This Stock has become a Major Focus of Buffett’s Confidence Into 2025

VeriSign has closed 2024 on a high note, reaching 52-week highs driven by renewed interest from Warren Buffett’s Berkshire Hathaway. The recent purchase of approximately $15.6 million in shares underscores Buffett’s confidence in the company’s long-term growth prospects, following a prior $45.4 million investment earlier in December.

These back-to-back acquisitions highlight the strong appeal of VeriSign’s business model, despite facing some headwinds.

Understanding VeriSign’s Core Business

VeriSign operates as the backbone of internet domain registrations, providing exclusive registration services for top-level domains like ".com" and ".net." These domains dominate the online space, with ".com" remaining the gold standard for businesses and individuals. Through its contract with ICANN, VeriSign enjoys an enviable economic moat, giving it a monopoly over this lucrative market.

The company functions as a wholesaler, working with registrars who sell domains to end users. While this model ensures consistent revenue streams, it also limits VeriSign’s ability to directly influence pricing and marketing strategies at the retail level.

Revenue Growth and Pricing Power

In September, VeriSign increased its ".com" wholesale registration price to $10.26, reflecting a 7 percent hike. This price adjustment plays a critical role in driving revenue growth, as demand for ".com" domains remains relatively inelastic. Despite these gains, VeriSign’s Q3 revenue growth of 3.8 percent year-over-year to $390.6 million reflects its typical low-single-digit growth trajectory.

The company’s ability to consistently beat earnings expectations—ten consecutive quarters of bottom-line upside—demonstrates strong operational efficiency. However, some challenges remain, including a slight decline in new registrations and renewal rates. In Q3, new registrations dropped to 9.3 million from 9.9 million in the year-ago period, while renewal rates slipped 120 basis points to 72.3 percent.

Navigating Challenges with Registrars and Global Markets

VeriSign faces challenges stemming from its dependence on registrars, who have shifted their focus toward increasing average revenue per user and aftermarket sales rather than acquiring new customers. This strategy has limited growth in the domain name base, prompting VeriSign to launch new marketing programs aimed at reenergizing customer acquisition.

China’s economic slowdown has further pressured renewal rates, adding to the headwinds. VeriSign has acknowledged that these trends may take time to reverse, narrowing its 2024 domain name base growth forecast to a contraction of 2.3 to 2.9 percent. However, management remains optimistic about the potential impact of its new initiatives, which are expected to gain traction in 2025.

Buffett’s Endorsement and Future Outlook

Warren Buffett’s increased stake in VeriSign is a strong vote of confidence in its long-term prospects. The company’s extensive economic moat, combined with its steady revenue and earnings performance, makes it a reliable investment despite near-term challenges. The stock has gained over 20 percent since its lows in May 2024 and more than 10 percent in December alone, reflecting renewed investor interest.

As VeriSign enters 2025, it carries positive momentum but faces a mixed outlook. While short-term challenges remain, including registrar-driven headwinds and a sluggish global economy, the company’s monopoly over key internet domains positions it well for sustained success. Continued efforts to enhance registrar engagement and adapt to market conditions will be critical to achieving stronger growth.

Conclusion

VeriSign’s unique market position and pricing power make it a standout in the tech sector, even as it navigates near-term challenges. Buffett’s endorsement further underscores its potential as a long-term value play.

With a strong economic moat and steady operational performance, VeriSign is well-positioned to leverage its market leadership in 2025 and beyond. However, patience may be required as the company works through short-term obstacles and implements strategies to reignite growth.