VRSN — Q3 2026 Financial Report Analysis

Volume kept rising, but the profit line went sideways

Verisign runs the .com and .net registries, the master lists behind those web addresses. In the third quarter of 2026 it grew revenue 5.7% to $443.0 million. The reason was volume, not price. Registrars sold 13.1 million new .com and .net names, up from 10.6 million a year earlier. That lifted the domain name base, the count of registered names, 6.1% to 182.5 million.

Net income was flat at $212.6 million, against $212.8 million a year ago. Three things absorbed the growth: a $7.5 million write-down on property Verisign is selling, a higher tax rate, and lower interest income. Diluted EPS still rose 3.5% to $2.35, because buybacks cut the share count by 3.4%.

Operating margin is the share of revenue left after running the business, before interest and tax. The renewal rate is reported one quarter late, because Verisign only measures it 45 days after a quarter ends.

Over nine months, revenue was $1,306.5 million (+6.1%), operating income $886.4 million (+6.0%), net income $643.6 million (+3.9%) and diluted EPS $7.06, up from $6.58 (+7.3%).

Where the growth came from

Verisign charges a fixed wholesale fee for each .com or .net registration or renewal. Registrars such as GoDaddy pay that fee and resell the names to the public. The fee is capped under agreements with ICANN, the body that coordinates internet names. The .com fee has been $10.26 since September 2024. The 10-Q says revenue rose "primarily due to an increase in the domain name base... and the .com price increases."

The price effect is now nearly used up, though. Revenue grew 5.7% and the base grew 6.1%. Divide quarterly revenue by the average number of names in the quarter and you get about $2.45 per name in both Q3 2026 and Q3 2025. In other words, average revenue per name was flat, and the extra names did all the work. Until the next price increase arrives, revenue will track the size of the base.

On the base, the filing says "the positive domain name base trends that began in 2025 continued into 2026 with higher new registrations and renewal rates." It points to registrars' focus on winning customers, Verisign's own marketing programs, and "the evolution of AI tools used in content and website creation." If tools make it cheaper to build a website, more people need a name to put it on.

By region, which follows where registrars are based rather than where buyers live, revenue rose 7% in the U.S. to $295.1 million and 10% in Europe, the Middle East and Africa to $78.0 million. It was flat in Asia-Pacific at $46.8 million and fell 8% in "Other," mainly Canada and Latin America, to $23.1 million. Asia-Pacific slowed from +4% in Q2.

Takeaway: Verisign's growth now depends entirely on how many names exist, since average revenue per name was flat year on year. That makes the slip in the Q2 renewal rate, to 75.2% from 76.3% in Q1, the most important number in this filing. A record intake of new names only turns into lasting revenue if those names get renewed, and new names renew less often than established ones.

