Why Is VeriSign (VRSN) Down 11.5% Since Last Earnings Report?

It has been about a month since the last earnings report for VeriSign (NASDAQ:VRSN). Shares have lost about 11.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is VeriSign due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

VeriSign’s Q4 Earnings Lag Estimates, Revenues Up Y/Y

VeriSign reported fourth-quarter 2019 non-GAAP earnings of $1.31 per share that missed the Zacks Consensus Estimate by 2.2% and decreased 17.1% from the year-ago quarter.

Revenues increased 1% year over year to $310.5 million and beat the Zacks Consensus Estimate by 0.1%.

Quarter Details

VeriSign ended the reported quarter with 158.8 million .com and .net domain name registrations, up 3.9% year over year.

The company processed 10.3 million new domain name registrations for .com and .net compared with 9.5 million in the year-ago quarter.

Notably, renewal rates are not fully measurable until 45 days after the end of the quarter. The final .com and .net renewal rate for the third quarter of 2019 was 73.7% compared with 74.8% in the year-ago quarter.

The company expects the renewal rate for fourth-quarter 2019 to be 73.7%. The renewal rate in the fourth quarter of 2018 was 74.3%.

VeriSign’s research and development (R&D) expenses rose 0.4% from the year-ago quarter to $15.1 million. As a percentage of revenues, R&D expenses stayed at 4.9% on a year-over-year basis.

General and administrative (G&A) expenses grew 11.1% year over year to $36.6 million. As a percentage of revenues, G&A expenses increased 110 basis points (bps) year over year to 11.8%.

However, sales and marketing expenses (S&M) declined 19.3% year over year to $13.9 million. As a percentage of revenues, S&M expenses decreased 110 bps year over year to 4.5%.

Non-GAAP operating income was $211 million, up 2.9% from the year-ago quarter. Non-GAAP operating margin expanded 120 bps year over year to 67.9%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, the company’s cash and cash equivalents (including marketable securities) were approximately $1.22 billion compared with $1.23 billion as of Sep 30.

Cash flow from operating activities was $194 million in the fourth quarter compared with $208.1 million in the previous quarter. Free cash flow was $185 million in the reported quarter.

In the fourth quarter, Verisign repurchased 1 million shares for an aggregate cost of $195 million.

Effective Feb 6, 2020, the company’s board of directors approved an additional share repurchase authorization of roughly $743 million of common stock, which brings the total amount available for buybacks to $1 billion.

2020 Guidance

Domain Name Base is expected to increase between 2% and 4% from 2019-end to 2020-end.

Moreover, VeriSign expects full-year revenues between $1.250 billion and $1.265 billion. GAAP operating margin is expected in the 64.5-65.5% range.

Capital expenditure is anticipated in the range of $45-$55 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.