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Solid financials drive VeriSign's stock

VeriSign, a global provider of domain name registry and internet security services, issued solid financials for the third quarter of 2015, with revenues up 4.2% y-o-y to $265.8 mn. In Q3, VeriSign Registry Services added 1.68 mn net new names. Domain names in the zone for .com and .net together increased 3.4% y-o-y to 135.2 mn. The company processed 9.2 mn new domain name registrations for .com and .net, an increase from 8.7 mn in the year-ago quarter. VeriSign’s renewal rate for the second quarter was 72.7%, up 90 basis points y-o-y. For the reported quarter, the exact renewal rate figures will be available after 45 days from Sep 30, 2015. However, the company estimates it to be 71.8% compared with 72% in the year-ago quarter. Adjusted operating income increased 8% to $166.7 mn, and operating margin expanded 210 basis points to 62.7%. Adjusted earnings per share jumped 11.4% to 78 cents.

VeriSign exited Q3 with cash and cash equivalents (including marketable securities) of $1.9 bn compared with $1.4 bn at the end of 2014. Operating cash flow in the first nine months of 2015 was $463 mn, up from $430 mn in the year-ago period. In Q3, VeriSign repurchased $156 mn worth of shares, and the total amount remaining under the company’s share buyback program as of Sep 30, 2015 was $605 mn.

For full year 2015, VeriSign forecasts revenues in the range of $1.050-1.055 bn (previously projected range was $1.043-1.057 bn), which represents growth of 4-4.5% y-o-y. Operating margin is expected to be 61-62%.

I believe that the renewal of the .com contract and price hikes for the .com and .net domain names will remain primary growth drivers for the company. VeriSign will be increasing .net fees to $7.46 from $6.79, from Feb 1, 2016, which is expected to be accretive to its long-term revenue growth. In addition, an expected increase in the domain name base will also remain a key driver of its growth. Besides, VeriSign has significant growth opportunities in its network security products.

I believe solid financials to continue to drive VeriSign's stock going forward. Medium-term goal is $90.