This Just In! Analyst said that NSOL's March qtr ends on a strong
note! Enjoy!!!
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08:58am EST 30-Mar-99 Dain Rauscher Wessels (Sigmond, Steve 612-313-1223) NSOL
NSOL; B-Agg.; March Quarter Ending On A Strong Note
Dain Rauscher Wessels
A division of Dain Rauscher Incorporated
NETWORK SOLUTIONS, INC.
NASDAQ: NSOL
BUY-AGGRESSIVE
PRICE TARGET: $120
March 30, 1999
Price: $104.50
52-Week Range: $154-$11
Year End: December
Fiscal Year EPS P/E
1998A $0.34 NM
1999E $0.58 NM
2000E $0.92 NM
Tr. 12 ROE 15.9%
3-Yr. EPS Gr: 50%
Shares Out: 33.8 million
Book Value: $2.20
Market Cap: $3.53 billion
INTERNET INFRASTRUCTURE
Stephen H. Sigmond
ssigmond@dainrauscher.com
(612) 313-1223
Cameron P. Steele
csteele@dainrauscher.com
(612) 313-1224
* We believe Network Solutions' March quarter is ending on a strong note.
* We continue to like the company's market positioning, despite the uncertainty
regarding the Department of Commerce negotiations.
* Our estimates and Buy-Aggressive rating are unchanged.
March Quarter Ending On A Strong Note; Update On Commerce Department Pricing
Negotiations
End-Quarter Update: We believe Network Solutions' March quarter is ending on a
strong note. On March 9, the company announced that it had reached four million
domain names. Linearizing this growth, which we believe is a reasonable
assumption, would put the company at 4.21 million domains on March 31,
representing 852,000 new registrations for the quarter vs. our estimate of
625,000. At $35 per domain per year, this would represent incremental annualized
revenues of nearly $8 million. We believe this strength is the result of
several factors, including better-than-expected progress with indirect channels,
robust international growth, and a continuing "gold rush" mentality among
corporations registering trademarks and brand names. We also believe that the
Dot Com Mail e-mail service ($4.95 per month) is doing very well. Dot Com
Directory, another new service, remains on track to roll out in June.
Background On Pricing Negotiations: Network Solutions currently charges $35 per
domain per year for a bundled combination of registry and registrar services.
Going forward, the company will maintain its exclusive status as registry for
the most important Internet top-level domains (TLDs), and will compete with
other registrars to sign up customers in the registry. Network Solutions is
actively negotiating with the Department of Commerce regarding how much it will
be allowed to charge for its registry services. Several weeks ago, the company
proposed a price of $16 per domain per year; the Commerce Department has yet to
respond. We expect a response within the next few weeks, followed by a series of
counter-proposals from both sides.
Analysis-Despite Uncertainty, Positioning Is Strong: In addition to pricing, the
two parties must negotiate other important details, such as how long the price
will remain valid and how it will change as Network Solutions scales its
business and spreads the cost of operating the registry over an increasing
volume of domains. It appears that registries of country-code TLDs in the United
Kingdom and Canada are charging $16-$20 per domain per year. Although these
registries are operating at much lower volumes, we believe that they may help
validate Network Solutions' $16 proposal. Our financial projections assume that
Network Solutions will receive $30 per year for each domain that it registers.
This includes four components: 1) registry fees for domains registered by
Network Solutions, 2) registry fees for domains registered by competitors, 3)
registration and renewal fees, and 4) ancillary services such as Dot Com Mail.
Registration and renewal fees, an important component of our $30 assumption,
will ultimately reflect a competitive market price. Since building a global
registration infrastructure requires significant investments of time, money,
expertise, and distribution, we continue to believe that small competitors will
have a limited ability to drive down pricing. Network Solutions continues to
turn potential large competitors into affiliate partners, and we expect
additional partnership announcements in the near term. Finally, we remain
optimistic regarding the progress of Dot Com Mail and other ancillary services.
Net, we continue to like Network Solutions' market positioning, despite the
uncertainty regarding the Department of Commerce negotiations. With this in
mind, we would view a $12-$14 registry price as an excellent outcome (both in
terms of investor perceptions and the company's ability to achieve our
$30/domain/year estimate); $10-$12 as acceptable, and under $10 as negative.
Stock Opinion: Our estimates and Buy-Aggressive rating are unchanged. Our price
target of $120 is based on a discounted cash flow analysis of projected year
2003 earnings and a discount rate of 20% that is consistent with comparable
companies. |
