Investors See NSI As Master of Its Domain

It has attracted complaints, accusations, lawsuits and dire predictions
of its demise. Yet the Internet domain registrar that everybody loves to
hate continues to attract something else: eager investors.

Through Tuesday afternoon trading, shares of Network Solutions Inc. (NSOL)
surged toward their all-time high price of 287-3/4 set just four weeks
ago. NSOL was up nearly 12 percent to 266 on news that the Supreme Court had
rejected an appeal by a group of nine companies claiming that the domain
registration fees charged by Network Solutions are the equivalent of an
unauthorized tax.

The suit was filed because of NSI’s relationship with the National
Science Foundation, which had granted exclusive rights to the company to
register Internet domains. It was this agreement that has led to charges
from critics of the domain naming system that Network Solutions was
operating under a government-abetted monopoly.

The beginning of the end for NSI was supposed to have come last year,
when the Internet Corp. for Assigned Names and Numbers (ICANN), a non-profit organization
appointed by the Commerce Department, began accrediting other private
companies to be domain registrars and thus compete directly with NSI.

If Network Solutions’ glory days are over, it’s hard to tell from the
company’s stock chart and recent earnings statements. Since Aug. 9,
shares of NSOL are up nearly 400 percent.

Net income and revenues have increased in each of the last five
quarters, both sequentially and year-to-year, while earning per share
have increased in each quarter of 1999 from 14 cents per share in Q1 to
17 cents per share in Q2 to 21 cents in Q3. And with $144.9 million in
revenues through the first three quarters of 1999, NSI is a cinch to
more than double 1998’s revenue of $93.7 million.

While NSI is no longer the sole Internet domain registrar, investors
clearly believe the company’s market-leading position is (at least for
now) unassailable, so much so that NSOL currently trades at 155x
projected 1999 earnings. It will take a change in NSI’s bottom line –
and not a lengthening list of presumptive competitors – to shake
investors’ confidence in this stock.


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