VeriSign's Q4: A Revenue Beat, an EPS Miss, and the Expectation Gap

The market's verdict on VeriSign's fourth quarter was a classic case of expectations versus reality. The company posted a revenue of $425.30 million, which narrowly topped the consensus forecast of $424.04 million. Yet the more critical metric, earnings per share, came in at $2.23, missing the range of estimates that had been as high as $2.35. This created a clear expectation gap: a slight beat on the top line was more than offset by a notable miss on the bottom line.

The stock's reaction was counterintuitive, to say the least. Instead of falling on the EPS disappointment, shares rose by 1.39% in aftermarket trading. This is a textbook "sell the news" dynamic in reverse-a move that suggests the market had already priced in a near-perfect print. The revenue beat was likely already anticipated, given the strong full-year results and domain growth. The EPS miss, while real, may have been viewed as a minor bump in a larger story of operational strength and a clear path to higher prices in 2026. The positive aftermarket move indicates investors were looking past the quarterly miss to the forward view, where the real catalysts-pricing power and new services-were just beginning to be priced in.

Decoding the Numbers: Growth Drivers and the Guidance Reset

The core business is delivering strong, predictable growth, which helps explain the market's positive reaction despite the quarterly EPS miss. The underlying engine is the domain registry, where VeriSign is executing well. The company's .com and .net domain name base grew 2.6% year-over-year in 2025, ending the year at 173.5 million names. This growth was driven by a surge in new registrations, with 41.7 million new names added in 2025, the highest annual total since 2021. The renewal rate also improved, with a preliminary Q4 rate of about 75%. This operational strength translated directly to the income statement: full-year 2025 revenue grew $1.66 billion, up 6.4% year over year, while net income climbed $826 million, up 10.1%.

The expectation gap becomes clearer when you look at the full-year picture versus the quarterly print. The full-year EPS beat of $8.81 versus the prior year's $8.00 shows the business is fundamentally expanding. The Q4 miss, therefore, appears to be a timing or accounting issue-likely the increase in operating expenses to $140 million for the quarter-which management may have been able to absorb over the course of the year. The market seems to be focusing on the durable growth trajectory, not a single quarter's noise.

Management's forward guidance now sets the new expectation. For 2026, the company is targeting revenue of $1.715 to $1.735 billion. This implies a growth rate of about 3.5% to 4.5% over 2025's base, which is a modest acceleration from the full-year 2025 growth. The key caveat is a significant reset on capital expenditure. Management expects to spend $55 to $65 million on capital projects in 2026, a notable increase from prior years. This is attributed to equipment refreshes and building AI-related capacity. This guidance reset signals management's view that future growth will require higher upfront investment, which will pressure near-term cash flow and EPS but is framed as necessary for maintaining infrastructure and exploring new services.

The bottom line is that the guidance points to a managed acceleration. The strong domain growth provides a solid foundation, but the higher capex forecast tempers the pure top-line optimism. The market's positive reaction to the Q4 report suggests investors are willing to look past the quarterly EPS miss because the full-year execution was solid and the forward view, with its clear path for pricing power and new services, is now being priced in.

The Catalyst: Pricing Power and AI-Driven Demand

For VeriSign, the expectation gap is about to be bridged by two powerful, forward-looking catalysts. The market has already priced in the company's steady domain growth, but the real 2026 story hinges on its ability to convert that growth into higher profits through pricing power and new demand drivers.

The most direct catalyst is the long-awaited 7% annual wholesale price increase permitted under its ICANN agreement, which can begin later this year. This isn't just a potential bump; it's a structural revenue tailwind that could reshape the company's trajectory. The market is watching for management's timing on the first hike, as any clarity would remove a major overhang and validate the stock's premium valuation. This pricing power is the core of the "buy the rumor" thesis, and its implementation is now the key variable priced into the stock.

Beyond the contract, management is pointing to a new source of demand: increased internet activity, some of which it attributes to artificial intelligence. This narrative suggests that VeriSign's DNS infrastructure is seeing more traffic, which naturally flows through its registry operations. While the company hasn't quantified the AI contribution, the mere acknowledgment of this trend provides a narrative for sustained demand. It frames the domain business not as a static utility, but as a dynamic system benefiting from broader digital expansion.

Finally, the company is actively exploring a path to diversification. Management teased potential new security- and functionality-oriented services that could be introduced in the coming months. This is a long-term play to build a second revenue pillar beyond the core registry. While these services are not expected to materially impact near-term results, their exploration signals management's intent to capitalize on its trusted infrastructure and customer relationships. For now, they represent a potential future catalyst that could further de-risk the stock's growth story.

The bottom line is that the market's positive reaction to the Q4 report reflects a shift in focus. The quarterly EPS miss was noise; the forward view is where the real action is. The expectation gap is closing because investors are now pricing in the combination of guaranteed pricing power, AI-fueled demand, and the potential for future diversification. This setup suggests the stock's recent rally may have only begun.

Risks and What to Watch: The Guidance and the Price Hike

The market's optimism is now priced in, but the stock's path higher depends on a few key variables. The primary near-term catalyst is management's confirmation or timing of the first 2026 price increase. The company has stated that the 7% annual wholesale price increase permitted under its ICANN agreement can begin later this year, with some expectations pointing to April. Any clarity on the exact timing and rollout plan would remove a major overhang and validate the forward-looking thesis. This is the "what's not priced in" that could spark a re-rate.

The key near-term risk is the sequential increase in operating expenses to $140 million in Q4, which partly stems from a property impairment charge. While management framed the full-year 2025 operating income growth of 5.9% as a positive, the quarterly spike in expenses is a reminder that the path to higher profits isn't frictionless. This sets a higher bar for future quarters and could pressure margins if not offset by the upcoming price hikes.

The leading indicator to monitor is the finalized renewal rate for .com and .net domains. Management provided a preliminary Q4 rate of about 75%, but the finalized rate is not available until 45 days post-quarter. This number is critical because it directly impacts the stability of the core revenue stream. A final rate that meets or exceeds the preliminary figure would reinforce the growth story, while a significant miss would be a red flag for the durability of the domain base.

In short, the market is looking past the quarterly EPS miss to the forward view. The upcoming price hike confirmation and the finalized renewal rate are the next two data points that will test the current optimism. If both come in as expected, the stock's recent rally may have only begun. If either disappoints, the expectation gap could reopen.