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To close out 2024, VeriSign (VRSN +1%) is reaching 52-week highs, supported by Warren Buffet's Berkshire Hathaway (BRK.A) purchasing around $15.6 mln of shares today. Mr. Buffett is already a 10% owner of the company but has been actively buying recently, spending about $45.4 mln on shares on December 20 following a pullback from nine-month highs. The back-to-back purchases by BRK.A is a sign of confidence in the company's long-term growth prospects.

• What does VRSN do? While a lesser-known organization, nearly everyone pointing their web browser to a ".com" or ".net" address indirectly uses VRSN's services. The company provides registrations and policies for top-level domains (TLDs), such as ".com" addresses. VRSN is a wholesaler that works with registrars, the companies that sell domains to individuals and businesses. VRSN's contract with ICANN (the organization for assigned names on the internet) grants it exclusive rights to ".com" and ".net" domains.
• In September, VRSN raised the current ".com" wholesale price to $10.26 per registration, up roughly 7% from the previous price. Given its wide economic moat as the sole wholesaler for the ".com" domain alongside relative price inelasticity as ".com" remains the top choice when creating a website, this price hike significantly helps support revenue growth while maintaining profitability.
  • During Q3, revenue climbed by 3.8% yr/yr to $390.6 mln, staying relatively consistent with growth over the past several years as VRSN tends to deliver low-single-digit growth each quarter. At the same time, VRSN registered a decent-sized earnings beat, extending its streak of bottom-line upside to ten straight quarters.
• However, there are some downsides to being a wholesaler, as VRSN has little control over registrars. For instance, VRSN has continued to see registrars prioritize average revenue per user (ARPU) over customer acquisition by upping their prices. Registrars also focus more on aftermarket sales while reducing their spending on marketing to new customers. As such, VRSN ended Q3 with 9.3 mln new registrations compared to 9.9 mln in the year-ago period. Meanwhile, renewal rates slipped by 120 bps yr/yr to 72.3%.
  • China has also proven a drag, hindering renewal rates as the region battles challenging economic conditions.
• VRSN has been piloting new registrar marketing programs to counter these trends and return to domain name-based growth. Management mentioned in late October that while it has noticed a positive response to these new programs, it will take time for registrars to adopt and integrate them into their sales cycle. As such, VRSN cautioned that trends may not reverse course until sometime during 2025, causing it to narrow its FY24 domain name base growth forecast to negative 2.3-2.9%.

VRSN heads into 2025 with some decent wind in its sails, climbing by over +20% since 2024 lows reached in May and over +10% just in December following back-to-back purchases by Warren Buffett. While the immediate road ahead is still expected to be bumpy as registrars implement VRSN's initiatives to reenergize customer growth, the company's expansive economic moat, supporting consistently decent quarterly performances, bodes well over the long term.