What's In The Cards For VeriSign (VRSN) In Q2 Earnings?

VeriSign Inc. (NASDAQ:VRSN) is set to report second-quarter 2017 results on Jul 27. Last quarter, the company reported earnings of 86 cents that were in line with the Zacks Consensus Estimate. Notably, the company has a mixed earnings surprise track record for the trailing four quarters, with an average positive surprise of 3.80%.

Revenues increased 2.4% year over year to $288.6 million and beat the Zacks Consensus Estimate of $286.6 million.

We believe increasing domain name registrations and strong demand for VeriSign’s cyber security products, following ransomware attacks such as WannaCry and Petya, are key growth drivers.

Cyber security companies like VeriSign are doing well because of increasing instances of cybercrimes. Its shares have massively outperformed the S&P 500 on a year-to-date basis. While the index gained 10.7%, the stock returned 30.1%.

Let's see how things are shaping up for this announcement.

Factors at Play

VeriSign holds a prime position in the highly regulated .com and .net domain industry. The renewal of the .com contract and price hikes for the .com and .net domain names are likely to drive VeriSign’s top line.

According to the company’s latest “The Domain Name Industry Brief”, domain name registrations across all top-level domains (TLDs) have signaled a positive trend, with 1.3 million domain name registrations being added in the first quarter, an increase of 0.4% sequentially and 3.7% year over year. Thus, an increase in domain name registrations coupled with price hikes for the .com and .net domain names will drive revenues in our view.

The company is also benefiting from strong gTLD prospects, international expansion through IDNs, investments in intellectual properties as well as growth opportunities in the Distributed Denial of Service (DDoS) security market. It has significant growth opportunities in the network security products space as well.

Moreover, the divestiture of iDefense Security Intelligence Services has helped the company to focus on core operations, which will have a positive impact on results.

Going by the sequential decline trend in marketing expenses over the last few quarters, we expect it to remain muted in the soon-to-be-reported quarter. Notably, management plans to defer marketing spend to the latter half of the year.

However, the negative impact of search engine adjustments on domain monetization is a concern.

Earnings Whispers

Our proven model does not conclusively show that VeriSign is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: VeriSign’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at earnings of 91 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: VeriSign’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

IPG Photonics Corporation (NASDAQ:IPGP) with an Earnings ESP of +3.07% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kemet Corporation (NYSE:KEM) with an Earnings ESP of +11.11% and a Zacks Rank #1.

SBA Communications Corporation (NASDAQ:SBAC) with an Earnings ESP of +10% and a Zacks Rank #1.

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