Warren Buffett’s Confidence in VeriSign: A Look Ahead to 2025
Warren Buffett, the legendary investor known for his strategic foresight, has made headlines once again. In the closing days of 2024, Berkshire Hathaway increased its stake in VeriSign, solidifying its position as the company’s largest shareholder with a remarkable $2.7 billion investment, equivalent to nearly 14% ownership. This move underscores Berkshire’s confidence in VeriSign, which stands tall as its biggest internet stock holding.
Why Should Investors Pay Attention?
Analysts from Citi have tagged VeriSign as a “top pick” for 2025, setting a price target of $238—a promising potential upside of about 16% from current trading levels. But the real excitement emerges from Citi’s bullish scenario, which forecasts a rise to $312, hinting at a staggering upside exceeding 50%. This kind of growth isn’t just speculative; there are solid fundamentals backing it.
The Profitability Powerhouse of the S&P 500
VeriSign, a company founded in 1995, has established itself as a critical player in internet infrastructure. As the sole registry for .com and .net domains, it operates two of the thirteen global internet root servers, positioning it as both a gatekeeper and a facilitator of the online world. It is no surprise that it has consistently ranked among the most profitable companies within the S&P 500. Currently, it boasts a remarkable profit margin of approximately 56%, tied for fifth in the index, alongside tech behemoth Nvidia.
The company’s operating margins are similarly impressive, placing it third within the S&P 500, while its gross margins rank thirteenth. Such robust metrics highlight not just the profitability, but also the efficiency with which VeriSign operates—key attributes that savvy investors seek in potential portfolio additions.
A Resilient Business Model
Citi analysts highlight the near-utility nature of VeriSign’s business model. It provides domain registration and listing services in a nearly monopolistic environment, allowing for regular price increases that contribute to a resilient revenue stream. This model, coupled with best-in-class EBITDA margins, translates into an enticing risk/reward profile for long-term investors.
VeriSign’s stock saw only a modest 2% increase over the past year compared to the S&P 500’s robust 23% gain, and the stock is currently trading about 20% below its peak set in December 2021. Despite these struggles, the insights from Citi suggest that current prices reflect a disconnect from VeriSign’s growth potential. With a price-to-earnings (P/E) ratio around 24x, it aligns with the company’s fifteen-year historical average, but stands 27% below its historical premium relative to the S&P 500. This indicates that there may still be value in investing in VeriSign, especially when considering its prospects for recovery and growth.
Looking to 2025: All Signs Point Forward
As we look to the future, VeriSign seems poised for a solid 2025, driven by recent month-over-month growth in .com domain registrations. Citi analysts are optimistic that these trends could translate into year-over-year growth. They believe that any stabilization in pricing could further bolster investor confidence, lifting VeriSign above its discounted valuation.
Citi’s projections of returning to mid-to-high single-digit growth, coupled with ongoing share repurchases, could indeed make shares at these levels appear undervalued. With an almost utility-like approach to its core business and a strong growth narrative, VeriSign could be an essential addition to your investment portfolio.
Conclusion
VeriSign’s status as one of the most profitable companies in the S&P 500, coupled with Warren Buffett’s escalating confidence, paints a promising tableau for prospective investors. Amidst a changing economic landscape, implementing a strategic focus on companies like VeriSign, which project stability and growth, could yield substantial returns.
Keep an eye on this stock in 2025. The synergy between its robust business model and Berkshire Hathaway’s faith in its future makes VeriSign a compelling prospect for investors looking to amplify their portfolios.