Verisign narrows domain growth guidance

Verisign cast a slightly more optimistic light on the potential for .com and .net growth last week, as it reported a modest improvement in first-quarter sales.

Management told analysts that it’s now expecting domain growth of between 0.5% and 2.25% for the year — a boost to the low-end but a lowering of the high-end.

In February, it had predicted growth of between 0% and 2.5%.

For Q1, the company reported domain growth of just 0.1% There were 174.8 million .com and .net domains at the end of the quarter, up by a million from the start of the year.

Verisign reported net income of $179 million, up from $158 million a year ago, on revenue that increased 5.1% at $364 million.

Worried about governments seizing .com domains? Too late

Language proposed for Verisign’s .net registry contract that some say would give governments the ability to arbitrarily seize domains is already present in the company’s .com contract.

As I reported earlier this month, the .net Registry Agreement is up for renewal and ICANN has opened up some largely uncontroversial proposed changes for public comment.

ICANN has received two comments so far, both of which refer to what one commenter called the “outrageous and dangerous” proposed changes to Verisign’s .net Registry-Registrar Agreement.

The RRA is the contract all accredited registrars must agree to when they sign up to sell domains in a given TLD. For ICANN, it’s a way to vicariously enforce policy on registrants via registrars via registries.

Unsimply put, the RA instructs Verisign to have an RRA with its registrars that tells them what rules their registrants have to agree to when they buy a domain name.

The new language causing the consternation is:

Verisign reserves the right to deny, cancel, redirect or transfer any registration or transaction, or place any domain name(s) on registry lock, hold or similar status, as it deems necessary, in its unlimited and sole discretion:

…

to ensure compliance with applicable law, government rules or regulations, or pursuant to any legal order or subpoena of any government, administrative or governmental authority, or court of competent jurisdiction

One commenter states “this proposed agreement would allow any government in the world to cancel, redirect or transfer to their control applicable domain names”, adding “presumably ICANN staff and Verisign would want to also apply it to other extensions like .COM as those contracts come up for renewal”.

In fact, it’s the other way around. The exact same language has been present in Verisign’s .com contract for over three years, a change to Appendix 8a (pdf) that went largely unnoticed when thousands of commenters were instead complaining about the removal of price caps and fretting about the rise of Covid-19 around the world.

For those worried about the new .net language making it into the .com contract one day — worry not! It’s already there.

Verisign’s .net contract up for public comment

ICANN intends to renew Verisign’s contract to run the .net gTLD and has opened the revised deal for public comment.

At first glance, there doesn’t appear to be anything massively controversial about the proposed changes, so we probably shouldn’t expect the same kind of outrage similar contract renewals have solicited in the past.

A great deal of the changes relate to the sunsetting of the Whois protocol and its replacement with the functionally similar RDAP, something set to become part of all gTLD contracts, legacy and new, soon.

The only money-related change of note is the agreement that Verisign will pay pro-rated portions of the $0.75 annual ICANN transaction fee when it sells its Consolidate service, which allows registrants to synchronize their expiry dates for convenience.

That provision is already in the .com contract, and Verisign has agreed to back-date the payments to May 1, 2020, around about the same time the .com contract was signed.

The controversial side-deal under which Verisign agreed to pay ICANN $4 million a year for five years is also being amended, but the duration and amount of money do not appear to be changing.

The new Registry Agreement also includes Public Interest Commitments for the first time. Verisign has agreed to two PICs common to all new gTLD RAs governing prohibitions on abusive behaviors.

The deal would extend Verisign’s oversight for six years, to June 30, 2029. It’s open for public comment until May 25.

.com shrinks again, but prices to go up again

Verisign plans to increase .com prices again this year, as its latest quarterly results show its top line and margins swelling despite renewals and overall domains under management shrinking.

The company ended 2022 with 173.8 million .com and .net regs in the domain name base, only up 0.2% from the start of the year. Only a quarter ago, it had predicted growth of between 0.25% and 1%.

A year ago, it had predicted that metric to grow between 2.5% and 4.5%, but it reduced its outlook every quarter and eventually missed even its barrel-bottom estimate. The two TLDs shrank by about 400,000 names in Q4.

For 2023, the company expects domain growth of between no growth at all and 2.5%.

The poor performance in volume terms came about as result of post-pandemic effects and China volatility, CEO Jim Bidzos told analysts. He did not blame the last few years of price increases for the dip.

The preliminary renewal rate for Q4 was 73.2% compared to 74.8% in the same quarter of 2021, but new regs were down across the two TLDs also — 9.7 million compared to 10.6 million over the same periods.

But of course domains under management alone is a poor way to measure Verisign’s cash-printing machine.

