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Verisign, Inc. (VRSN), Inc (PCLN): Betting on the Internet

The Internet has been a miraculous growth story over the years and it’s only getting bigger. Part of this includes the rising number of websites and domain names, both of which are big positives for VeriSign, Inc. (NASDAQ:VRSN). A number of billionaires are also betting on the Internet, where Verisign has significant hedge fund backing.

Billionaire Stephen Mandel of Lone Pine Capital owns 11.9 million shares, which is 8.2% of the company. Mandel touted Verisign, Inc. (NASDAQ:VRSN) back in November when he laid out his investment thesis:  5% to 7% in dot-com and dot-net registrations over the long term, and a 7% increase in prices over the next four years.

VerisignBehind Lone Pine is Peak6 Capital, with 11.5 million shares, 8% of Verisign, Inc. (NASDAQ:VRSN). Peak6’s position in Verisign makes up 9.4% of the fund’s public equity portfolio. Mega-billionaire Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) owns 8.1 million shares, 5.6% of the company. Another major hedge fund owner is activist investor Jana Partner. Jana owns 4.8 million shares, 3.3% of Verisign. As you can see, Verisign has no shortage of famous hedge funds backing it.

As I said, Verisign, Inc. (NASDAQ:VRSN) is the leading provider of Internet domain name registry services and infrastructure-assurance services. Over the years, the company has sold its other businesses to focus on core operations. It is now a primary provider of Internet domain name registries.

Revenue is expected to be up 11% in 2013 and the company recently renewed its six-year contract for managing dot-com registries. The business is highly cash generative, with a near 7.5% free-cash-flow yield.

Back in July, in conjunction with its 2Q earnings announcement, Verisign, Inc. (NASDAQ:VRSN) announced it was increasing its registry fee for dot-net domain names by 10%. The company has been using its cash flow to return value to shareholders. In 2012, the company bought back some $315 million in shares; this trend should continue and I like Verisign for its high exposure to the broad Internet.

Mandel’s other bets

Billionaire Stephen Mandel, one of Verisign, Inc. (NASDAQ:VRSN)’s biggest  evangelists, also loves other major Internet stocks Inc (NASDAQ:PCLN) and Google Inc (NASDAQ:GOOG). These two stocks are Lone Pine’s first- and second-largest positions, respectively, with 6.3% of its public equity portfolio invested in Priceline and 5.7% in Google.

Both are up over 25% year-to-date. I still think that Inc (NASDAQ:PCLN) is the all around best play in the travel industry, where it snatched up Kayak Software Corp (NASDAQ:KYAK) for some $1.8 billion earlier this year. This deal will help give the online-travel site a greater presence in the mobile space — Kayak’s mobile  engagement  and mobile app is second to none. What’s more is that some 50% of Priceline’s bookings and revenue comes from overseas, i.e. Europe, meaning the company should be a big benefactor of any rebound in the European economy.

Organic revenue is expected to be up nearly 20% for 2013 and 2014 as the company continues to snatch up market share. As well, the company is turning to Asia as its next major growth avenue. Inc (NASDAQ:PCLN) also has a strong balance sheet, with net cash of some $3.2 billion.

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