We saw a bullish thesis on Verisign Inc. (VRSN) on ValueInvestorsClub. We like VIC site because the ideas there are generally posted by aspiring analysts who try to find hole in their own analysis. We find the ideas presented on the site well-researched and worth a read. Click here for the full article. Below we summarized the  VRSN bullish thesis. VRSN shares were trading at $207 when this thesis was published.

The Virginia, USA-based Verisign Inc. (VRSN) is a global provider of domain name registry services and internet infrastructure. The company enables internet navigation for many of the world’s most recognized domain names. It has, for more than 25 years, maintained 100 per cent operational accuracy, stability, security and resiliency for the .com and .net top-notch domains, which support the majority of global e-commerce connected seamlessly.

VRSN operates the directory of the standard domain names – .com, and .net – as well as other secondary domain names. The company offers its services through resellers like the Godaddys of the world. With monopoly on the major domain names, VRSN has a smooth regulatory supervision on its products and services. The regulator of the internet – The Internet Corporation for Assigned Names and Numbers (ICANN) – renews the contract every six years, which is pretty secured for VRSN as it has historically been able to maintain the quality of its services. With little incentive for an established company to try other domains, VRSN’s proven track record has helped build a moat around its business, with almost zero attrition.

VRSN’’s business is not capital-intensive, and the high operating-cash-flow margins (more than 50% in recent years) are able to easily cover the funding requirements of company’s data centers. Deferred revenue model helps the free-cash-flow beat the net income. Additionally, with no extra expenditure, VRSN enjoys the right to raise the prices @7% annually for the last 4 years of the contract. The company has well-utilized the high cash position to buy back its own stock, bringing the total outstanding shares from 180 million to 160 million over the past decade.

With a combination of FCF yield, name registration growth, and pricing power, the analyst is weighing VRSN as a bond equivalent equity investment, which could potentially yield an 11% annual return. This would be with monopoly blessed with regulatory approval, little capital expenditure, and no magic required. As long as VRSN keeps doing what it is good at, the stock could be another “consumer staple” name with stable growth over the long-term.