Given its better prospects, we believe VeriSign stock (NASDAQ: VRSN), which provides domain name registry services and internet infrastructure, is a better pick than its industry peer, Gen Digital stock (NASDAQ: GEN), best known for its cyber safety products, including Norton, Avast, and AVG. Investors have assigned a higher valuation multiple of 12x revenues for VeriSign compared to 4.5x revenues for Gen Digital due to VeriSign’s superior profitability and solid financial position. We think this gap in valuation will remain in favor of VeriSign in the coming years. There is more to the comparison, and in the sections below, we discuss why we think VeriSign will outperform Gen Digital in the next three years.
1. GEN Stock Has Fared Much Better Than VRSN
VRSN stock has seen a decline of 15% from levels of $215 in early January 2021 to around $185 now, vs. an increase of about 25% for GEN stock from $20 to $25 over the same period. In comparison, the S&P 500 has seen a 50% rise over this roughly four-year period. However, the changes in these stocks have been far from consistent. Returns for VRSN stock were 17% in 2021, -19% in 2022, and 0% in 2023, while that for GEN were 28%, -16%, and 9%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that VRSN underperformed the S&P in 2021 and 2023 and GEN underperformed the S&P in 2023
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AMZN and AAPL, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
2. Gen’s Revenue Growth Is Better
VeriSign’s revenue rose at an average annual rate of 6% from $1.3 billion in 2020 to $1.5 billion in 2023, while Gen’s revenue grew at an average rate of 14% from $2.6 billion in fiscal 2021 to $3.8 billion in fiscal 2024. The fiscal year ends in March for Gen.
VeriSign has benefited from increased demand for domain names during the pandemic as more businesses expanded their presence online. Price increases have also bolstered the company’s top-line growth, and this trend is expected to continue in the near term.
For Gen, the strong revenue growth was driven by the Avast acquisition in 2023. The company’s ARPU has declined from $9.01 in 2021 to $7.25 in 2024, primarily due to the impact of the Avast acquisition. The company has been doing well particularly in EMEA, with the region’s sales rising 2.2x between 2021 and 2024.
Looking forward, we forecast VeriSign’s sales to rise slightly from $1.5 billion in the last twelve months to $1.7 billion in the next three years. We expect Gen’s sales growth to be similar, with its top-line expanding from $3.8 billion to $4.3 billion over the same period.
3. VeriSign Is More Profitable
VeriSign’s operating margin increased slightly from 65% in 2020 to 67% in 2023, while Gen’s operating margin contracted from 41% in 2021 to 31% in 2024. Looking at the last twelve-month period, VeriSign’s operating margin of 68% fares far better than 32% for Gen.
4. VeriSign Also Has A Better Financial Position
Looking at financial risk, VeriSign has an edge over Gen. Its 10% debt as a percentage of equity is lower than 50% for Gen. Also, its 46% cash as a percentage of assets is much higher than 4% for the latter. This implies that VeriSign has a better debt position and more cash cushion.
5. The Net of It All
We see that VeriSign is more profitable and offers lower financial risk than Gen. Now, looking at the prospects, we still believe VRSN is the better choice of the two. At its current levels, VRSN stock is trading at 12x revenues, versus its average P/S ratio of 16x seen over the last five years. In comparison, at its current levels of around $25, Gen stock trades at 4.5x revenues, versus its average P/S ratio of 4.6x over the last five years. This implies that VRSN stock has some room to grow, while GEN stock looks fully priced, in our view.
While VRSN may outperform GEN in the next three years, it is helpful to see how VeriSign’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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