VeriSign (NASDAQ:VRSN) Misses Q1 Sales Targets

Adam Hejl /
2023/04/27 4:11 pm EDT

Domain name registry operator Verisign (NASDAQ:VRSN) missed analyst expectations in Q1 FY2023 quarter, with revenue up 5.04% year on year to $364.4 million. VeriSign made a GAAP profit of $178.7 million, improving on its profit of $157.5 million, in the same quarter last year.

Is now the time to buy VeriSign? Access our full analysis of the earnings results here, it's free.

VeriSign (VRSN) Q1 FY2023 Highlights:

  • Revenue: $364.4 million vs analyst estimates of $367.3 million (0.8% miss)
  • EPS: $1.70 vs analyst estimates of $1.66 (2.48% beat)
  • Free cash flow of $253.3 million, up 21.1% from previous quarter
  • Gross Margin (GAAP): 86.3%, up from 85.4% same quarter last year

“The long trend line of increasing reliance on internet infrastructure continues,” said Jim Bidzos, Executive Chairman and Chief Executive Officer.

While the company is not a domain registrar and does not directly sell domain names to end users, Verisign (NASDAQ:VRSN) operates and maintains the infrastructure to support domain names such as .com and .net.

While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.

Sales Growth

As you can see below, VeriSign's revenue growth has been unimpressive over the last two years, growing from quarterly revenue of $323.6 million in Q1 FY2021, to $364.4 million.

VeriSign Total Revenue

VeriSign's quarterly revenue was only up 5.04% year on year, which might disappoint some shareholders. But the revenue actually decreased by $4.8 million in Q1, compared to $12.3 million increase in Q4 2022.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.19% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. VeriSign's free cash flow came in at $253.3 million in Q1, up 26.3% year on year.

VeriSign Free Cash Flow

VeriSign has generated $856.5 million in free cash flow over the last twelve months, an impressive 59.4% of revenues. This robust FCF margin is a result of VeriSign asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from VeriSign's Q1 Results

Sporting a market capitalization of $22.1 billion, more than $1.02 billion in cash and with positive free cash flow over the last twelve months, we're confident that VeriSign has the resources it needs to pursue a high growth business strategy.

Operating profit and EPS both beat. It was unfortunate to see that VeriSign missed analysts' revenue expectations and revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from VeriSign. The company is flat on the results and currently trades at $216.9 per share

VeriSign may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.