The company reported 2022 net income of $674 million which was down from $785 million a year earlier when it had benefited from a one off tax-related boost of $165.5 million.

Annual revenue was up 7.3% at $1.42 billion, a touch ahead of the 7% .com price increase it imposed during the year. Operating margin for 2022 was 66.2%, up from 65.3%.

For the quarter, net income was $179 million compared to $330 million (with the aforementioned tax benefit) on revenue that was up 8.5% at $369 million. Margin was 66.5% compared to 65.3% for Q4 2021.

The company said .com prices will go up again in September 1, from $8.97 to $9.59 per year.

Verisign growth slows with post-Covid blues

Verisign sold fewer .com and .net domains than it did a year ago in the third quarter and has once again slashed its outlook for the year.

It had 174.2 million names across the two TLDs at the end of September, an increase of 1.2% over the year but down by around 100,000 names (rounded) on the quarter.

There were 9.9 million new domains sold. That compares to 10.1 million in the second quarter and 10.7 million in Q3 last year.

It now expects its total domains under management to increase by between 0.25% and 1% for the full year. That compares to the between 0.5% and 1.5% it predicted at the end of Q2, the 1.75% and 3.5% predicted in April, and the between 2.5% and 4.5% it predicted in February.

That equates to 2022 revenue of $1.418 billion to $1.426 billion, CFO George Kilguss told analysts. Verisign’s always jaw-dropping operating margin is expected to be between 65.75% and 66.25%.

CEO Jim Bidzos told analysts the slower growth can the attributed to the general macroeconomic malaise, Verisign coming off the lockdown bump experienced in 2020 and 2021, and the perennial issue of Chinese lumpiness.

Renewal rates for Q3 are expected to be 73.8%, the same as Q2 but down from 75% a year-ago.

But the company continues to make money hand over fist. Revenue was up 6.8% compared to Q3 last year at $357 million and net income was up to $169 million compared to $157 million a year ago.

.com and .net are the drag factor on domain industry growth

Verisign’s own gTLDs .com and .net slowed overall domain industry volume growth in the second quarter, according to its latest Domain Name Industry Brief.

June ended with 351.5 million registrations across all TLDs, up 1 million sequentially and 10.4 million year-over-year.

Growth would have been slightly better without the drag factor of .com and .net, which were down 200,000 domains each sequentially, as Verisign previously reported in its Q2 financial results. There were 161.1 million names in .com and 13.2 million in .net.

The ccTLD world grew by 700,000 names sequentially and 2.6 million compared to a year earlier, the DNIB states.

New gTLD names were up by the same amount sequentially and 4.1 million year over year, ending the quarter at 27 million.

Verisign to crack down on Chinese domains

Verisign has asked for permission to implement a more stringent regime for denying or suspending .com and .net domain names registered in China, to comply with the country’s strict licensing rules.

The changes appear to mean that customers of Chinese registrars who have not verified their identities, which Verisign says is a “very small percentage”, will be prevented from registering new domains and may lose their existing domains.

The company has filed a Registry Services Evaluation Process request with ICANN, proposing to tweak the registrant verification system it has had in place for the last five years in a few significant ways.

China has a system called Real Name Verification, whereby Chinese citizens have to provide government-issued ID when they register domains. Local, third-party Verification Service Providers such as ZDNS typically carry out the verification function for Verisign and other foreign registries.

The big change is that Verisign will no longer allow names to be registered without a valid code.

The RSEP says that attempts by China-based registrars to register domains without the required government verification code will result in the EPP create command failing, meaning the domain will not be registered.

Under the current system, outlined in a 2016 RSEP (pdf), the name is registered and Verisign presumably takes the money, but the domain is placed on serverHold status, meaning it is not published in the zone and will not resolve.

The new system will also allow Verisign to retroactively demand codes for already-registered names, when they come up for renewal or transfer, with the option to suspend or delete the names if the codes are not provided. The RSEP (pdf) states:

With regard existing domain names without the required verification codes, which currently comprise a very small percentage of domain name registrations from registrars licensed to operate in the People’s Republic of China, Verisign intends to address compliance issues with these domain names directly with registrars. Verisign reserves the right to deny, cancel, redirect or transfer any domain name registration or transaction, or place any domain name(s) on registry lock, hold or similar status

It’s not clear what a “very small percentage” means in hard numbers. A small slice of a big pie is still a mouthful.

Verisign has substantial exposure to the Chinese market. On the odd occasion when .com shrinks, it’s largely due to speculative registrations from China not being renewed, such as in the second quarter this year.

The RSEP names the service the Domain Name Registration Validation Per Applicable Law service. While it’s in theory applicable to any jurisdiction’s laws, in practice it’s all about addressing the demands of the Chinese government.