What the headline numbers hide

• One-off write-down. Selling, general and administrative costs rose 16% to $70.2 million. Most of the increase was a $7.5 million loss "to adjust assets held for sale to their estimated fair value, less costs to sell." The filing does not say which assets these are, beyond noting that they sit in property and equipment. Without that charge, operating income would have been about $304 million, up roughly 7% at a 68.6% margin, and EPS would have been $2.41. Verisign itself quantifies the hit at $0.06 per share.
• Higher tax. The effective tax rate rose to 24% from 22%. Had it stayed at last year's 21.7%, net income would have been about $6 million higher, around $0.07 a share. Cash tax payments rose more sharply: $195.5 million in nine months against $169.3 million. The 10-Q attributes this partly to higher taxable income and partly to the OECD's global minimum tax ("Pillar 2") as adopted by Switzerland, where Verisign has foreign operations.
• Interest. Interest expense rose to $21.2 million from $18.9 million. In June, Verisign issued $550 million of 5.10% notes due 2031 and on July 20 used them to repay $550 million of 4.75% notes due 2027. For a few weeks it paid interest on both, and the new debt carries a slightly higher rate. Meanwhile, interest earned on cash fell (non-operating income dropped to $4.3 million from $6.3 million) because Verisign held less cash and rates were lower.
• Cash conversion is still strong, but slipping. Nine-month operating cash flow was $772.3 million, 1.2 times net income. It was still down 3.6% from $801.5 million, because of the higher tax payments and higher payments to employees and vendors. Capital spending nearly doubled to $33.6 million, so free cash flow (operating cash minus capital spending) was about $739 million, down from $783 million. Third-quarter operating cash flow alone was $268 million, down from $308 million.
• Payouts exceed free cash. In nine months, Verisign spent $620.0 million on buybacks and $220.8 million on dividends, $841 million in total, against roughly $739 million of free cash flow. Cash and marketable securities fell $104 million to $476 million. Total debt stays at $1.8 billion. Stockholders' deficit, meaning cumulative buybacks exceed the company's equity on the books, widened to $2.28 billion. This is a long-running choice, not a new strain, but the pace of payouts cannot keep beating free cash flow without drawing down cash or adding debt.
• Prepaid revenue is still growing. Deferred revenue is money customers have paid for registrations that Verisign has not yet booked as revenue. It reached $1.46 billion, up $79 million since December. Revenue already paid for keeps arriving in future quarters.
• A new lawsuit. On September 4, an individual filed a proposed class action against Verisign and ICANN. It alleges that .com pricing under the registry agreement violates antitrust law and seeks damages and an injunction. Verisign says it will "vigorously defend" the case and cannot estimate any loss. It is at a very early stage, but it targets the pricing mechanism behind the company's revenue.
• .web is now on the balance sheet. The .web domain went live in the internet's root zone in July. Verisign moved $145.2 million of deposits into intangible assets and capitalised another $26.2 million of acquisition costs. The asset is not amortised but will be tested for impairment each year, so a weak launch could eventually lead to a write-down.

Did last time's read hold up?

Our Q2 report flagged the Q2 renewal rate, due with these results, as the key test of whether the wave of new registrations would stick. It came in at 75.2%, below Q1's 76.3% and Q2 2025's 75.5%. That is a modest miss, not a collapse. It fits the concern that first-year names renew less often, and the larger 2026 groups of new names have yet to reach their first renewal date.

We also expected EPS to keep growing about 3 points faster than net income while buybacks ran near $200 million a quarter. That held: buybacks were $189.1 million, and EPS outgrew net income by about 3.6 points.

Outlook

Neither the 10-Q nor the earnings release gives updated guidance. The latest numbers we have are the July full-year 2026 ranges from the Q2 call: revenue of $1.745–1.755 billion and operating income of $1.185–1.195 billion. After nine months of $1,306.5 million in revenue, reaching those ranges takes fourth-quarter revenue of $438.5–448.5 million. Q3 alone was $443.0 million, so the company is on course for at least the middle of the range. Operating income needs $298.6–308.6 million in Q4. That is achievable without a repeat of this quarter's $7.5 million charge.

Two price increases are coming. The .com fee rises from $10.26 to $10.97 (+6.9%) on November 1, 2026. The .net fee rises from $10.91 to $12.00 (+10%) on March 1, 2027. Because registration fees are booked gradually over each registration's term, these increases will feed into revenue slowly through 2027 rather than lifting Q4 at once. Verisign also has $1.36 billion left under its buyback authorisation, which was expanded in July.

Our view: Revenue growth in 2027 is likely to run above 2026's ~6%, but only if renewal rates hold up. Two forces push in opposite directions. A base growing 6% plus a 6.9% .com price increase points to high-single-digit growth. Lower renewals among the 2025–26 groups of new names, which the Q2 renewal rate may be starting to show, would slow it. Watch the Q3 renewal rate, due with Q4 results, and whether net additions to the base stay above 3 million a quarter once the higher price applies to new registrations. On the profit side, the tax rate and interest costs are both moving the wrong way. Unless this quarter's write-down turns out to repeat, expect EPS growth to keep depending on buybacks for several points.