By
Ticker: (Nasdaq: VRSN)
How Did It Double?
"In VeriSign We Trust," reads the cover of VeriSign's (Nasdaq: VRSN) 1999 Annual Report. Blasphemous objections aside, VeriSign has earned the trust of the online marketplace. For e-tailers looking to lure the Internet transaction hesitant into wheeling the virtual shopping cart onto the clickable checkout screen, the company's digital certificates have been heaven sent.
Business Description
California-based VeriSign provides Internet trust services. These include authentication, validation, and payment functions for online enterprises and e-commerce providers.
Financial Facts
Income Statement
How Could You Have Found This Double?
In our latest Internet Report on Network Security, Paul Larson writes that "one of the interesting things about VeriSign and Network Solutions is that roughly 12 million domain names have been registered, and each and every name represents a sort of annuity that must be paid to VeriSign."
Where to From Here?
VeriSign is everywhere. Head out to our own FoolMart, scroll down to the bottom, and you'll find the VeriSign logo perched on the right. How did VeriSign land this juicy treat of ubiquitousness? It was simple: VeriSign thought of it first. As the first company to offer trust and security technology for the Internet, it was there to land the pioneers of e-commerce. In the process, VeriSign became the standard. It became the online equivalent of the Good Housekeeping sign of approval.
Phone: 650-961-7500
Website: www.verisign.com
Price (9/29/00): $202.56
VeriSign's core authentication services are in demand. Simply put, without a digital certificate, a site can't offer the Secure Sockets Layer (SSL) protocol most users identify with a secure transaction.
Maybe that is why all of the online Fortune 500 companies use VeriSign's services. Maybe that is why investors have been flocking to the stock -- the shares quadrupling over the past year alone. With headlines of hacker break-ins and nonsecure breakdowns, it's probably no wonder why both company and consumer have come to trust the leader of trust services.
In June, the company closed on its acquisition of domain name pioneer and market master Network Solutions. It was a deal that made sense when one considered that, three years ago, the companies were already teaming up to create a "one-stop registration" package for e-commerce that included domain name registration and SSL encryption.
The merger -- which entailed paying out 2.15 VeriSign shares for each of Network Solutions' outstanding -- was originally valued at $21 billion. As the spring tech correction tugged the sector lower, the value of the deal closed out near $15 billion.
But both companies were ready for prime time. Together they were geared to present the incarnation of the "one-stop registration" shop they had envisioned back in 1997. VeriSign has come to represent the best in the birth of the a dot-com (Network Solutions) to its very viability as a secure enterprise (VeriSign). Companies and consumers trust in VeriSign. Will God understand?
VeriSign has issued over 215,000 website digital certificates and over 3.9 million digital certificates for individual cybersurfers. The company was spun off from RSA Data Security (Nasdaq: RSAS) in 1995 and went public in early 1998.
12-month sales: $154.9 million
12-month income: $18.6 million*
12-month EPS: $0.15*
Profit Margin: 12%
Market Cap: $27.2 billion
*pro forma data excluding one-time charges
Balance Sheet
Cash: $1013.5 million
Current Assets: $1212.2 million
Current Liabilities: $625.1 million
Long-term Debt: N/A
Ratios
Price-to-earnings: 1350.4
Price-to-sales: 175.6
"Even when accounting for customers that register multiple names, VeriSign has the second-largest number of paying subscribers on the Internet, behind only the mighty AOL (NYSE: AOL)."
True. And the value of a domain registrant -- someone or some corporate entity that is so caught up in the Internet to pay for unique dot-com real estate -- is way more valuable than just casual online services user.
When Paul covered VeriSign as a Daily Double last year it may have opened some Foolish eyes to the possibility of a company claiming as much as 90% of the website certificate arena. The company went on to close out 1999 by turning in its first profitable year on 118% in revenue growth. Momentum was building.
And the future? Expectations have been rising recently. Next year's estimates have gone from $0.31 to $0.44 a share over the last three months alone. Fundamentally, the company is in solid shape. Its balance sheet is clean with just over a billion in cash. Network Solutions pundits may have figured its days were numbered when the registration process opened to competition last year, but its headstart over even capable consumer-geared players like Register.com (Nasdaq: RCOM) is huge. Its multi-year, multi-million marketing alliance with AOL back in May will help only widen its lead as the master of its domains.
But is VeriSign worth its $27 billion market cap? "This is a lofty valuation that has a great deal of optimism about the future already built in," Paul writes in the Internet Report.
One halfhearted believer is VeriSign parent itself -- RSA Data Security -- whose 4.5 million share stake in VeriSign is what remains as of June after the company has been selling off its stake in pieces. Not only has RSA missed out on the recent surge in VeriSign with the stock it sold, but it also hedged its entire stake by buying puts and selling calls with strike prices at a quarter to a third of current market fetchings. (RSA is an intriguing company beyond its role in VeriSign's creation -- more richly profiled in the Network Security Report).
Ultimately, the quality and synergy of VeriSign the company is undeniable. However, the stock might be unable to keep up with its heady gains of the past. The shares are a 40-bagger off its lows set two years ago. That's amazing in retrospect, but risky going forward. VeriSign users have come to the company looking for security. The same can't be said of VeriSign shareholders hopping on the bandwagon at this stage of the game.
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