Why VeriSign Pulled Back in October

Shares of Warren Buffett holding VeriSign (NASDAQ: VRSN) fell 14.2% in October, according to data from S&P Global Market Intelligence.

VeriSign had been up 50% on the year at one point earlier this year and was still up about 30% for 2025 heading into its October earnings. So, while results actually beat expectations, it wasn't enough to justify the lofty stock price to some who decided to take profits.

And it probably didn't help sentiment that Buffett himself sold a third of his stake earlier this summer.

VeriSign delivers steady growth, but some are wary of durability

In the third quarter, VeriSign grew revenue 7.3% to $419 million and earnings per share by 9.7% to $2.27, with both figures coming in above expectations. While that seems strong, it should be noted that while the bottom line beat, that may have been due to extra share repurchases. Operating margins narrowed a bit, with operating income growing only 5.6%. So, that may have been the fly in the ointment.

To that point, the company slightly raised revenue guidance for the full year, with revenue now projected in a range of $1.652 billion to $1.657 billion, up from a prior range of $1.645 billion to $1.655 billion. However, management also narrowed its operating income range, taking the lower end of prior guidance higher but also taking the higher end lower.

There were also a few questions on the conference call with analysts that may have sparked concern. Of note, VeriSign has seen a turnaround in the growth of .com and .net domain names this year, with the domain name base growing 1.4% year over year in Q3. The current growth is reversing a cyclical decline in domain names that began in mid-2023.

Some analysts wondered whether the newfound growth was due to aggressively marketing for lower-quality domain names, especially domain names used for parked domain advertising. Parked domain advertising is when someone registers a domain name not to build a website but rather to show viewers digital ads.

The concern with increased parked domains is potentially higher churn. However, management said it thinks that activity is minimal and that a lot of parked domains are actually held for resale on the secondary market.

Image source: Getty Images.

Analysts are unfazed

The selling pressure may have been amplified by the fact that Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) decided to sell off about a third of its VeriSign stake in the second quarter, per its 13F filing in July. Buffett's team first bought VeriSign stock back in 2012 and has added to it over the years.

Still, analysts didn't seem too worried after earnings. In particular, Citigroup sell-side analyst Ygal Arounian reiterated his buy rating after the print while giving the stock a street-highest price target of $337. Arounian appears to buy management's story and isn't too worried about the fear over low-quality ads.

VeriSign remains a high-margin, cash-flowing monopoly valued at 27.7 times this year's earnings estimates and 25.4 times next year's earnings estimates. While not exactly cheap, it's not expensive either for such a dependable business. As such, investors may want to investigate buying the dip in VeriSign shares after a rough October.

Citigroup is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and VeriSign. The Motley Fool has a disclosure policy.