VeriSign Value Plummets

Business is taking a sudden, and horrible, shift at industry giant VeriSign on Friday
after most of Wall Street’s biggest investment names downgraded the company after disappointing news Thursday after the bell.

In all, 11 firms signaled its lack of faith in VeriSign’s restructuring
program, which includes further integration of recent acquisitions and
the reduction of 10 percent of its workforce.

Included in the downgrade rush were some of Wall Street’s more respected
firms — Bear Stearns, J.P. Morgan, USB Piper Jaffray and Goldman Sachs &
Co. — all of them who took VeriSign off any “outperform” or “strong buy”
ranking possible. Bear Stearns labeled VeriSign “unattractive.”

Suddenly Yahoo! , nominal symbol of the Internet bubble
and subsequent crash, is looking good. Last September, Yahoo! couldn’t
find a friend on Wall Street when its shares were wallowing at $8.02 a
share, while VeriSign was riding high in the mid-$40s.

Trading higher per share than VeriSign at press time, both companies have taken a 180-degree turn in the past months, pointing to a shift in what analysts consider “value” these days.

Boston-based investment firm Alex Brown was perhaps the most conservative
in its assessment of the company after a conference call with executives
Thursday evening.

Calling the changes at VeriSign “seismic in nature,” analysts at the equity
research firm find cracks in the operations and a lack of “traditional cash
generation vigor” — in other words, they can’t seem to make a buck.

“We think the key question for investors will be ‘what’s it worth?’ ” its
report to investors read. “Overall, we think VeriSign will be fairly
valued, given the current outlook.”

One of the key “value” propositions VeriSign needs to address, according to
the report, is the company’s mass-market division. Accounting for 27
percent of its total revenue, the registrar’s domain name management stake
has dropped from 13.6 million to 12 million in the first quarter of 2002,
continuing a downward trend started three quarters ago.

The drop is attributable to a “dramatic” decline in domain name renewals,
as customers drop VeriSign and go to any number of other accredited
registrars instead. According to one former customer, his defection to
another registrar comes from the company’s high prices and inferior service.

Domain name reseller ChoiceNames.com was a four-year customer of VeriSign,
bringing the company $25,000 a year in domain name services, until owner
Layton Golding switched all but 100 of his domain names. Attempts by
VeriSign to keep those last names under its management are “pitiable,”
Golding said, the efforts too little and too late.

“Today I received a desperate VeriSign marketing call offering a ‘new VIP’
customer service offered to keep my last 100 domains still stuck
there…for now,” he said. “Pitifully too late, as I had warned their
executive services department over and over again, both in writing and
verbally almost every week for two years.”

Alex Browns calculates the registrar arm lost 2.2 million renewals in the
first quarter, which it believes is caused by market saturation and
VeriSign officials attribute to the purging of promotional domain names.

VeriSign expects the downward trend to continue the next two quarters, with
a loss of between 600,000 – 1.2 million domain names each quarter before
stabilizing in the early months of 2003.