VeriSign

VeriSign is one of the most important companies that most have not heard of. The company holds the right and responsibilities associated with operating the .com and .net domain registries worldwide. When a user types “www.google.com” into their internet browser, VeriSign directs the lookup to the relevant servers, which point the browser to the exact IP address for “www.google.com”. This is akin to asking a librarian where to find a book, with VeriSign acting as the helpful librarian directing internet traffic. VeriSign is also responsible for maintaining and updating domain names, playing an indispensable role in supporting critical global internet infrastructure.

Monopoly asset

VeriSign’s domain business traces back to 1992 when the US government auctioned off the right to manage domain name registration for the internet. Network Solutions was the winning bidder, which VeriSign subsequently acquired in 2000 for US$21bn. Verisign made almost 50 acquisitions in total until 2007, when new management divested all but Network Solutions, not only significantly simplifying its business, but also improving profitability and repositioning VeriSign as the owner of this valuable ‘monopoly’ asset.

VeriSign today operates circa 157mn .com and 13mn .net domain names, accounting for about 46% of global domain registrations¹. Whilst there has been a proliferation in new domain names such as .xyz, .io or country-code domains, legacy domain names have been able to retain their relevance and market share given their perceived higher level of legitimacy. For example, 70% of consumers place trust in .com domains, while just 25% are willing to trust new domains². Legacy domains are also worth significantly more than newer domains. Renewal rates for .com and .net are in the 75% to 80% range, much higher than the 20% to 25% renewal rate of new domain names³ (Figure 1).

Figure 1.

A small price to pay

The US Department of Commerce allows VeriSign to raise .com prices by 7% in four out of every six years. Each agreement term is valid for six years and automatically renews under the same provisions. Although VeriSign is subjected to constant oversight, regulators have historically understood the importance of VeriSign’s role in maintaining the reliability of internet infrastructure and the associated positive impact on economic activity.

Most importantly, VeriSign charges website owners approximately US$10 per year to register their websites. This is a minuscule cost relative to larger costs involved in maintaining a digital presence, which could be as high as US$500 per month for the average company when factoring in cybersecurity, email services, web hosting, design or support.

Cashflow machine

VeriSign’s business model is incredibly scalable. The company does not need to increase headcount as it grows, while investments to maintain the domain registries are relatively stable. As a result, the great majority of incremental revenue flows straight to profits, thus the operating margin has constantly marched upwards from 52% in 2012 to 68% in 2024 (Figure 2).

Figure 2.

VeriSign’s cash flow profile is even more impressive. Because customers pay up front for domain registrations, VeriSign generates significant free cash flow which it mostly uses to repurchase its own shares. Since 2012, the share count has declined by 40%, which helped to drive annual EPS growth of 12.5%.

The Fairlight View

Fairlight has long admired VeriSign’s competitive position and financial characteristics, with the Fund owning shares in the business since its inception. During April, VeriSign’s share price has increased meaningfully amid the recent macroeconomic uncertainty, given its business model offers the kind of stability and predictability that investors seek during volatile periods. We took advantage of this sharp appreciation to reduce our investment and reallocate some capital to other portfolio holdings of similar quality but with more attractive valuations.

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^1. According to DNIB, as of 1Q 2025

^2. According to AtomRadar survey

^3. According to DNIB, as of 1Q 2025

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