Verisign announces ANOTHER price increase as regs slide

Verisign posted a rare decrease in its .com/.net registered name base in the second quarter, but said it is going to raise its .net prices next year anyway.

The company also massively slashed its growth outlook for domain sales this year.

The annual cost of a .net name will go up 10%, the maximum permissible under its contract with ICANN, to $9.92 from February 1 next year, the registry said

Registrants will as usual be able to lock-in the current renewal fee of $9.02 for up to 10 years if they renew before the hike kicks in.

It’s the first .net price increase since 2018. The TLD has been stagnating in volume terms for several years, due no doubt in part to behavioral changes following the introduction of new gTLDs starting in late 2013.

The news came as Verisign reported that its domain base shrunk during Q2.

The company ended June with 174.3 million names under management, up 2.2% over a year earlier but down 350,000 domains compared to the end of Q1.

The split was 161.1 million for .com and 13.2 million for .net — that’s a sequential decrease of 200,000 for .com and a decrease of 200,000 for .net. Both rounded, of course.

CEO Jim Bidzos told analysts tonight that renewals were affected by a great many first-time registrations from China not renewing. General post-pandemic and macro-economic factors also played a role, he said.

The preliminary renewal rate was 75.9% compared to 76.0% a year earlier, but the number of new regs was down to 10.1 million from 11.7 million over the same period.

Verisign reported Q2 revenue up 6.8% on a year ago at $352 million, with net income of $167 million compared to $148 million. Its operating margin swelled to 67.1% percent from 64.7%.

Bidzos told analysts that the company is cutting its registered name growth prediction for the year to between 0.5% and 1.5%, a huge decrease from the already-downgraded estimate of 1.75% and 3.5% it made after the first quarter.

He said that he expects Q3 and Q4 to go much the same way as Q2.

Bidzos said he thinks the current factors affecting regs are a bump in the road and he expects things to stabilize over time.

UPDATE 2148 UTC — The article was updated to correct the comparison of the decrease in .com/.net regs.

Verisign saw MASSIVE query spike during Facebook outage

Verisign’s .com and .net name servers saw a huge spike in queries when Facebook went offline for hours last October, Verisign said this week.

Queries for facebook.com, instagram.com, and whatsapp.net peaked at over 900,000 per second during the outage, up from a normal rate of 7,000 per second, a more than 100x increase, the company said in a blog post.

The widely publicized Facebook outage was caused by its IP addresses, including the IP addresses of its DNS servers, being accidentally withdrawn from routing tables. At first it looked to outside observers like a DNS failure.

When computers worldwide failed to find Facebook on their recursive name servers, they went up the hierarchy to Verisign’s .com and .net servers to find out where they’d gone, which led to the spike in traffic to those zones.

Traffic from DNS resolver networks run by Google and Cloudflare grew by 7,000x and 2,000x respectively during the outage, Verisign said.

The company also revealed that the failure of .club and .hsbc TLDs a few days later had a similar effect on the DNS root servers that Verisign operates.

Queries for the two TLDs at the root went up 45x, from 80 to 3,700 queries per second, Verisign said.

While the company said its systems were not overloaded, it subtly criticized DNS resolver networks such as Google and Cloudflare for “unnecessarily aggressive” query-spamming, writing:

We believe it is important for the security, stability and resiliency of the internet’s DNS infrastructure that the implementers of recursive resolvers and public DNS services carefully consider how their systems behave in circumstances where none of a domain name’s authoritative name servers are providing responses, yet the parent zones are providing proper referrals. We feel it is difficult to rationalize the patterns that we are currently observing, such as hundreds of queries per second from individual recursive resolver sources. The global DNS would be better served by more appropriate rate limiting, and algorithms such as exponential backoff, to address these types of cases

Verisign said it is proposing updates to internet standards to address this problem.

Verisign expects huge domain growth in 2021

Verisign tonight significantly upgraded its estimate of how many .com and .net domains it expects to sell this year, citing an improving economy and increased growth in online commerce.

CEO Jim Bidzos told analysts that it’s now expecting its domain base to increase by 4% to 5.5% this year. Three months ago, it had cautiously predicted growth would be between 2.5% and 4.5%.

That’s a minimum of 6.6 million net new domains this year.

The upgrade was inspired by its first-quarter performance, in which .com and .net base grew by 4.6% when compared to Q1 2020, to 168 million names.

That was an increase of 2.8 million names during the quarter, which compares to 1.83 million net new domains in Q1 2020 and 1.46 million in Q4 2020. A pretty damn good showing, in other words.

For Q1, Verisign tonight reported net income of $150 million, down from $334 million in Q1 last year, when it experienced a one-off tax benefit.

Revenue was up 3.6% on last year at $324 million.