Buffett Bets Big on Verisign: Is This Your Next Golden Opportunity?

Warren Buffett’s recent $VeriSign(VRSN)$ purchases highlight his growing confidence in this internet infrastructure company. With three purchases totalling $93.65 million since mid-December 2024, Berkshire Hathaway’s stake now exceeds $2.7 billion, solidifying its position as Verisign’s largest shareholder. This move raises several questions: Is Verisign a solid investment? Should retail investors follow Buffett? And what does this mean for Berkshire’s evolving strategy?

Why Verisign?

Verisign operates the registry for .com and .net domain names, giving it a near-monopoly on managing internet domains under long-term contracts with ICANN (the Internet Corporation for Assigned Names and Numbers). This creates a predictable revenue stream, high margins, and a solid moat—qualities Buffett typically seeks in his investments.

Key Strengths of Verisign

1. Steady Revenue Growth: Verisign benefits from the growing number of internet domains, which drives recurring revenues. Its agreements with ICANN allow for modest annual price increases, adding to revenue stability.

2. High Profitability: The company boasts a robust margin profile and generates significant free cash flow, traits Buffett values.

3. Resilience: As an infrastructure provider for the internet, Verisign is relatively insulated from broader economic cycles, making it a defensive play in uncertain times.

Why Now?

Buffett’s additional purchases suggest he believes Verisign is undervalued, even after its recent price gains. The stock’s jump of 3% in overnight trading following the news underscores investor confidence in his decision.

Should You Follow Buffett?

While it’s tempting to mimic Buffett’s moves, it’s essential to consider your own investment objectives. Here are the pros and cons of investing in Verisign:

Reasons to Consider Verisign

1. Predictable Earnings: Its subscription-based model provides reliable cash flows, which can appeal to long-term investors seeking stability.

2. Strong Market Position: Verisign’s dominance in the domain registration space creates a significant competitive advantage.

3. Growth Potential: The continued expansion of the internet and demand for domains, particularly in emerging markets, offers long-term growth opportunities.

Risks to Consider

1. Regulatory Risks: Verisign operates under strict contracts with ICANN, and future regulatory changes could impact its pricing power.

2. Valuation Concerns: At $209 - $210 per share as at January 7, 2025, Verisign trades at a premium, with a P/E ratio significantly above the market average. While Buffett’s endorsement may justify a higher valuation, retail investors must evaluate whether the stock offers enough upside from current levels.

3. Limited Growth Drivers: Verisign’s core business is mature, and its revenue growth, while steady, may lag compared to high-growth tech companies.

Can Verisign Surpass Its Previous High?

Verisign’s all-time high of approximately $257, reached in early 2022, remains within reach if the company sustains its growth trajectory and expands its margins. However, surpassing this level will likely require either broader market momentum or catalysts like accelerated internet domain adoption.

Buffett and Internet Stocks: Staying Current or Falling Behind?

Buffett has historically shied away from tech-heavy stocks, preferring predictable business models. However, his increasing stake in Verisign reflects an evolution in his strategy, signalling he recognizes the enduring importance of digital infrastructure. While some may argue this is a conservative way to approach the tech sector, it aligns with his philosophy of prioritizing stability over rapid growth.

Actionable Steps for Investors

If you’re considering following Buffett into Verisign, here’s how to approach it:

1. Analyze Your Risk Tolerance and Time Horizon

   Verisign’s steady revenue makes it attractive for long-term, conservative investors. However, its valuation and regulatory risks mean it may not suit those seeking aggressive growth.

2. Wait for a Better Entry Point

   While Buffett’s purchase signals confidence, the recent price jump suggests short-term euphoria. A pullback or broader market correction might offer a more attractive entry price.

Conclusion

Buffett’s increased stake in Verisign reinforces its reputation as a high-quality, defensive investment. For long-term investors seeking stability and steady returns, Verisign could be a compelling addition. However, with the stock trading near its recent highs, patience may be warranted to find a better buying opportunity. As always, investors should weigh their individual goals and risk tolerance before following even the most legendary investor.

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