VeriSign Inc.: A monopoly player in the domain name market
VeriSign Inc. $VRSN+0.3% is a global leader in registration services and the administrator of the Domain Name System (DNS), which includes the vast directories that connect website names with their corresponding IP addresses. This critical player in the Internet infrastructure owns the exclusive rights to register two of the most popular top-level domains: .com and .net.
VeriSign's key role on the Internet
VeriSign $VRSN+0.3% plays a vital role in maintaining Internet connectivity. Anyone who wants to own a .com or .net domain must register their domain through VeriSign, which guarantees the company a steady income through annual fees. The company charges $9.59 per year for each domain, and all data that is entered with these domains is redirected to VeriSign's servers.
Monopoly position and long-term contracts
$VRSN+0.3% maintains its dominant position in the market through long-term contracts with the Internet Corporation for Assigned Names and Numbers (ICANN), a global organization that ensures the safe and stable operation of the Internet. Contracts for DNS services are typically renewed every six years, with VeriSign in a privileged position as long as it meets its contractual obligations. VeriSign has provided uninterrupted DNS services for nearly three decades and has continually invested in its infrastructure and cybersecurity, strengthening its position against competitors.
Steady growth and financial strength
The registry services industry is highly profitable and stable. ICANN allows VeriSign to increase its registration prices by 7% annually, well above the rate of inflation, giving the company a secure revenue stream. VeriSign $VRSN+0.3% expects to achieve a return on assets of over 40% over the next decade. The company currently has a .com contract valid through November 2024 and a .net contract valid through 2029.
Current challenges and opportunities
Despite its strong financial and market position, VeriSign's stock is facing a 20% decline, which is attributed to declining demand from China and the growing popularity of local domains such as those in Canada and India. However, analysts believe the concerns are overblown and that this is a buying opportunity. Many prominent investors, including billionaires, are taking advantage of the situation to repurchase VeriSign stock, which they consider undervalued.
VeriSign $VRSN+0.3% remains a strong player in the Internet infrastructure space, with long-term potential for steady growth and high profitability.
Wow, that's what I call profitability. Over 54% in 2023 and 47% in 2022. The stock is pretty cyclical, though. I'm missing the dividend in this case.
It's an interesting business, which I'm quickly becoming interested in, but I won't be buying the stock. The stock has been pretty volatile lately.