Verisign (VRSN) falls on ring-tone expectations

| About: VeriSign, Inc. (VRSN)
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VRSN fell over 11% after the company announced results that disappointed expectations of robust growth in its ring-tone business. Last December VeriSign CEO Stratton Sclavos said that 2005 revenue for its ring-tone business could hit $380-400 million, and the whisper number for Verisign's mobile business for Q4 was $100 million. The actual number was $94 million. Here's a detailed summary of the results:

Q4 Aggregate Results

  • Revenue of $356 million was up 41% year over year.
  • GAAP net income of $115 million and EPS of $0.43 includes a one-time gain from the monetization of a portion of its investment in VeriSign Japan for $78 million.
  • Pro forma EPS of $0.21 beat consensus by a penny.
  • Balance sheet: cash and equivalents (including restricted cash) of $789 million, up $128 million from last quarter and $47 million year over year, net of $257 million of cash used for acquisitions and stock repurchases during 2004.
  • $78 million from monetization of stake in VeriSign Japan used to repurchase  2.4 million shares.
  • Deferred revenue rose to $413 million from $406 million last quarter.
  • Cash flow from operations was $135 million versus $84 million a year earlier.

Q4 Segment Info: Internet Services Group

  • Revenue of $152 million.
  • Strong sequential growth in the Security Services business and growth in the core .com and .net registry business.
  • The web site certificate business issued approximately 115,000 new and renewed certificates in Q4 ending the quarter with a base of more than 455,000 certificates, up from 447,000 at the end of Q3.
  • The payments business ended Q4 with 127,000 merchants under management, up 9,000 from Q3 and 25,000 year over year.
  • Naming & Directory Services business ended the fourth quarter with
    38.4 million active domain names in .com and .net, a net increase of
    approximately 2.3 million names or 6% from Q3.

Q4 Segment Info: Communications Services (VCS) Group

  • Provides intelligent connectivity, database, billing & network monitoring services, and content mediation to telecommunications carriers.
  • Total VCS revenue was $204 million.
  • Core revenue of $110 million.
  • The digital content business, which includes the Jamba! and Jamster! brands, generated revenue of $94 million.
  • Ended Q4 with 6.5 million wireless billing customer subscribers, up from 6.4 million in Q3.
  • 12.8 billion database queries, up from 12.7 billion in Q3 and 8.6 billion a year earlier.
  • In December, VeriSign began test marketing its mobile content services in the U.S. under the Jamster! brand with a limited set of carriers and content providers. No revenues related to the test marketing in the US were recognized in the fourth quarter.

Q1 Guidance

  • Revenues of $370 million, of which Internet Services Group at $157 million and Communications Services Group at $213 million.
  • 15% growth in mobile content business.
  • Significant increase in expenses due to continued investment in expansion of content business.
  • EPS of $0.21.
  • Cash flow of $50-60 million.

2005 Full Year Guidance

  • Raising guidance from that given in Q3.
  • Revenue of $1.5-1.55 billion, up from $1.425 billion.
  • EPS of $0.90.
  • Operating cash flow of $400 million.

VRSN chart below.