Warren Buffett has been a huge net seller of stocks over the past year. But the fact that he is selling a lot of stock doesn't mean he and his investing team aren't buying any stocks. In fact, given his large sells in 2024 and increased cash pile, that just makes the recent Berkshire Hathaway (BRK.A 0.24%) (BRK.B 0.38%) buys all the more intriguing.
Towards the end of last year, Berkshire notably added to an existing stake, but one it had not added to since 2014. So what might Buffett and his team be seeing in this monopoly -ike technology stock?
NASDAQ: VRSN
Key Data Points
Buying VeriSign to close out 2024
In mid-to-late December 2024, Berkshire increased its stake in VeriSign (VRSN +1.47%) by about 474,000 shares, a 3.7% increase to the position.
While the modest increase might not be that notable, the fact that Berkshire has been a net seller of stocks recently, and the fact that Berkshire hadn't purchased VeriSign stock since 2014, is interesting. For reference, the most recent trade Berkshire made in VeriSign was a 1.1% trimming of the position in March 2020.
Interestingly, the recent buys were at roughly the same price at which Berkshire sold shares in 2020. That being said, the company's share count is now about 20% lower, thanks to regular share repurchases. So, the recent buy was actually at a lower market cap.
Here's what Berkshire may be seeing in VeriSign shares at this moment, and why the stock may break out of the trading range it's occupied over the past few years.
A big contract renewal
VeriSign operates the authoritative registry for the .com and .net domain names worldwide, and also operates two of the 13 global root servers for the internet.
Essentially a toll taker on the growth of the internet, VeriSign has been operating the .com top-level domains without issue for over 27 years, so it's unlikely that it would ever lose that job. But in late November, VeriSign renewed its contracts with both the Internet Corporation for Assigned Names and Numbers (ICANN) and the National Telecommunications and Information Administration (NTIA) for another six years.
That reassurance may have spurred Berkshire to add a bit more to its position. In addition, one of the important stipulations of the new contract was that it provided VeriSign the ability to raise its prices by 7% in each of the last four years of the six-year contract. This was similar to the terms of the expiring contract, which allowed VeriSign to raise prices in 2021, 2022, 2023, and 2024.
So while pricing for VeriSign will stagnate over the next two years, investors can likely pencil in a 30%-ish total price increase over the next six years. That's likely to be a bit ahead of the pace of inflation, as long as global inflation continues to either remain at these levels or decline toward the Federal Reserve's target.
A potential turnaround in domain registrations could be upon us
In 2024, VeriSign saw 4.3% revenue growth; however, that growth came entirely from the past year's price increases. Overall domain names actually fell by 2.1%. That, obviously, wouldn't be a great trend if it were to continue.
However, over time, the size of the internet, and therefore .com and .net website addresses, should theoretically grow along with population or GDP. And on its recent fourth-quarter conference call, VeriSign's management did give a few breadcrumbs as to why domain name registrations may be turning around soon.
One, China has seen a big drop-off in domain name registrations over the past few years, as the country has been mired in a recessionary environment. But VeriSign management pointed out that China domain name declines should moderate relative to last year. Moreover, China now only accounts for 5% of VeriSign's domain name base. And if new recently announced stimulus measures take hold, there is a possibility China's domain name market could return to growth at some point in the future.
Meanwhile, management pointed out that the U.S., which also saw declines in 2024, could also reverse in 2025. Last year, U.S. registrars -- middlemen such as GoDaddy -- pivoted to an emphasis on pricing over volumes. However, VeriSign said it's now working with registrars to try and increase marketing programs to reignite customer acquisition.
Management noted it has seen a good response to these new programs. In fact, the fourth quarter saw a sequential and year-over-year increase in gross additions, even though net additions were down due to a lower renewal rate. And one sell-side analyst on the call pointed out that Q4 gross additions were the highest for VeriSign since the second quarter of 2021.
A toll taker on the growth of the internet
While the turn to positive net growth hasn't happened yet, the trends on the gross additions side are promising. It appears domain names, like other technology companies, are experiencing a lingering hangover from the pandemic era, when everyone was going online. It's fair to note that overall domain names grew 4% in 2020 and 5% in 2021, before stagnating and then slightly declining.
That same post-pandemic slowdown has happened in a number of other technology businesses. However, it's reasonable to think that eventually, post-pandemic whiplash will end and domains will eventually return to growth. Should domain names flip to positive growth once again, VeriSign could very well see accelerating growth starting in 2027, when it's able to raise prices again.
On top of that, VeriSign's regulated monopoly makes for a high-margin, cash-generative business model that should continue to foster regular share repurchases. So, earnings per share should grow even faster as the company buys back shares and lowers share count.
While the stock is up some 20% since Berkshire bought back in, VeriSign can still do quite well from these levels looking out over the longer term. And should the stock correct back toward the $200-per-share mark, it's a low-risk name investors can buy with confidence.
