Warren Buffett is not known for betting big on technology stocks, but one long-term favorite of his has been VeriSign(NASDAQ: VRSN). Buffett began accumulating shares of the company back in 2012, and it was one of the few stocks he was buying in the fourth quarter of last year.
The company demonstrated why it's a Buffett favorite when it released its Q1 earnings report. Although the overall market has been under pressure, the stock is up more than 30% year to date. (NYSE: GDDY)
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Boring, but beautiful
VeriSign is never going to be confused with a flashy business; in fact, it could be described as quite boring. For those unfamiliar with the company, it essentially provides the internal plumbing for the internet. It maintains the database for all registered domains under .com, .net, and certain other suffixes. And it provides DNS (Domain Name System) services that connect domains to Internet Protocol (IP) addresses and ensure that connections are fast and stable.
The company does not sell domains to consumers, but it gets paid every time someone buys a .com or .net domain. It has a monopoly on the .com and .net domains through a long-term agreement with Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit organization that oversees the DNS. It gets a fixed yearly fee every time a domain is renewed.
This is a great business as the company doesn't market or sell domains, which is left to registrars such as GoDaddy. As such, it has no customer acquisition costs. Meanwhile, its back-end costs don't tend to scale up at the same rate as revenue, which helps lead to high and expanding gross margins.
VeriSign's strength was on full display in Q1 2025, when the company saw its revenue rise nearly 5% to $402.3 million. The increase came despite a 1.5% decline in .com and .net domain-name registrations to 169.8 million. It also processed 10.1 million new domain-name registrations for .com and .net in the quarter, up from 9.5 million a year ago.
The increase in revenue stemmed from a nearly 7% price increase that the company implemented last September for .com domains, to $10.26 a year. The company is allowed to raise prices up to 7% annually via its agreement with ICANN, but only in the last four years of a six-year contract. That means it won't be able to raise .com prices this year or next.
However, it will still be able to increase .net prices by up to 10% annually, since that agreement does not include any pauses in price increases. It last increased .net prices in February 2024, to $10.91. It said that while no immediate changes to .net prices have been announced, it regularly reviews its pricing strategies.
Gross margin improved to 87.7% from 87.2%, while earnings per share (EPS) climbed 9% to $2.10.
VeriSign is also a cash flow machine; it generated free cash flow of $286 million in the quarter. It spent $230 million to buy back 1 million of its shares in the quarter.
Looking ahead, VeriSign said it expects its domain-name base to range somewhere between a decline of 0.7% and growth of 0.9%. This would be a nice improvement from the decline of between 2.3% and 0.3% that it projected in February.
The company said that improving trends from the end of last year continued into Q1, and that registrars were starting to market more aggressively to acquire customers. As a result, it increased its revenue guidance for the year. It now expects to generate revenue of $1.635 billion to $1.65 billion, up from a prior forecast of $1.615 billion to $1.635 billion.
Is it time to buy the stock?
It's easy to see why Buffett is attracted to VeriSign. The company has a monopoly with built-in price increases, no customer acquisition costs, and strong operating leverage. This allows it to be a classic solid growth compounder. It's the type of stock that just continues to build intrinsic value over time.
At a forward price-to-earnings ratio (P/E) of 31 based on 2025 analyst estimates, the stock is not in the bargain bin. Nonetheless, it is trading in its typical valuation range:
The inability to increase .com prices over the next two years is likely going to hinder growth in the near term, but Verisign can still raise .net prices, and registrars appear to be ramping up their marketing spending. Long-term, though, the company will simply continue to be a strong growth compounder.
That means investors should feel free to establish positions in the stock, and look to add shares on any weakness.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends VeriSign. The Motley Fool recommends GoDaddy. The Motley Fool has a disclosure policy.
