February 4, 2009 / 7:24 PM / 10 years ago

PREVIEW-VeriSign to meet Q4 profit targets

* What: VeriSign reports Q4 results

* When: Feb 5, Thursday

* To meet or exceed Q4 profit targets

* To give strong operating margin outlook for 2009

By S. John Tilak

BANGALORE, Feb 4 (Reuters) - VeriSign Inc (VRSN.O) is expected to meet or exceed fourth-quarter profit expectations, helped by tighter cost control, even as growth at its key domain names segment slows amid tough market conditions.

The Internet security and naming services provider, which has been aggressively managing expenses through job cuts and other restructuring efforts, is also expected to project strong operating margins for 2009.

“The bottom line really comes down to expense management, which they’ve done a very good job at,” said Pacific Crest Securities analyst Rob Owens, who expects at least in-line results from VeriSign in the fourth quarter.

Stanford Group analyst Rodney Ratliff said Digital River’s (DRIV.O) better-than-expected results last week was a sign that e-commerce infrastructure was holding up even in tougher times.

“With regard to the way earnings are going to shake out, I don’t expect any major surprises from the core lines of business,” Ratliff said.

In November, VeriSign forecast revenue from core businesses of $242 million to $247 million for the fourth quarter, reflecting year-over-year growth of 14 percent to 16 percent.

Analysts on average are looking for earnings of 28 cents a share, excluding items, and revenue of $244.2 million, according to Reuters Estimates.

The company has pegged the addition of new net domain names at one million to two million for the quarter, a steep drop from the year-ago period.

However, Cowen & Co analyst Walter Pritchard said the stock reflected the weakness in the domain names segment. “The question is, does it slow further from here?”


Although many technology companies are expecting year-over-year declines, VeriSign should be able to post revenue growth of 10 percent or more and earnings growth of at least 30 percent to 40 percent for the year, Wedbush Morgan Securities analyst Scott Sutherland said.

“That kind of growth puts them in a basket of a handful of companies who are going to have that kind of metrics, that kind of growth,” he said

For 2009, analysts expect earnings growth of 38 percent on revenue growth of about 11 percent.

VeriSign will guide for high margin expansion, up to 40 percent by the end of the year, said Sutherland, who expects operating margin of 39 percent in 2009. VeriSign has been exceeding 35 percent in 2008.

The company is also expected to provide an update on its divestitures, a key reason for the stock’s decline. VeriSign has been trying to spin-off its slower growing units, such as its communications, billing and commerce businesses. But it may not be able to make a significant announcement this time as it has been struggling to find buyers since the economic slowdown worsened, analysts said.

The stock is down about 44 percent in the last 52 weeks, compared with a 39 percent drop in the broader S&P 500 index .SPX that it is part of. (Editing by Anil D’Silva)

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