VeriSign Looks to Snag a Larger Piece of the Web Security Pie

| About: VeriSign, Inc. (VRSN)

VeriSign’s (NASDAQ:VRSN) Trust Seal service, launched in February 2010, can increase the size of the company’s addressable market by providing non-transactional websites an opportunity to be VeriSign approved and trusted.

VeriSign estimates that the addressable market of non-transactional sites is 10x greater than the addressable market for its SSL certificates used by transactional (e-commerce, banking) sites.

We estimate that VeriSign’s online SSL certificates business currently constitutes about 16% of our estimate for VeriSign’s stock and that the company’s move into non-transactional certification will help VeriSign offset the slowing growth from its SSL certification business.

As a result, there could be additional upside to our $36 Trefis price estimate for VeriSign’s stock if VeriSign’s Trust Seal service were to gain traction.

Key Difference Between Verisign’s SSL Certificates and Trust Seal

Secure Sockets Layer (SSL) is a security protocol on the internet that is used for exchanging sensitive information between a website and the user communicating with it. Sensitive information like credit card numbers and passwords are encrypted by VeriSign’s SSL certificates for the secured data transmission between the user and the website. Internet banking and e-commerce websites are the typical customers buying SSL certificate licenses from VeriSign.

While SSL certificates secure transactional sites, non-transactional sites also require security from malware, although no data encryption is required by them. Trust Seal focuses on security requirements for non-transactional websites.

Benefits of Trust Seal Service

VeriSign’s Trust Seal service offers customers two key benefits:

1. Potential for Higher Traffic and Conversion to Registered Users

Validation from VeriSign helps mitigate security risks and improve consumer confidence in the website. According to a report from TheFind, an internet shopping search engine, internet shoppers who see the VeriSign seal displayed alongside the names of merchandise retailers click-through to the sites of those VeriSign authenticated retailers 18.5% more often than they do to the sites of retailers without the VeriSign seal.

TheFind’s data suggests that Trust Seal service on non-transactional sites can also help those sites to convert casual visitors into registered users. The Trust Seal may increase the likelihood that visitors will share the personal information required to be a registered user.

2. Reduce Likelihood of Blacklisting from Search Engines

Authentication helps to establish that the website represents an actual business, and is not a scam or a phishing site. It also reduces the likelihood that the site would be blacklisted by search engines.

Trust Seal is a New Avenue for Growth Beyond SSL

We estimate that VeriSign’s share within the existing online SSL security certificate market has been declining as a result of greater competition from low cost SSL certificates offered by providers such as and Comodo. We forecast that VeriSign’s share in the online SSL security certificates market will decline from around 66% in 2009 to around 59% by the end of Trefis forecast period.

Trust Seal Market is 10x Larger than SSL Certificates Market

According to VeriSign’s management, the potential addressable market of non-transactional sites is 10x greater than the market for transactional sites. You can modify the forecast below to see how the Trefis price estimate for VeriSign’s stock would more than double if the combined (Trust Seal and SSL) addressable market were 11x greater than our current SSL market forecast.

However, this implies that VeriSign’s market share for Trust Seal and its revenue per Trust Seal certificate are comparable to the share and revenue per certificate estimates of the current SSL business.

We believe that the addressable market may not be as large as management estimates since the Trust Seal service is not yet as important for websites as SSL certification. By modifying the forecast above, you can see how there would still be about a 10% upside to our estimate for VeriSign’s stock if the combined SSL and Trust Seal market only twice as big as our current SSL market forecast.

Disclosure: No positions