VeriSign Hammered on Downgrades

The security software company says domain-name registration and IT spending delays hit revenue.

Author:: Ronna Abramson
Publish date:: Apr 26, 2002 7:30 AM EDT

Updated from April 25

Shares of security and domain name registry company

VeriSign

were tumbling Friday after they were furiously downgraded by Wall Street brokerages.

The moves came a day after Mountain View, Calif.-based Verisign beat Wall Street first-quarter earnings estimates on revenue that fell short of expectations. VeriSign also said it will lay off about 10% of its staff as part of a restructuring involving recently acquired companies Illuminet Holdings and H.O. Systems. This is expected to result in charges of $70 million to $80 million, the company said.

Bear Stearns lowered the stock to unattractive from attractive and cut its price target from $37 a share all the way to $10. The shares were also cut by Lehman Brothers, CSFB, JP Morgan and others. In the pre-market Instinet session, they were off $4.23, or 23%, to $14.01.

The company reported a loss of $20.9 million, or 9 cents a share, compared with a loss of $1.38 billion, or $6.90 cents a share, a year earlier, which included a $1.37 billion charge for amortization of goodwill and other intangible assets. Revenue totaled $327.8 million, compared to $213.4 million the same period a year ago.

On a pro forma basis, VeriSign said it earned $67.7 million, or 28 cents a share, compared with $48.6 million, or 23 cents a share, a year earlier. The consensus estimate was for VeriSign to earn 20 cents a share on $342.6 million in revenue, according to Thomson Financial/First Call.

"Clearly, our first-quarter results were not up to our expectations, as we encountered significant spending delays in our IT and telecom customer bases, particularly in the last few weeks of March, as well as more severe challenges in our Mass Markets domain name service," Chairman and CEO Stratton Sclavos said in a press release.

VeriSign's domain-name business has been under pressure for months as a result of increased competition from lower-priced rivals and an end to the land rush during the dot-com boom. Analysts had hoped for VeriSign's domain name business to stabilize in March, but this week SnapNames, a domain industry infrastructure provider that publishes a monthly count on domain names, reported VeriSign experienced a net loss of 622,269 domain names ending in .com, .net. and .org in March alone.

VeriSign said it registered 2.6 million new domain names in the first quarter, but total registrations were down to 27.3 million from 28.8 million at the end of the fourth quarter.

The stock was recently trading down 45.4% to $9.95 on the downgrades after closing at $18.24 Thursday.