Paradoxical Truth: in an Internet defined by radical decentralization, innovation, and constant change, the most critical and valuable piece of infrastructure is a centralized, static, and un-innovative monopoly.
Disclaimer: This will be a bit dry and written in a stream of consciousness (my preferred style for idea generation) sort of way and may feel a bit rushed as I am taking a few days off from the markets after the NVDA earnings today. There may some numerical errors, but I believe the direction is correct and thesis remains intact. I didn’t have time to generate more AI images or lookup clever graphics so all text – please give me some mercy during this festive holiday season.
I am long $VRSN, a bet on the market mispricing this system paradox. As investors become more technically literate, I expect a re-rating as they recognize Verisign’s unparalleled cash flow predictability and unassailable utility function. The stock is a nice compounder hiding in plain sight, and and why Warren Buffet maintains a strategic position just under 10% to avoid regulatory oversight.
The Investment Case: Five Drivers of a Perpetual Utility
Driver 1: The Immutable Protocol Layer
Hypothesis: While application layers undergo relentless disruption, the foundational protocol layer (TCP/IP, DNS) is defined by stability, not innovation. This is a feature, not a bug.
Underlying Driver: The internet’s core requires a “trust anchor.” Disruption at this layer would cause systemic failure. The market incorrectly values $VRSN as a legacy tech stock, rather than the owner of a perpetual, non-disruptable protocol. The “move fast and break things” ethos from venture capital is a direct antagonist to the DNS root’s operational mandate, creating a permanent barrier to entry for many would-be competitors seeking VC funding.
Driver 2: Control of the Digital Root Zone
Hypothesis: Verisign operates the authoritative registry for .com and .net, the phonebook for the global internet. This is not a product; it is a utility.
Underlying Driver: The value is not in the data, but in the authority to provide the definitive answer. Any device, anywhere, must receive the same, trusted answer for a .com domain lookup. This function is irreplaceable without breaking the universal connectivity that defines the modern Internet. It is the ultimate toll booth on digital commerce.
Driver 3: A Regulatory Moat, Not a Technological One
Hypothesis: The moat is enforced by a long-term contract with ICANN, a U.S.-jurisdiction non-profit, creating a de facto monopoly.
Underlying Driver: This is not a CUDA-like software moat like NVIDIA that must be constantly nurtured. The moat is static and self-reinforcing. The U.S. government has a vested national and economic security interest in maintaining the stability of this system, making regulatory change a high-barrier, low-probability event. The contract’s repeated renewals are not a risk, but a confirmation of the model’s necessity.
Driver 4: Predictability as a Competitive Weapon
Hypothesis: The business model’s strength is its static nature. Its service must not fail, and its model must not change.
Underlying Driver: This creates a financial profile with near-perfect visibility. The business is driven by:
- Low-Single Digit Volume Growth: The global expansion of the internet.
- Contractual Pricing Power: The ICANN contract allows for 7% annual price increases on .com domains.
- Minimal Reinvestment Needs: Infrastructure is built; capex is for maintenance and security, not R&D.
This results in operating margins >65% and a nearly 100% conversion of revenue to FCF.
Driver 5: The Incumbency Premium
Hypothesis: value is derived from trust and incumbency, not technical superiority.
Underlying Driver: Over decades, Verisign has built an unquantifiable asset: the absolute trust of the technical community and global governments to perform its critical function without error. This trust is the reason the contract is perpetually renewed. It is a “reputation moat” that is impossible for a new entrant to replicate, making decentralization efforts like blockchain-based DNS a theoretical, not practical, threat.
Catalysts
The market will re-rate Verisign as it recognizes its cash flows are more akin to a regulated utility with a growth kicker than a legacy tech company. This is accelerated by the growing public discourse around AI and internet infrastructure, forcing a deeper technical analysis of core assets.
The timing of the crash of 20% of the Internet caused by singular software bug by Cloudflare (hosting critical platforms like X, ChatGPT, Shopify, Coinbase) on November 18, 2025 couldn’t have come at a better time for Verisign.
This crash – which may be the “last straw” for many of Cloudflare’s clients to switch to a multi-DNS multi-CDN provider – will provide a catalyst as clients, regulators, and investors reevaluate their investment in the Internet infrastructure. Verisign will emerge as a critical, yet robust and reliable funnel that can not only generate sustainable cashflow, but significant growth potential as AI shapes the digital world.
In case you’re interested, our short thesis on Cloudflare.
Valuation
Based on latest Q3 earnings:
Current Market Cap: $23B
Run-Rate FCF: $1.2B (based on $308M quarterly OCF, annualized)
FCF Yield: 4.7%
This yield is compelling for what is essentially a regulated utility with 90%+ gross margins. The differentiator is the capital return program.
The Buyback Engine: Verisign repurchased $215M in stock in Q3 alone, a 3.4% annualized buyback yield. With $1.33B remaining authorized (5% of market cap), this is a multi-year program, not a one-off.
The Compounding Machine: the 7.3% revenue growth demonstrates pricing power in action. This, plus volume growth, drives 8-9% underlying FCF growth. The 3.4% buyback yield, amplified by the low P/FCF multiple, accretes an additional 3-4% to FCF per share, creating a run-rate of 11-13% FCF-per-share growth entirely from operations and capital allocation.
We are paying a 4.7% yield for a business whose cash flows are arguably safer and more predictable than the market average. Combined with the 11-13% FCF-per-share growth, this offers a 15.7-17.7% total return profile with minimal fundamental risk. Any re-rating towards a premium utility multiple (20-25x FCF) would be pure alpha.
Risks
Key Man Risk
James Bidzos is the founder, chairman and CEO of Verisign. He is world-renowned in cryptography and an expert at all of the technical challenges and risks that Verisign as a domain name registry faces. Bidzos poses the rare combination of technical acumen, business savvy, and understanding of the capital markets. His departure or death poses a significant downside risk.
Geopolitical Risk
The U.S. Government. An unforeseen, drastic shift in U.S. internet governance policy is the primary existential risk. This is a low-probability, high-impact scenario. Restructuring of ICANN.
Disruption Risk:
Long-term, a fundamental architectural shift away from the DNS standard. This is a technological paradigm shift we monitor but view as a >20-year horizon risk. Not to sound dramatic, but by then AI would have drastically altered human civilization so this will likely be an ancient problem.
Jude Christensen 
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