VeriSign Shares Trade Lower Courtesy Of Citi And The U.S. Senate

Citi is not ready to take any chances in respect of VeriSign, Inc. VRSN, primarily due to concerns on ambiguity on contract for around.com. The brokerage sees the threat of revenue facing a deceleration next year besides putting an end to margin expansion.

Analysts Walter Pritchard and Matthew Wells also pointed out the press reports to back their concerns that IANA transition delay would impact the results. Interestingly, they believe the stock gained since the second half of 2015 because of margin expansion. Therefore, they think any margin compression would be a negative sentiment to impact the shares performance at least in the immediate term.

As a result, the brokerage retained its Sell rating and $70 price target. This implied downside risks of about 11.3 percent from the current levels.

In a research note, Citi pointed out, "Sen Cruz has called into question the implications of transition of IANA, including its root zone management function if transitioned to international control (ICANN). Currently, the IANA transition to ICANN is scheduled for Sept 30, 2016. As part of this, Sen. Cruz has included in his concern, VeriSign's "monopoly" position and asked the US Dept of Justice to review pricing on VeriSign's .com contract."

The brokerage expects DOJ to review .com extension and sees any pricing review would result a negative sentiment. Currently, VeriSign's contract is priced at $7.85 for .com and would remain until November 2018.