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Real McCoy? VeriSign Debuts With High-flying IPO

More and more tools pop up to verify you are you. They can clone sheep can't they? So you never can be sure who anyone is, especially on the Internet, where e-mail addresses are as configurable as Gumby after a bout in the microwave.

So here comes VeriSign, the digital certificate company that issues little files that embed in your e-mail or documents--a digital ID. Wall Street bought into it on Verisign's Friday IPO, priced at $14 and closed Monday at $31.

Our number crunching shows VRSN valued at more than 45x estimated 1998 revenue. Can you say Yahoo! of Internet ID? The offering price at $14 was above the range, they had expected $12. But with such a run out of the gate, perhaps VeriSign left some money on the table?

VeriSign IPO Valuation Estimates

Pro forma IPO valuation estimates VRSN
Offering 3.00
Greenshoe 0.45
Total offer 3.45
IPO offering price $ 14.00
IPO gross proceeds $ 42.00
Shares out pro forma 20.15
Plus options @ $2.95 wtd. Avg. 2.52
Plus incentive stock options 3.06
Fully-diluted shares (FDS) 25.73
IPO market cap $ 360.22
Plus long-term debt -
Less cash $ 44.37
Less warrant inflow $ 7.43
= IPO enterprise value $ 308.41
VRSN close 2.02.98 $ 31.00
= Enterprise value FDS $ 745.81
% Difference from IPO 121%
1997 $9.38
Projected 1998 revenue $16.50
1997 -$19.20
Primary share loss to 9/30 -$1.13
Revenue multiple  
IPO enterprise value/est.1998 revenue 19
2.02.98 Enterprise value/est.1998 revenue 45
all figures in millions except  
multiple and share prices  
© 1998 Mecklermedia  

Here's the list of heavyweights tossing their names in VeriSign's hat: AT&T, British Telecommunications, Cisco, Microsoft, Netscape, Network Associates (formerly McAfee), RSA Data, Security Dynamics, VeriFone, and VISA. All support it as a method for Internet users to provide some sort of electronic credential in the digital world.

VeriSign says it's issued more digital certificates than any other company, more than 2 million of its Digital IDs for individuals and over 40,000 of its Digital IDs for Web sites.

It also provides turnkey and custom solutions for firms such as Dow Jones, NationsBank, NOVUS/Discover, and VISA to conduct trusted and secure communications and commerce over IP networks.

Fueling the investor furor for Verisign's (NASDAQ:VRSN) offering was its belief that there is the potential need over time for hundreds of millions of digital certificates to be issued and managed.

The emergence of some tool to add veracity to the wildness of the Web brings with it many rivals. Entrust Technologies, GTE CyberTrust Solutions, and IBM also do the digital ID thing. The theory is that the hundreds of billions of dollars expected in e-commerce in a few years will require not trust but lack of trust. Without it you need things like Digital IDs.

And that's if everyone buys into the idea of an ID and one that actually says someone is who he or she really is. How do I know the digital ID is authentically portraying me? Do we need an ID to verify the ID?

Example from another electronic medium: Millions of phone calls are made everyday around the world, and there's literally nothing verifying that the caller is the caller except one important aspect: voice recognition.

If the caller happens to know the other one and the voice registers then voila. But we'd estimate that billions of dollars of commerce are conducted via telephone everyday--and on home shopping TV--without any verification system in place. Call in and use your credit card number, two complete strangers do the transaction. Done. Where's the check and balance in that?

VeriSign offers many layers of products in the ID lineup: servers, e-mail, personal, developers, financial institutions. For individuals it works like this, you sign up for a Digital ID plan and pay the corresponding fee:

Full Service Class 1 Digital ID: Sign and encrypt e-mail--Quickly retrieve anyone's Digital ID using Netscape Messenger or Microsoft Outlook Express. Use Digital ID to register at participating Web sites in one easy step. Includes US$1,000 of NetSure protection against economic loss caused by corruption, loss, or misuse of your Digital ID.

Access: VeriSign Customer Care 24 hours a day, 7 days a week--that's $9.95 a year. Plan 2 offers more for $19.95 year. Plan C is a free trial.

If you want to make sure you're really you. The question is, is VRSN a 45x revenue stock? Awaiting verification.