VeriSign (VRSN)

Domain name registry operator Verisign (NASDAQ:VRSN) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 4.7% year on year to $402.3 million. Its GAAP profit of $2.10 per share was in line with analysts’ consensus estimates.

Company Overview

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.

Competitors offering registry services include Alphabet (NASDAQ:GOOGL), GoDaddy (NYSE:GDDY) and China Internet Network Information Center.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, VeriSign’s 5.3% annualized revenue growth over the last three years was weak. This fell short of our benchmark for the software sector and is a rough starting point for our analysis.

This quarter, VeriSign grew its revenue by 4.7% year on year, and its $402.3 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months, similar to its three-year rate. This projection is underwhelming and indicates its products and services will face some demand challenges.

For software companies like VeriSign, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

VeriSign’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 87.8% gross margin over the last year. Said differently, roughly $87.83 was left to spend on selling, marketing, and R&D for every $100 in revenue.

VeriSign’s gross profit margin came in at 87.7% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

VeriSign has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 68%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, VeriSign’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, VeriSign generated an operating profit margin of 67.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

VeriSign has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 57.5% over the last year.

VeriSign’s free cash flow clocked in at $285.5 million in Q1, equivalent to a 71% margin. This result was good as its margin was 5 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Revenue and EPS both met expectations, making for an unexciting but solid quarter. The stock remained flat at $252 immediately after reporting.

Updated: July 9, 2025 at 10:36 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are a lot of things to like about VeriSign. Although its revenue growth was weak over the last three years and analysts expect growth to slow over the next 12 months, its bountiful generation of free cash flow empowers it to invest in growth initiatives. Plus, VeriSign’s admirable gross margin indicates excellent unit economics.

VeriSign’s price-to-sales ratio based on the next 12 months is 16.8x. At this valuation, there’s a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $267.84 on the company (compared to the current share price of $289.76).