Acquisitions have been critical to the growth strategy at VeriSign (NASDAQ:VRSN). Unfortunately, that strategy doesn't seem to be working anymore.
In the first quarter, net income was $15.7 million, or $0.06 per share, which was down from $49.2 million, or $0.19 per share, in the same period a year ago. Basically, the company had to take charges for acquisitions as well as option expenses.
The company is also having problems on the top line. In the first quarter, revenues actually fell 3% to $373.6 million. To be sure, with a company of this size, buying other companies is the way to pump up revenues. Basically, the company's acquisitions of Jamba and other consumer wireless plays has been a bust -- and it looks like this revenue stream is shrinking -- which is unusual, given the hefty growth in the sector.
VeriSign certainly has a myriad of solid business units. There is the registry business, which handles roughly 54 million active domain names (for .com and .net). The company also sells digital certificates, which allows for e-commerce (the base is 508,000 certificates). There is even a content business, with more than 150,000 ringtones, graphics, games, and applications.
The problem is, this combination is not meshing well. In fact, VeriSign's guidance mostly disappointed investors, ostensibly for weakness on the top line, despite acquisitions: For the second quarter, revenues are expected to range from $380 million to $385 million, and earnings per share should be between $0.23 to $0.24.
The solution? Yep, VeriSign has ramped up is acquisitions. Most notable was the purchase of m-Qube for $250 million. This company helps with the development, deployment, and billing of mobile content. Customers include Sony (NYSE:SNE), Reuters, and Warner Music Group (NYSE:WMG).
There's no doubt that mobile applications are getting much more complicated, but VeriSign is paying hefty prices for companies. Still, there is a big opportunity for the company to be a leader in mobile infrastructure. If you ask me, I'd say that in light of the lackluster performance of its acquisitions program so far, investors would do well to take a wait-and-see approach on this stock.
Fool contributor Tom Taulli does not own shares mentioned in this article.
