VRSN Cap =$1.24 Bil posts Q2 net loss after charges
(Adds CEO comment, details throughout)
By Elinor Mills Abreu
SAN FRANCISCO, July 25 (Reuters) - VeriSign Inc. <VRSN.O>,
the largest provider of Web addresses and network security
services, on Thursday posted a second-quarter net loss dragged
down by a $4.6 billion charge related to the write-down of
acquisitions.
VeriSign said it sees flat to slightly lower third-quarter
revenue and earnings as a result of continued weakness in
domain name sales - the market for Web addresses ending in
dot-com and the like that have dominated since the rise of the
commercial Internet.
The company has no clear view into future corporate sales
trends and a "cautious outlook" for its telecom business, Dana
Evan, chief financial officer, told analysts in a conference
call.
Through recent acquisitions, VeriSign now provides routing
for telephone calls and enables carriers to offer caller ID,
roaming and other services to customers.
"In the midst of a telecom meltdown, our telecommunications
business grew," Stratton Sclavos, chairman and chief executive,
told Reuters. "It's driven by usage on the networks, not by the
number of wireless carriers, but by the number of calls people
make."
Sclavos said he thinks the decline of its domain name
business is reaching a bottom in the coming quarters. "We have
about 10 million names under management," he said. "By the end
of the year it will be close to nine million.
NO 'TAILSPIN,' NO 'CATALYST'
"The good sign is that their business isn't going into a
tailspin," said Todd Weller of Legg Mason. "But there's clearly
a lot more areas of weakness than there are areas of strength
in their business."
Gene Munster of U.S. Bancorp Piper Jaffray said the biggest
positive for VeriSign was that it generated $45 million in cash
from operations, nearly double what it had expected.
VeriSign's business "looks good, but there's no real
catalyst to get excited about beyond the fact that the stock is
just really cheap," Munster said.
VeriSign posted a second-quarter net loss of $4.8 billion,
or $20.31 a share, compared with a net loss of $11.19 billion,
or $55.49 per share, which included a $9.9 billion
acquisition-related charge, a year earlier.
Excluding charges tied to acquisitions, writedowns on bad
investments and the cost of employee stock options, VeriSign
posted a profit of $50 million, or 15 cents per diluted share
on a fully taxed basis. It had a profit excluding items of
$52.6 million, or 25 cents a share, in the year-ago period.
Nonetheless, revenue for the first quarter rose to $317
million from $231.2 million a year earlier, according to the
Mountain View, California-based company.
Two thirds of the earnings shortfall was attributable to
lower revenues from affiliated international companies, and
most of the remainder was due to a revenue slide from
consulting services, Sclavos said.
There was modest growth in sales of Web identity
authentication and telecom services, the company said.
DOMAIN REVENUE TO DECLINE
The company's second-quarter results met revised company
guidance and the 15 cent-per-share, excluding items, consensus
profit estimate of analysts polled by Thomson First Call.
In addition to the non-cash charge due to acquisitions, the
company recorded a non-cash write-down of about $95 million on
its long-term investments and a $68 million charge as a result
of a restructuring announced in April.
Executives said they expect results in the third quarter to
be flat to down slightly, with total revenue around $300
million and earnings per share of 14 cents to 15 cents,
excluding items.
VeriSign also expects revenue in its domain name business
that sells Web addresses, its core business historically, to
decline 5 percent to 10 percent sequentially, Evan said.
VeriSign lowered its guidance two weeks ago citing weak
corporate spending and gave revised second-quarter guidance of
earnings per share of 14 cents to 15 cents, excluding items,
and revenue of $315 million to $317 million.
VeriSign faces a handful of lawsuits over a controversial
new direct mail campaign aimed at customers of rival domain
name providers and shareholder lawsuits over its financials and
stock price.
Shares of VeriSign closed at $5.25 on the Nasdaq stock
exchange, down 10.6 percent, or 62 cents. They edged back up to
$5.50 in after-hours trading on Instinet, following the report.
The company's stock has fallen about 87 percent over the
last year while the Nasdaq index has dropped 35 percent and the
Dow Jones Internet Services index 67 percent.
((Elinor Mills Abreu, San Francisco bureau, 415-677-3919,
elinor.abreu@reuters.com))
REUTERS
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