VeriSign (NASDAQ:VRSN) released in-line 1Q20 results, highlighting its stable revenue growth profile with margin expansion. New domain registration remained robust, reflecting the shift for companies to grow in the digital space. The company is cautious regarding price hikes and will unlikely raise prices until COVID-19 has passed. But this sets up for a stronger year in FY21e.
Revenue and margin outlook for 2020 unchanged, but domain base growth is slightly lower at the midpoint
Revenue and net margin guidance for FY20 hasn't budged from last quarter, coming in between $1.25-1.265 billion (+2.3% yoy) and 64.5-65.5%, respectively. This highlights the stability of the domain business amid COVID-19.
Stable growth in domain names, but outlook is slightly lowered
VeriSign added 1.83 million ".com" and ".net" domains to a total of 160.7 million in 1Q20. During the call, color was given on the geographic, where the U.S. grew ahead of expectations, while China slowed. I believe that the difference in the timing of the lockdown due to COVID-19 between the U.S. and China led to the performance differences. China entered (and relieved) lockdown conditions earlier during February to March, while the U.S. imposed lockdowns later.
Also, company management lowered domain base growth outlook to 2.0-3.75% from 2.0-4.0% in FY20e. I think this is a minor tweak, but it does hint that management is erring on the cautious side.
Revenue growth is very stable, but pricing would be constant
Owing to a solid preliminary renewal rate, which was estimated to be 75.4%, up from 75.0% when compared to last year, I agree that the company's business model is rather resilient to the pandemic shock. I would be optimistic to see businesses gradually shift to their digital channels, which were especially propelled by the "stay-at-home" conditions.
Pricing is expected to remain constant, presumably for the duration
