VeriSign, Inc. VRSN is set to report first-quarter 2015 results on Apr 23. Last quarter, VeriSign’s earnings (excluding all one-time items but including stock-based compensation) of 63 cents per share increased 6.8% from 59 cents in the year-ago quarter backed by higher revenues and margin expansion.
Let us see how things are shaping up for this announcement.
Factors to Consider
We are particularly optimistic about VeriSign’s Network NIA services business. With the rapid adoption of cloud computing, cyber security has become a major concern for enterprises. Large enterprises are increasing their security budgets to efficiently address security concerns and renew confidence in cloud computing.
According to market research firm Gartner, the global market for cyber security will reach $86.0 billion by 2016. VeriSign’s partnership with Juniper will boost its growth in the fast growing Distributed Denial of Service (DDoS) security market. We believe that the company’s NIA business continues to gain traction and should boost the first-quarter results.
However, a significant headwind for VeriSign is the sluggish growth in the active domain name business for .com and .net TLDs. While the new domain name registration has witnessed an uptrend over the past three quarters, overall renewal rate for domains have been trending down.
The company cited search algorithm changes by Google and macroeconomic headwinds in Europe as being primarily responsible for the declines. Google’s free public domain name service is also a major competitor, in our view. We believe lower first time renewal rates will hurt top-line growth in the to-be-reported quarter and beyond.
Earnings Whispers
Our proven model does not conclusively show that VeriSign is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.
Zacks ESP: VeriSign currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 69 cents.
Zacks Rank: VeriSign has a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:
Apple Inc. AAPL, with an Earnings ESP of +1.38% and a Zacks Rank #2 (Buy).
Amazon.com Inc. AMZN, with an Earnings ESP of +175.00% and a Zacks Rank #3.
Akamai Technologies, Inc. AKAM, with an Earnings ESP of +1.96% and a Zacks Rank #3.
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