Tax law will have big implications for Verisign.
Verisign (VRSN) reported fourth quarter and full year earnings after the bell yesterday.
Of note, the .com/.net base increased by 0.57 million domain names to 146.4 million. The company forecasted growth of 0.4 to 0.9 million for the quarter. For Q1, it forecasts 1.5 million to 2 million growth in the base.
Verisign has perfected its art of hitting at least the minimum growth prediction. It’s fairly easy for it to manipulate this with marketing dollars and specials across .com and .net to push registrations.
Because of the recent U.S. tax law changes, the company plans to repatriate $1.1 billion of cash that it has stashed in overseas subsidiaries. Despite having so much cash, the company has regularly borrowed money to buy back shares while keeping the cash safely offshore, outside the hands of the U.S. government.
It will now have to pay tax on money earned by these overseas entities because of the tax law changes. This will increase Verisign’s annual tax expense. Its interest deduction from borrowing money will also be limited. So the company is evaluating its entire capital structure.
It was the absence of discussion of a couple topics on yesterday’s conference call (and in recent quarters) that really struck me.
First, no one is asking about Verisign’s IDNs. It’s clear by now that those are a bust.
Second, all of that talk about monetizing intellectual property has disappeared. I suspect Verisign has decided to not ruffle feathers on IP and instead continue to work on ways to increase the price of .com domain names. Increasing prices slightly will have a bigger impact on its bottom line than a bit of IP wrangling.
Keep in mind that Verisign hired Phil Corwin last year. Corwin spent the last decade arguing against .com price increases on behalf of the Internet Commerce Association. Coincidence?
Nick says
Thought the biggest news was that they were allowed to move forward with .web , I sold all my Verisign stock a couple months ago though. Just wasn’t going up like all my other tech stocks. It was doing a slow claw when all my tech stocks were jumping.
Andrew Allemann says
The .web news came out last month
https://domainnamewire.com/2018/01/11/department-justice-closes-investigation-verisign-running-web/
Nick says
ohhhh, I missed that news
Andrew Allemann says
It’s still a bit in flux, though. ICANN is involved in the lawsuit with Donuts, so it might delay signing the agreement.
R P says
Warren Buffett using Verisign as a rat hole like he did w IBM. Buy up own stock on open market by issuing debt to keep up share price. Buybacks used to be illegal market manipulation until 1982. Issuing debt in order to buy back own stock creative way to screw long term shareholders.
Anonymous says
How’s that? The whole point is to benefit long term shareholders. It reduces shares outstanding which benefits long term shareholders. It also increases the leverage on internal cash flows that belong to long term shareholders, increasing return on equity. It also reduces taxes because interest expense goes up. It’s simply restructuring the balance sheet – changing the proportion of debt to equity in balance with the assets so as to benefit long term shareholders. BUT, it only makes sense to do so when the company has no internal projects that have a projected return on investment that beat the company’s internal hurdle rate. If the company can’t find productive use for the free cash flows, it should pay out dividends to long term shareholders or, if the market price is below intrinsic value per share, buy back shares at a discount to intrinsic value, just like Warren Buffett would like it.
Chad folk says
Does anyone have more information pertaining to their attempt to increase the .com pricing? When is it due up for debate, who is in charge or what is the proposal. They will try and throw it behind another bill like they did before and sneak it by the industry. Wake up people and act unless you want you .com price to be $10 in a couple years.
Issac says
We are awake, if you were awake you would know the answer to this already, since it has been discussed thoroughly. Since you’re not awake and to lazy to do any research yourself, I will give you the first step. Google: Verisign Cooperative Agreement.
Chad folk says
Thanks Isaac and I was awake until 5 am in Vegas discussing actual strategy and plans to act when they propose a rate hike on back a bill and claim national security. Pricing should go down not up but the other TLDs want it to rise as well. This was not ever an open bidding but a back of the room Gov contract from day one, monopoly if you been around long enought. Cash cow for them of course they are going to do everything to protect that but don’t complain people when it increases because 8 guys drinking in back of a room make the decision and then sneak the payment to icann officials.
kd says
Just look at .net pricing. Every time Verisign has been able to increase prices on .com or .net domains they have. It’s free money, why should they not grab at it? They are a monopoly who does not create new products, so their only real increase is by sticking it to domain name registrants (as long as they are allowed to).
.net domains were increased just recently on February 1, 2018. It now costs nearly $10 to register or renew a .net domain. ($9.95 I believe) Wow, what a racket.
Things need to be reeled in. This monopoly is out of control.
I agree with Chad, this needs to be a high priority for registrants before Verisign tries something slimy and backdoor again.