "brought in two small acquisitions" during the quarter. Neither of the companies he named was eNic.

Why didn't VeriSign disclose the eNic acquisition? According to a spokesman, the acquisition wasn't announced because it was deemed immaterial. "We generally use the amount of the acquisition as a general guideline whether to announce smaller ones," he said.

It may have been immaterial based on its purchase price, but it wasn't immaterial to short-term deferred revenue, which itself has become a material issue to VeriSign. A slowdown in short-term deferred revenue, in fact, is a key reason that VeriSign's stock has been on the wane since last quarter.

Deferred revenue gives a peek into future revenue, and at VeriSign, short-term deferred revenue has been flat for three quarters. According to Dun & Bradstreet, eNic last year had $9.3 million in short-term deferred revenue. Analysts who have talked to VeriSign say the wink-wink, nod-nod from the company is that eNic's total deferred revenue is around $5 million. (The spokesman didn't dispute that figure.)

Translation: Without eNic last quarter, VeriSign's total deferred revenue would have slowed to a growth rate of 1.6% instead of the 2.6% reported.

Which brings us to .TV Corp., which was bought the last day of the last quarter, and which happens to have $7 million to $10 million in deferred revenue. Why buy a company on the last day of the quarter? The spokesman didn't respond to the question, but the reason seems obvious: So you can book as much as $10 million of deferred revenue in the quarter.

The trouble with buying deferred revenue is that it's like a drug: Once you get hooked, it's hard to get off. Which is why, going forward, investors will want to focus on the company's organic, or internally generated, earnings. Let's just say the quality of those earnings doesn't appear to be going up.

Pre-Paid Pratfalls:

Pre-Paid Legal

(PPD)

, which has yet to file a restated 10-K

nearly four months after replacing auditors who quit, proudly announced Monday its salesperson recruitment and membership production results.

The company's spin: New records in the number of salespeople enrolled and sales of its legal policy memberships.

What the company doesn't say is its sales force is higher because it cut by $100 to $149 the amount salespeople must pay to enroll in the so-called "fast-start" program to sell the company's policies. That should chop around $4 million off revenue.

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The company does say, however, that its retention rate for member-customers "did drop slightly." Maybe the retention rate dropped slightly, but the attrition rate among members (another way of looking at retention) is 12.2%, the highest it has ever been. Meanwhile, the number of active members -- its core growth -- grew only 16.7% last quarter, compared with 28.6% a year earlier. The trend continues to not be Pre-Paid's friend.

Take-Two talk:

Last anybody publicly heard from

Take-Two

(TTWO) - Get Report

was a few weeks ago when the video game company said its delayed earnings release would come on or around Jan. 15. Well, that's in seven days. But has Take-Two set a date yet? Not according to a number of investors who have emailed the company asking when earnings will be released. The company's response: It's still shooting for the middle of the month but it doesn't have a date yet.

My question to the company, which isn't responding to my inquiries: Why can't you set a date? The fourth-quarter earnings release is already a month late. Is the year-end audit done yet?

Chip chatter:

Yes, I've noticed that DRAM prices skyrocketed while I was on vacation. But analysts at both Fechtor Detwiler and Blackfin Research have repeatedly said in recent days that the rise has nothing to do with higher demand and everything to do with hoarding by chip brokers and manipulation of a shortage by producers.

Gamesmanship:

Cramer wrote a

fascinating piece Monday on why

Dell's

(DELL) - Get Report

stock is likely to rise. The rise, if it does occur, will have nothing to do with fundamentals and everything to do with relative valuation, the greater fool theory and, last but not least, gamesmanship.

Cramer writes that I hate this gamesmanship. He's right. I hate it because it has nothing to do with investing, and the least sophisticated investors tend to be the ones who lose. But I also realize that gamesmanship is part of the markets, and that stocks

do

lie, and that is why reporters who do what I do will always have jobs.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to

Herb Greenberg. Greenberg also writes a monthly column for Fortune.

Brian Harris and Mark Martinez assisted with the reporting of this column.