Verisign, Inc. (NASDAQ: VRSN) is the market leader for SSL authentication, the system of certificates and tokens that protects most internet transactions, and is also a powerful enterprise security provider. VeriSign stands to gain from the rising demand for digital protection as the internet becomes a more versatile and interactive tool. The company also has an exclusive license for the registration of new and existing internet domains. This business provides Verisign with a stable source of revenue.
Although the company has strong telecommunications, internet security, and web registration businesses, its profitability has suffered as a result of its poorly performing non-core businesses; the firm has acquired many such businesses in recent years in an attempt to boost revenue. In addition to its portfolio of non-core businesses, the company is currently threatened by the commoditization of security software, as falling prices depress profitability.
VeriSign is a digital infrastructure company. A wide variety of products and services used to operate and secure millions of everyday interactions on the Internet and over the world's telecommunications networks makes VeriSign one of the leading technology companies to offer software as a service. The company has two major subdivisions: (1) Internet Infrastructure and Identity Services and (2) Other Services, which consists of the continuing operations of Content Portal Services.
First Quarter 2010 Results (ended March 31, 2010)
Verisign reported revenue of $264 million from continuing operations for the first quarter of 2010, up 1% from the prior quarter and up 4% from the same quarter in 2009. VeriSign reported net income attributable to stockholders of $51 million and earnings per share attributable stockholders of $0.28 on a diluted basis for the first quarter of 2010, compared to net income attributable to stockholders of $65 million and earnings per share attributable to stockholders of $0.34 on a diluted basis in the same quarter in 2009. The operating margin for the first quarter of 2010 was 33.6% compared to 29.5% in the same quarter in 2009.
VeriSign Naming Services ended the quarter with approximately 99.3 million active domain names in the adjusted zone for .com and .net, representing a 7% increase year-over-year. In the first quarter, VeriSign added 8.1 million new domain name registrations, a record in quarterly new registrations. VeriSign Business Authentication Services ended the quarter with 1.25 million SSL certificates in the installed base, an increase of 9% over the same quarter last year.
VeriSign reported an average daily query load of 54 billion in the quarter, compared to 52 billion in the prior quarter and 38 billion in the same quarter in 2009. In February, VeriSign introduced the VeriSign Trust Seal, a product expected to increase confidence, traffic and transactions for web sites that do not require SSL certificates.
The Registry Services business operates the authoritative directory of all .com , .net , .cc , .tv, .name , .jobs and .edu domain names, allowing individuals and brand name organizations to establish their online identities, while providing the secure, always-on access they need to communicate and transact reliably with large-scale online audiences.
VeriSign Internet Defense Services
VeriSign Internet Defense Services provides infrastructure assurance to organizations and is comprised of VeriSign iDefense Security Intelligence Service and VeriSign Internet Defense Network. iDefense provides enterprise security teams with comprehensive intelligence, in the form of alerts, reports and analyst access, to help companies keep up with ever-evolving cyberthreats. Customers pay a monthly fee for these services.
Business Authentication Services
Business Authentication Services enable confidential online interactions between individuals and organizations, while providing visual assurances that verify website ownership and affirm that interactions are safe and secure. Verisign offers the following Business Authentication Services: VeriSign and GeoTrust branded SSL certificates. These services provide customers the means to authenticate themselves to their end users and website visitors and to encrypt communications between client browsers and Web servers. Revenues are generated through the issuance of SSL certificates for periods ranging from one to five years. The average certification issued by Business Authentication Services is approximately sixteen months. The SSL certificate also contains information about the certificate subscriber and the website domain to which the certificate was issued.
User Authentication Services
Verisign offers SSL certificate services under the GeoTrust and thawte brands. These services use similar underlying infrastructure as VeriSign branded certificates and are targeted at small businesses, Internet service providers and Web hosting companies. The GeoTrust and thawte branded certificates primarily validate the ownership or control of a domain.
User Authentication Services offer a variety of strong authentication methods to help enterprises deploy secure remote access and secure business applications through PKI, digital certificates, or one-time passwords. Revenues in User Authentication Services are derived from a one-time credential sale to the customer seeking network services and a one-time set-up fee. Versign also charges an annual service fee based upon the number of individual users authorized by the customer to access its network and a customer support fee.
VeriSign Identity Protection Service
Verisign Identity Protection (VIP) service allows organizations to secure username and password access credentials with a one time password, before permitting access to protected online resources. Unlike traditional measures to provide such account security, VIP Service is delivered through the Internet as a standards-based managed service, which reduces deployment and operational costs.
Fraud Detection Service
Verisign's Fraud Detection Service provides an invisible means of delivering proactive protection to consumers by detecting fraudulent logins and transactions in real-time without affecting a legitimate user’s Web experience.
VeriSign PKI Service
PKI Service helps organizations reduce risk and comply with security standards through the creation of an independently verifiable trust framework. This framework is used by organizations to both create and validate unique identities for users and devices which can then be leveraged as credentials for accessing sensitive information and systems. While alternative solutions can be developed for such needs, VeriSign PKI solutions are deployment- and future-ready, leveraging a highly available infrastructure that supports open standards and protocols. Customers may choose from a fully hosted solution where VeriSign operates the entire infrastructure, a partially hosted PKI Service with a customer’s own network, or, in very specialized cases, leverage VeriSign’s in-premise PKI solutions.
