Hold Domain Name Prices Steady this Year? — Will VeriSign

With significant bad publicity, a negative court decision, and a watchful eye in Washington, will VeriSign not invoke its full 7% .com price increase this year?

For the past two years, .com and .net registry VeriSign (NASDAQ: VRSN) has increased prices on .com domain names 7% and .net 10%, the maximum allowed under its contract with ICANN. The .com contract allows VeriSign (NASDAQ: VRSN) to increase .com fees 7% per year for four years of each six year term in its agreement. The assumption has always been that it would max out the increases during the first four years of the contract, which would result in the maximum financial benefit.

But that may change. So far this year VeriSign hasn’t disclosed a price increase, and it is required to give a six month notice of an increase. During VeriSign’s first quarter conference call, President and COO Mark McLaughlin stated:

So far we’ve taken two of these increases. And the patentees’ have been thoughtful regarding the timing of the increases, and I think we ought to be continuing to do so particularly in life as the impact of an increase could have on sales in this weak economy, as well as some uncertainty in the multiple constituencies that are involved in this industry.

I think VeriSign is going to hold off on increasing prices until next year mainly for political reasons.

Raising prices this year will be politically insatiable. VeriSign may go through a tough antitrust battle thanks to an appeals court ruling the prior week. It doesn’t want to look greedy in the process.

It is also dealing with Washington this time around. VeriSign was on Capitol Hill the prior week, sitting right next to ICANN CEO Paul Twomey, testifying regarding the future of ICANN. The witnesses were asked regarding the transparency of VeriSign’s current contract. Twomey’s defensive experience as a witness was tough. I doubt VeriSign wants to sit in a special hearing regarding its price increases. They would be hard to justify.

Finally, Twomey is on his way out and a yet-to-be-determined replacement is on his or her way in. It makes sense to establish a good relationship with that CEO prior to announcing a price increase.

I don’t expect VeriSign to introduce a price increase of less than 7% this year as a solution. The contract seems to read that a 3% increase this year would strike out one of the 7% increases. In other words, VeriSign can’t make it up on the back end. Only if VeriSign calculated that the compounding of a smaller than 7% increase early on was better than a 7% increase later would it do it.

VeriSign’s stock is down regarding 8.5% this morning, no doubt partly due to the unfavorable court decision the prior week. To the extent that analysts have by now baked in 7% increases in the first five years, the stock could come under more pressure.