Why VeriSign (VRSN) Is Sinking on Monday

NEW YORK (TheStreet) --  VeriSign (VRSN) is plummeting on Monday after the National Telecommunications and Information Administration (NTIA) said it will surrender control of internet domain name management.

By late morning, VeriSign had taken off 7.4% to $50.80. Trading volume of 5 million was more than double its three-month daily average.

On Friday, the NTIA announced its intent to transition key domain name functions to the "global multi-stakeholder community."

"As the first step, NTIA is asking the Internet Corporation for Assigned Names and Numbers (ICANN) to convene global stakeholders to develop a proposal to transition the current role played by NTIA in the coordination of the Internet's domain name system (DNS)," the government body said in a statement.

However, VeriSign, which provides infrastructure for top-level domains such as .com, .net and .gov, said the announcement would not affect its operations.

"The announcement does not impact Verisign's .com or .net domain name business nor impact its .com or .net revenue or those agreements, which have presumptive rights of renewal," the company said in a statement.

"The NTIA announcement involves Internet functions that are entirely different functions from those Verisign performs under its .com and .net agreements. The functions performed by Verisign involved in the NTIA announcement have been performed as a community service spanning three decades without compensation," it continued.

Investment firm Cowen & Co. turned bearish on the news, cutting its rating to "market perform" from "outperform" and downwardly revising its target price to $49 from $63.

"With less U.S. control and without knowledge of what entity or entities will ultimately have power, we believe there is increased risk that VRSN may not be able to renew its .com and .net contracts in their current form," analysts wrote in the report.

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TheStreet Ratings team rates VERISIGN INC as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate VERISIGN INC (VRSN) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, compelling growth in net income, revenue growth, expanding profit margins and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 176.5% when compared to the same quarter one year prior, rising from $105.64 million to $292.15 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.4%. Since the same quarter one year prior, revenues slightly increased by 6.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for VERISIGN INC is currently very high, coming in at 87.24%. Regardless of VRSN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VRSN's net profit margin of 118.93% significantly outperformed against the industry.
  • VERISIGN INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, VERISIGN INC increased its bottom line by earning $3.54 versus $1.91 in the prior year. For the next year, the market is expecting a contraction of 25.4% in earnings ($2.64 versus $3.54).

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