VeriSign's Top-Line Outlook Falls Short

Shares get clobbered in late trading.
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Updated from 4:45 p.m. EDT

Wall Street clobbered

VeriSign

(VRSN) - Get Report

Wednesday after the company's said sales in the third quarter will fall well short of analyst's expectations.

Shares were off $3.28, or 11.3%, to $25.72 in after-hours trading following the company's earnings announcement.

The weak guidance soured a strong second-quarter report in which revenue soared by 74% and net income nearly doubled year over year.

The company earned a profit of $41 million, or 15 cents a share, compared with $22 million, or 9 cents a share in the same quarter of 2004.

Excluding various items, the Internet infrastructure company earned $105 million, or 27 cents per diluted share.

On the same basis, analysts polled by Thomson First Call had forecast a profit of 26 cents per share on sales of $440.8 million.

Revenue was $445 million, up from $256 million a year earlier.

VeriSign has a wide range of business, including its traditional bailiwicks of e-commerce security and domain name registration. More recently, the Mountain View, Calif. company has become a provider of content, such as ringtones and digital wallpaper, for mobile phones and other handheld devices.

The content business has grown quickly, and now accounts for nearly 40% of the company's revenue. It soared by 50% sequentially in the first quarter, but only grew 15% to $175 million in the second, well below Wall Street's expectations. CEO Stratton Sclavos said "comparisons in the third quarter will be difficult," implying that revenue in the group will be down in the next quarter. But he expects a return to growth in the fourth quarter, he said during a conference call with financial analysts after the announcement.

Sclavos explained the slowdown, saying that the company added top tier carriers and new content in the first quarter, but wasn't able to do so in the second quarter.

Speaking to guidance for the whole company, CFO Dana Evan told investors to expect sales in the third quarter to range from $435 million to $440 million; analysts were projecting $460 million. Earnings per share of 27 cents will be in line with expectations.

The company maintained its full-year revenue guidance of $1.75 billion, despite an expected hit caused by the strengthening of the dollar. VeriSign raised EPS guidance by 3 cents to $1.07. Analysts were expecting sales guidance of $1.78 billion and EPS guidance of $1.06.