Google Policy Threatens VeriSign's Domain Name Growth - Credit Suisse

Credit Suisse Internet technology analyst Philip Winslow on Monday lowered his estimates on domain name registry operator VeriSign (VRSN), saying that a group of factors point to a slowing down in the rate at which people rent new Internet addresses, which could cause VeriSign’s growth to slow.

VeriSign runs the principal computers responsible for telling a browser how to find the 153 million Web site addresses that can be typed into a browser. Winslow is concerned VeriSign may be heading for a slow down in the growth of domain names akin to the DotCom bust. “2008 could be the first year that VeriSign has fewer net additions than in the previous year since 2002,” he writes.

The factors are tied somewhat to the concerns about Google (GOOG) that have been mentioned recently, and which I’ve touched on today. To wit, some enterprising folks will sign up tons of temporary, or “parked” Web sites, to drive keyword search results to their pages and collect an ad fee they split with Google. Google’s cracking down on that practice, notes Winslow, in an effort to weed out what are called “link farms,” pages set up to milk Google’s ads while offering no real content for Web users.

And as that happens, it could reduce the practice of registering those opportunistic Web sites, which would reduce overall domain registration, which would affect VeriSign’s growth, writes Winslow.

Interesting, but the odd part is, after all that analysis, Winslow’s estimate change is based not on slowing domain-name growth, but rather on the rate at which VeriSign is getting rid of some other parts of its business, a transformation that is supposed to improve the company’s bottom line. Winslow thinks that process will take longer than people expect. Consequently, he’s lowering his 2008 and 2009 profit estimates from $1 and $1.71 per share to $.96 and $1.69 per share. That leaves one to ponder just what the numbers may look like when Winslow gets around to adding more concrete data to his thesis on slowing domain names.

Winslow has a Neutral rating on VeriSign shares and says they are pricey at a multiple of enterprise value-to-free cash flow of 17.6 times.

Comments

[Chaim]

Google is cracking down on parked pages?
www.google.com/domainp.../