Economy Is Down but Domain Business Is Up

While most technology vendors are seeing revenue declines as a result of the recession, VeriSign (NASDAQ: VRSN) is reporting a revenue gain for its first quarter of 2009.

It’s secret? Growth in domain name sales.

VeriSign reported that revenues in its naming business, which includes .com and .net registrations, grew 17 percent on a year-over-year basis.

Mark McLaughlin, VeriSign’s president and chief operating officer, told investors during the company’s earning call that it had seen better-than-expected growth in registered .com and .net names during the quarter, which ended March 31. As a result, VeriSign claimed 92.4 million registered domains by the end of the quarter, a 9 percent year-over-year increase.

Part of the growth of VeriSign’s domain business during the quarter may be attributable to new rules affecting domain sales, executives said.

VeriSign manages the root DNS zone for the Internet under contract with ICANN — the Internet Corporation for Assigned Names and Numbers and the chief authority overseeing domain name registrars. As a result, the company occupies a central role in the Internet’s infrastructure, at least until its contract with ICANN expires in 2012.

However, new regulations from ICANN regarding domain name “tasting” went into effect on April 1, which VeriSign said likely impacted its business. Tasting refers to the practice of buying domain names, testing their marketability and traffic-generation abilities, and returning unsuitable domains before a five-day grace period expires.

Brian Robins, acting CFO at VeriSign, explained that prior to April 1, buying and returning a domain name within that grace period carried only a $0.20 “restocking” fee.

“As of April 1st, there was no more forgiveness of the registry fee, which means you had to pay the entire registry fee to keep those names,” Robins said. “So, as a matter of monetizing those names, the bar went from zero up to the entire registration fee plus the restocking fee. So, people were trying to get in front of the implementation of that, right up through April 1st.”

Overall revenue growth, SSL certificates on the rise

Due in part to a lift from domain name sales, VeriSign reported first-quarter revenue of $255 million, an 8 percent increase on a year-over-year basis. Net income came in at $65 million or $0.34 per share, which is a turnaround from the loss of $8.1 million it saw during the first quarter of 2008.

Domain names weren’t the only growing portion of VeriSign’s business, either. Revenues for VeriSign’s authentication unit, which includes SSL certificate sales, was up by 8 percent compared to a year earlier.

VeriSign is one of the leading vendors of SSL certificates. For the first quarter of 2009, VeriSign reported that it had increased it installed base of SSL certificates to 1.15 million, which is a 13 percent year-over-year increase.

One area of VeriSign’s SSL business that is not growing as fast as it would like is the company’s EV-SSL (Extended Validation) segment. EV-SSLs have been around for two years and offer enhanced auditing to ensure the integrity and authenticity of the certificate holder.

“EV is a standard, which is good and bad in that as a standard everybody can use it, everybody can adopt it,” McLaughlin said. “The bad news … is that as far as putting enough marketing muscle behind it for it to make a difference, it takes quite a bit. So, we certainly do our part for that. I’d like to see lots of other people step up to that as well and I think that would help everybody.”

“But we haven’t really seen the entire industry, particularly in the browser space, do that,” he added.

That may be changing, however slowly. In a recent interview with InternetNews.com, Mozilla’s Johnathan Nightingale talked up Firefox’s motives and efforts behind its support for EV-SSL.

ICANN

The other issue facing VeriSign currently is the stability and governance of ICANN. VeriSign manages the root DNS on behalf of ICANN, and currently process some 38 billion DNS requests per day.

Recently, however, the European Union’s information society chief criticized ICANN and its direct links to the U.S. Department of Commerce. Jim Bidzos, VeriSign’s executive chairman, explained during the company’s earnings call that the year-to-year contract between ICANN and the Department of Commerce is set to expire in September.

Whether it’s renewed or changed will likely have a dramatic impact on VeriSign.

“There is a lot of discussion about what will happen come September, and there’s no specific proposal out there,” Bidzos said. “Yet people have gotten behind ICANN proposing self-governance, and other people have proposed different models.”