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VeriSign urged to dump domains
by David Shabelman (thedeal.com)
Updated 08:15 PM EST, May-24-2002
SAN FRANCISCO ââ¬â In real time, VeriSign Inc.'s March 2000 acquisition of Network Solutions Inc. was relatively recent. In the Internet world, however, that's ages ago. And with VeriSign's prospects souring, some analysts are calling for the company to dump its once highly valued domain name registration business acquired in the deal.
Bear, Stearns & Co. analyst Chris Kwak said VeriSign's registry unit faces declining market share, pricing pressures and "serious overhang in terms of negative news." VeriSign purchased Network Solutions in for $21 billion in stock, but Kwak values the company Network Solutions at $450 million to $520 million.
"Why not get rid of the business that's going to be the biggest pain in the butt to you?" he asked. "All the negative news [about VeriSign] the past year and a half has been on that business."
In reporting first quarter earnings, VeriSign said it registered 600,000 new domain names, flat compared with the fourth quarter of 2001. The company said it ended the first quarter with 12 million active domain names under management, down from 13.6 million at the end of 2001.
Kwak said VeriSign could end 2002 with fewer than 9 million registered domain. He expects that figure to drop to fewer than 7 million by year-end 2003 before stabling off at about 6 million in 2004.
VeriSign spokeswoman Cheryl Regan declined comment on whether the company would consider selling the registry unit, and she said the company does not break out revenue figures for the business.
The domain name sector is no longer as important for VeriSign since the company diversified its business, Kwak said.
In February the company closed a $340 million deal for H.O. Systems, a provider of billing and customer-service solutions to wireless carriers. In December VeriSign also closed on its $1.2 billion stock purchase of Illuminet Holdings Inc., which provides routing services to telecom carriers. VeriSign built its business providing Web site security.
Other VeriSign watcher are less sold on the company's unloading the registry unit.
Jordan Klein, an analyst with New York-based UBS Warburg LLC, said divestiture is an option if the business does not improve. But he expects the registry to stabilize at 9 million to 10 million names and said that VeriSign will have more success if the economy improves in the second half of the year.
"So far, they haven't proven they can get these unique names to sign up for other services," Klein said. "If they can do that, there's potential for a lot of growth. If they sell it off, they're going back on their whole strategy and admit that it's not working."
Nitsan Hargil, senior analyst with Friedman, Billings, Ramsey, also is against selling the registrar business. The division remains profitable and brings in revenues when Verisign's overall revenues are declining, he said.
"VeriSign is under the gun both for the decline in business from the old Network Solutions business, but more importantly it's newer business are not showing growth, so it makes it a more risky strategy to head in that direction alone," Hargil said.
Kwak said both Redmond, Wash.-based Microsoft Corp.'s MSN Internet portal and Santa Clara, Calif.-based Yahoo! Inc. would be prime candidates to acquire the VeriSign assets. But don't expect a deal anytime soon, he added.
"I don't think [VeriSign] management is completely against the idea, but I think they do want to take another shot at rebuilding the business," he said.
by David Shabelman (thedeal.com)
Updated 08:15 PM EST, May-24-2002
SAN FRANCISCO ââ¬â In real time, VeriSign Inc.'s March 2000 acquisition of Network Solutions Inc. was relatively recent. In the Internet world, however, that's ages ago. And with VeriSign's prospects souring, some analysts are calling for the company to dump its once highly valued domain name registration business acquired in the deal.
Bear, Stearns & Co. analyst Chris Kwak said VeriSign's registry unit faces declining market share, pricing pressures and "serious overhang in terms of negative news." VeriSign purchased Network Solutions in for $21 billion in stock, but Kwak values the company Network Solutions at $450 million to $520 million.
"Why not get rid of the business that's going to be the biggest pain in the butt to you?" he asked. "All the negative news [about VeriSign] the past year and a half has been on that business."
In reporting first quarter earnings, VeriSign said it registered 600,000 new domain names, flat compared with the fourth quarter of 2001. The company said it ended the first quarter with 12 million active domain names under management, down from 13.6 million at the end of 2001.
Kwak said VeriSign could end 2002 with fewer than 9 million registered domain. He expects that figure to drop to fewer than 7 million by year-end 2003 before stabling off at about 6 million in 2004.
VeriSign spokeswoman Cheryl Regan declined comment on whether the company would consider selling the registry unit, and she said the company does not break out revenue figures for the business.
The domain name sector is no longer as important for VeriSign since the company diversified its business, Kwak said.
In February the company closed a $340 million deal for H.O. Systems, a provider of billing and customer-service solutions to wireless carriers. In December VeriSign also closed on its $1.2 billion stock purchase of Illuminet Holdings Inc., which provides routing services to telecom carriers. VeriSign built its business providing Web site security.
Other VeriSign watcher are less sold on the company's unloading the registry unit.
Jordan Klein, an analyst with New York-based UBS Warburg LLC, said divestiture is an option if the business does not improve. But he expects the registry to stabilize at 9 million to 10 million names and said that VeriSign will have more success if the economy improves in the second half of the year.
"So far, they haven't proven they can get these unique names to sign up for other services," Klein said. "If they can do that, there's potential for a lot of growth. If they sell it off, they're going back on their whole strategy and admit that it's not working."
Nitsan Hargil, senior analyst with Friedman, Billings, Ramsey, also is against selling the registrar business. The division remains profitable and brings in revenues when Verisign's overall revenues are declining, he said.
"VeriSign is under the gun both for the decline in business from the old Network Solutions business, but more importantly it's newer business are not showing growth, so it makes it a more risky strategy to head in that direction alone," Hargil said.
Kwak said both Redmond, Wash.-based Microsoft Corp.'s MSN Internet portal and Santa Clara, Calif.-based Yahoo! Inc. would be prime candidates to acquire the VeriSign assets. But don't expect a deal anytime soon, he added.
"I don't think [VeriSign] management is completely against the idea, but I think they do want to take another shot at rebuilding the business," he said.
