Verisign shares drop 15% on contract change

Verisign stock nosedives on news of new contract without price increases.

Shares of Verisign (NASDAQ: VRSN) are down 15% in early trading after the company announced that its contract to run .com had been renewed without price increases.

Verisign’s contract renewal with ICANN allowed it to raise prices 7% in four of the six years of the contract. That would have allowed the company to raise the price from $7.85 today to $10.29 after four years.

But then the U.S. government, which must approve the agreement, decided that enough was enough with price increases.

Financial analysts are surely running the models right now, but this is a huge blow to Verisign. Four years from now the annual “loss” from this contract change will be more than $200 million, and that’s basically pure bottom line profit.

There are some ways in which Verisign could ask for price increases in the future, but they would most likely be in response to significantly worsening business conditions for the company.

There was little chance that Verisign would lose the right to run the .com registry entirely. Assuming there were back-and-forth negotiations between the parties, it would seem that the U.S. government was pushing for price decreases, which would have resulted in Verisign negotiating to the middle ground of no price changes. But it’s difficult to determine exactly how this went down.

This is certainly a win for domain name registrants.