VeriSign Slips on a Wet Earnings Report - TheStreet

Updated from 5:20 p.m. EST

It was an insecure afternoon for investors in Net security stocks.

After posting an apparent blowout quarter, it turned out that

VeriSign

(VRSN) - Get Report

just met analysts' bottom-line estimates and fell short on revenue. Meanwhile,

RSA Security

(RSAS)

, a smaller player in the online security business, edged past analysts' earnings estimates but forecast 2002 revenue that was for the most part lower than Wall Street's consensus.

Shares of both companies slid after hours, with investors apparently worried about tech spending trends. VeriSign's shares fell 46 cents in normal trading to close at $36.25. After a brief gain in after-hours trading, likely caused by confusion over the company's per-share figures, the stock slid an additional $3.93. RSA fell 39 cents to $16.64 in normal trading, and fell $2.68 further after hours.

Trust Indeed

VeriSign, the self-styled provider of "digital trust services," publicized in its press release an earnings per share number of 33 cents, well ahead of the Thomson Financial/First Call forecast of a 19-cent profit, and more than double the 13-cent First Call number from the quarter ended Dec. 31, 2000.

But on the company's conference call with analysts, Verisign clarified that including taxes and excluding results from 19 days of operations of the company's recently acquired

Illuminet Holdings

, the EPS number corresponding to the First Call estimates was 19 cents, matching analysts' expectations.

On a GAAP basis, including items such as amortization of goodwill, stock-based compensation and writedown of investments, the company lost $401 million, or $1.91 per share, compared with a loss of $1.3 billion, or $6.64 per share, one year earlier.

The company's revenues grew to $283.8 million for the quarter, up from $197.4 million a year earlier, and slightly ahead of the $281.5 million consensus estimate. Excluding Illuminet's numbers, the company would have recorded $272 million in revenue, short of expectations.

Excluding deferred revenue from acquisitions during the quarter, Verisign's deferred revenue grew 3.5%.

Initials

Elsewhere in the industry, the news was no sunnier. If there has been an effect on the security business from the Sept. 11 terrorist attacks, said RSA CEO Art Coviello, he hasn't seen it. Saying that information technology spending continues to be cautious, Coviello told analysts that IT budgets appeared to be flat or slightly higher in 2002, with a slightly greater portion of them devoted to security.

And on a conference call with analysts, Coviello said that the

Securities and Exchange Commission

had begun an inquiry into the company's discussion of a change in revenue recognition methodology, explained in a quarterly SEC filing but apparently not in an earlier press release. The effect of the change was not material, said Coviello; he said the SEC has not concluded there was any wrongdoing.

RSA Security reported revenue of $63 million for the fourth quarter of 2001, down from $78.1 million in the December 2000 quarter, and just shy of the First Call estimate of $64 million.

Net income for the quarter was $354,000 for the company's core businesses, or a penny a share. That compares to the analysts' breakeven estimate and an 18-cent profit from the corresponding quarter one year earlier.

Including noncore businesses such as the company's RSA Capital investment arm, the company lost $10.1 million in the quarter, or 18 cents per share, compared with net income of $103.9 million, or $1.70 per share, in the fourth quarter of 2000.

RSA's Coviello was lukewarm about the pace of new business, saying that the flow of large, million-dollar-plus deals in the fourth quarter had slowed from third-quarter levels.

Looking ahead, the company reiterated a revenue guidance range of $285 million to $295 million for 2002, mostly lower than the $293 million First Call mean estimate. The company says it expects net income from its core business to range from 25 to 33 cents per share, compared with a consensus of 27 cents.