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Verisign: What goes up might come down

Strong end of 2015 could make for a challenging end to 2016.

.Com domain name registry Verisign reported Q4 results after the bell yesterday.

Thanks to Chinese domain name investors, the company had 12.2 million new domain name registrations for .com and .net last quarter, as compared to 8.2 million for the same quarter in 2014. This boosted its base of .com and .net by 4.6 million after deletions.

Verisign does not expect this surge to continue. It expects a return to normalcy in Q1, with net additions of 1.5 million to 2.0 million in Q1 2016.

It also warned that it might actually have a decrease in the net base in Q4 2016 as the Chinese registrations from last quarter come up for renewal. It’s hard to predict how many will be renewed, but the company noted that:

1. Renewal rates in emerging countries are usually lower than elsewhere.

2. First-year renewal rates are lower than domains that have been renewed before, about 50%.

Will these domains be different, given that the reason for their registration was very different than most domains? Maybe. But Verisign execs noted that if only half are renewed, this could easily push .com/.net into negative territory for the quarter.

If .Com finally goes negative, it might be just a one-quarter blip. It certainly will give new top level domain name companies the ability to say .com has peaked. If so, Verisign might have wished the Q4 2015 surge never happened.

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  1. Tony says

    Essentially, Verisign is predicting the Chinese phenomenon was a one and done thing – one quarter that is and not even a year. If they are right, that will be one ugly pump and dump for CHIPs and all those names that the Chinese raised to ridiculous levels.

    • Andrew Allemann says

      Listening to the conference call, I don’t think Verisign is predicting this. They just don’t know what to predict. It’s an unprecedented event. So they want to play it safe.

      Personally, I think it’s probably a fairly binary thing. Either most will be renewed or most won’t. Could be an upside or downside surprise in Q4.

  2. Joseph Peterson says

    Renewal rates in the Chinese sector will depend on contemporary market values. Whatever can be sold well above the renewal fee around the expiration date is much more likely to be renewed than something with only speculative value or liquid value at or below reg fee.

    That’s not something a company like Verisign is accustomed to evaluating. Normally 1st-year registrations don’t have liquid value above $8-$10. Some individual domains do. But typically not whole new categories – not huge chunks of 4.6 million domains!

    Normally a registry deals mainly with domains that are purchased for use, for brand protection, or for domainer speculation. Yet the 1st-year domainer purchases, on average, tend to have a liquid wholesale value well below reg fee, on average. I’m sure that’s true for all registries and all TLDs.

    That means contemporary wholesale market conditions have never really been a factor in renewal rates before this. A registry’s renewal forecast is based on scenarios without crazy rates of domain appreciation or depreciation. Domainers are usually a minor part of the picture. But this time around, it’s the aftermarket calling the shots; and, perhaps for the first time, Verisign’s quarterly numbers are at the mercy of the secondary market, for good and ill.

    From my perspective, I think it’s good for companies that primarily deal with the primary market of initial registrations to acknowledge the importance of the domain aftermarket. From now on, some of those companies will pay more attention to what domainers do.

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