To The Moon

$VeriSign(VRSN)$

VeriSign's stock took a significant hit following revelations that Warren Buffett’s Berkshire Hathaway sold nearly a third of its long-held stake in the domain name and internet infrastructure company. As markets absorb the implications of this high-profile divestment, investors are left questioning the company's long-term growth story amid evolving internet infrastructure and cybersecurity demands.

Buffett's Quiet Exit Sends Shockwaves

VeriSign Inc. (NASDAQ: VRSN), a low-profile but highly profitable company that manages domain name registries such as ".com" and ".net," saw its shares plunge sharply after it was disclosed in Berkshire Hathaway’s latest 13F filing that the Omaha-based investment conglomerate sold approximately one-third of its holdings in the firm.

The move comes as a surprise given Buffett’s typically long holding periods and confidence in moat-like businesses. While Berkshire had been holding VeriSign since 2012, the reduction in stake signals either a reassessment of valuation or concern over slowing future growth.

This sale—amounting to over a million shares—represents one of the more notable portfolio adjustments made by Berkshire Hathaway in recent quarters and came during a broader tech stock rally. It also coincided with mounting scrutiny over VeriSign’s core business and questions surrounding its pricing authority and growth runway.

Performance Overview and Market Feedback

Shares of VeriSign declined by over 12% in the immediate aftermath of the news, wiping out more than $2 billion in market capitalization in a single session. The stock had been trading near 52-week highs before the drop, fueled in part by optimism around secure domain infrastructure in the AI and digital transformation era.

Yet the market's reaction was swift and severe. Analysts pointed to Buffett’s partial exit as a confidence damper, particularly as institutional investors often regard Berkshire’s movements as implicit endorsements of company fundamentals. Market participants also appear increasingly focused on VeriSign’s stagnating domain name growth and heavy reliance on its agreement with the U.S. Department of Commerce for .com pricing control.

Trading volumes surged well above their 30-day average, indicating institutional repositioning. Some hedge funds reportedly took the opportunity to initiate short-term bearish positions, while long-only funds have adopted a “wait and see” stance as they reassess their models.

A Cash Machine with Growth Questions

VeriSign remains a business with enviable margins. It operates as a near-monopoly registrar for ".com" and ".net" domain names, collecting annual fees from millions of registrants. The business is highly recurring, cash generative, and capital-light—with operating margins typically north of 60% and free cash flow margins above 50%.

However, the very stability of this model has bred investor complacency. Domain name registrations are beginning to plateau. The .com registry grew just 1.5% in the most recent quarter, compared to 4%+ CAGR seen five years ago. Meanwhile, the ".net" business is in slow decline, and international domain extensions have been growing more rapidly, outside VeriSign’s purview.

While VeriSign still boasts a robust balance sheet—with over $1 billion in cash and no long-term debt—its revenue growth has largely relied on modest price increases rather than new product innovation or market expansion.

Regulatory Risks and Contract Dependence

One of the most underappreciated risks in VeriSign’s business is its reliance on a contract with the U.S. government to manage the ".com" registry. This agreement gives the company the ability to raise prices under defined conditions but is subject to periodic review.

The current amendment allows VeriSign to increase prices for .com domains by up to 7% annually in most years through 2029. However, growing concerns about monopolistic pricing and broader antitrust sentiment in Washington could pose challenges to this setup in the next renewal phase.

Additionally, emerging alternatives such as decentralized naming protocols (e.g., ENS on Ethereum) and growing interest in Web3 domains could, over the long term, represent an existential threat to VeriSign’s centralized model. While this remains speculative, it adds to the growing list of risks for investors banking on the company’s legacy dominance.

Berkshire’s Motivations: Valuation, Rotation, or Both?

Berkshire Hathaway’s decision to trim its VeriSign position is notable given its historical preference for concentrated, long-term bets. The timing also raises questions—VeriSign had recently outperformed several tech infrastructure peers, suggesting Berkshire might view the stock as overvalued relative to forward growth.

Buffett has long emphasized the importance of “economic moats” and capital discipline. It’s possible that Berkshire concluded VeriSign’s pricing power is not as bulletproof as once thought, or that better opportunities are emerging elsewhere.

While Berkshire remains a significant shareholder—retaining over two-thirds of its position—the sale implies a recalibration of conviction. It also dovetails with Berkshire’s increased exposure to other sectors such as oil, Japanese trading houses, and capital-intensive plays that may offer more upside in a higher-rate, inflationary environment.

Investment Highlights

1. Dominant Market Position: VeriSign controls the registry for .com and .net, giving it a near-monopoly in a critical corner of the internet infrastructure market.

2. Recurring Revenue & Strong Margins: The company generates highly predictable, annuity-like revenue and boasts operating margins exceeding 60%.

3. Free Cash Flow Machine: With annual FCF typically exceeding $800 million, the company has ample room for share buybacks and capital returns.

4. Contractual Protection: The current .com registry agreement runs through 2029 and permits annual price increases, albeit under regulatory oversight.

5. Valuation Pressure: Despite these strengths, shares trade at over 25x forward earnings, a high multiple for a company with single-digit top-line growth.

6. Competitive Threats & Regulation: Growing discussion around decentralized web models and potential political scrutiny of VeriSign’s pricing model could present long-term headwinds.

Verdict: Entry Price August 2025 — Hold

Given VeriSign’s durable business model, cash-generating capabilities, and strategic importance to internet infrastructure, the company remains an attractive defensive play. However, the current valuation appears stretched given limited growth catalysts, rising regulatory scrutiny, and investor sentiment shocks like the Berkshire reduction.

For long-term investors, a more attractive re-entry point may lie closer to the $160–$170 range, reflecting a 20x FCF multiple with modest growth assumptions. At current levels, the risk/reward is not compelling enough to justify new positions, but neither is the fundamental deterioration sufficient to warrant an outright sell.

Thus, Hold is the appropriate verdict as of August 2025. Investors should monitor quarterly growth trends, future registry contract negotiations, and broader trends in domain alternatives before taking further action.

Conclusion: A Reality Check for Moat Stocks

VeriSign’s dramatic post-Buffett decline is a timely reminder that even wide-moat, high-margin businesses are not immune to sentiment shifts, valuation resets, and evolving competitive landscapes.

While the company remains profitable and defensible, its top-line growth is maturing, and its monopoly-like positioning is increasingly being scrutinized in a digital era that rewards agility, not just stability. The Berkshire selloff may not spell doom for VeriSign, but it does underscore the need for investors to assess whether past performance still supports future expectations.

As the digital infrastructure race moves into a more fragmented, innovation-driven phase, VeriSign’s place as a stalwart in the internet’s plumbing may continue to reward conservative investors—but perhaps not at any price. Patience and disciplined entry points will be critical going forward.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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