The Internet has already transformed the global marketplace. From shopping for clothes to booking travel plans, the Internet has become a massive commercial center where millions of interactions take place every day. People routinely turn to the Internet to complete their transactions in order to save both time and money. The sheer volume of these transactions will only increase over time as people in emerging economies turn to the Internet as well.
Web 2.0, the internet paradigm shift that focuses on user interactivity and user generated content, is another major driver of internet growth. With the implementation of this new vision of the internet, users will be able to use web sites in novel ways: applications will respond to user needs more fluidly, data will be interpreted in new and powerful ways, and advertisements will react to user interactions to become more appealing to individuals.
Together, Web 2.0 and the increasing use of the internet as a marketplace will make the internet an even more powerful and useful tool than it already is; the only drawback is that more complex and powerful data flowing around means that more complex and powerful security will be needed to safeguard both companies and consumers from identity theft, intrusion, and fraud. This rise in demand for the quantity and quality of digital security has the potential to greatly benefit VeriSign. The company is already the premier provider of internet authentication security, and has a number of product lines to help e-commerce firms move money and products easily and securely. It has already taken a step forward and developed a new, more powerful version of its SSL authentication, called extended validation SSL (EV-SSL); the format is rapidly replacing SSL as the new standard in transaction security and authentication.
With the increasing power of the internet comes the increasing threat of security breaches. Modern hackers are quick, intelligent, and malicious; there are many ways for people to break into a network for the purpose of stealing money, passwords, credit card numbers, and other personal information. Over the past few years there has been an increase in both the number and complexity of such attacks. Hackers used to program their own computers to send out millions of "spam" emails; now, they can send a malicious piece of code that will turn the victim's computer into a "zombie" that will send out the emails for them. This is just one example of how the malicious code industry has evolved in the past few years. More intrusion means the need for more security; with its prime industry position, VeriSign is well positioned to take advantage of this trend.
It is difficult to differentiate between many telecommunications services. Security, for instance, is difficult for a company to provide in a way that is meaningfully different from competing security software; they all protect against the same viruses, block intruders, and keep sensitive information encrypted. Because of this, there is significant price competition between leading telecom software companies. Telecom services, in other words, have become commoditized. Price competition leads to lower prices, lower prices lead to lower revenues, and lower revenues mean lower profits. While many of VeriSign's products are sensitive to commoditization, the company holds a virtual monopoly over others (e.g. SSL encryption or .com/.net registration). Thus, while falling price hurt the company's revenues, profitability is not affected as negatively as it otherwise would be.
VeriSign's internet registrar business is granted its authority by the government; essentially, the government guarantees registration revenue to VeriSign. The same government authority, however, regulates the fee that the company charges for registration, effectively capping revenues and profitability. When regulators allow VeriSign to raise prices, the company benefits from immediate revenue increases. If the government, however, were to force lower prices or grant the registrar rights to another company once the contracts expire in 2012, the opposite would occur.
As a digital media and security company, VeriSign faces competition from companies like Microsoft, Symantec, McAfee, Entrust, and RSA Security. As a communications company, VeriSign's competition includes Amdocs, Yahoo!, NeuStar, Vonage, and CyberSource. VeriSign is well positioned in four of its core businesses: SSL encryption, SS7 networking, calling name databases, and URL registration; however, with too many diverse businesses acquired over the years, competitors have more focus than VeriSign in other areas.
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SSL encryption has become a ubiquitous form of encryption and authentication, and as of 2005, VeriSign owned over half the market, followed by GeoTrust, Comodo, GoDaddy, and Entrust respectively. With a hefty lead over its next competitors, VeriSign has set itself up to be the leading purveyor of the upgraded SSL form, EV-SSL. Similarly, with the largest SS7 telecom network in the America's and the largest calling name database in the U.S., VeriSign has entrenched itself in the communications industry; it would take a shift to another network standard than SS7 for the company to lose its network market, and competing companies pay VeriSign for access to its name database.
While there are many smaller registrars for .com and .net addresses on the net, these registrars must ultimately register web addresses directly to VeriSign. This is because the U.S. government has granted VeriSign the power to regulate web addresses, a power that has created a steady revenue stream for the company and will bring in more revenue as registration fees go up in the next year.
In the past few years, it has been established that the company stretched itself too thin by buying into a number of new industries. Companies like Intuit and H&R Block already have solid holds on the billing software market, Apple, Microsoft, and Adobe are well-established contenders in the interactive media market, and the multimedia content delivery industry is highly competitive. Overall, with heavy competition and scanter offerings in such areas as billing software, interactive media, and content delivery, VeriSign's profitability has been pressured and unpredictable. Were the new CEO to pull out of such markets, the company would gain both cash from the segment sales and increased profitability from pushing company resources into the segments that are most reliable.
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