Verisign: .Com & .Net Monopolies Offer High-Single Digit FCF Yield And Double-Digit Growth

BusinessVerisign ("VRSN") is a global provider of wholesale domain name registry services for a number of generic top level domains ("gTLDs"), including two of the Internet's largest, .com and .net. Verisign provides these services under long-term agreements with Internet Corporation for Assigned Names and Numbers ("ICANN"), a global multi-stakeholder non-profit, and the U.S. Department of Commerce ("DOC"). A more detailed description is found in Wikipedia and in Verisign's SEC 10-K filing.Revenue ModelVerisign's revenue model is relatively simple - 2014 total revenue is roughly as follows (excludes the impact of promotional marketing to registrars that is treated as a reduction in revenue):A. average .com domain names or (112mm + 115.6mm)/2 = 113.8mm x $7.85 annual license per domain = ~$893mmB. average .net domain names (15.2mm + 15.0mm)/2 = 15.1mm x $5.62 1/1/14 to 1/31/14 and $6.18 from 2/1/14 to 12/31/14 annual license per domain = ~$93 mmC. other revenue = ~$24mmD. 2014 total revenue=$1,010 mmInvestment ThesisVRSN has a .com and .net monopoly that offers a ~6.2% 2014 FCF yield or ~16.0x P/FCF multiple and double-digit growth. Yield is based on 2014 FCF of $568 mm / (current share price of $66.30 x (116.9 primary shares from 2014 10-K + 17.5 mm shares per the Treasury Method + ~2.7mm option / ESOP diluted shares in Q4 '14). Double-digit growth is fueled by the EPS or FCF per share waterfall outlined below. In summary, 3% to... Read more

Older articles featuring VRSN: