TIVP008: VeriSign (VRSN): The Internet’s Toll Road w/ Shawn O’Malley

The Intrinsic Value Podcast - The Investor’s Podcast Network

The Investor's Podcast Network

Investing, Education, Business

4.6 • 593 Ratings

🗓️ 23 February 2025

⏱️ 60 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

In today’s episode, Shawn O’Malley (@Shawn_OMalley_) breaks down VeriSign, a company that underpins the functioning of the internet. VeriSign acts like a toll road, collecting fees from anyone using website domains ending in .com or .net, in exchange for managing the global domain registry system and making these domains accessible. VeriSign is a fascinating company with the fifth-highest profit margins in the S&P 500, and its shares have been increasingly snapped up by Berkshire Hathaway of late, which has become its largest shareholder. You’ll learn how VeriSign was granted its monopoly, how it supports internet infrastructure, and whether the stock is attractively valued, plus so much more! Prefer to watch? Click here to watch this episode on YouTube. IN THIS EPISODE, YOU’LL LEARN 00:00 - Intro 02:29 - How VeriSign sits at the foundation of the world’s internet. 07:22 - Why VeriSign is legally permitted to have a monopoly over the .com & .net website domains. 08:40 - How VeriSign is like a toll road by getting paid by any website ending in .com. 12:29 - What VeriSign does with its ample cash flows. 13:34 - How domain registration works and how VeriSign relies on sites like GoDaddy to drive more domain registrations. 13:44 - Why VeriSign’s monopoly likely isn’t going anywhere. 32:26 - The biggest risks, from cyberattacks to terrorism, threatening the company’s operations. 45:39 - How to think about the company’s intrinsic value and how expected returns fluctuate based on your purchase price per share. 51:15 - Whether Shawn adds VeriSign to The Intrinsic Value Portfolio. *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Get smarter about valuing businesses in just a few minutes each week through our newsletter, The Intrinsic Value Newsletter. Check out our discussion of VeriSign in the Q1 2025 Mastermind episode on We Study Billionaires | YouTube Video. Value Investors Club pitch for VRSN. Read the article on Berkshire’s acquisitions of VRSN shares. The difference between ICANN and VeriSign, explained. Explore Myths & facts about VeriSign. See here on how to attend the 2025 Berkshire Hathaway shareholder’s meeting and meet-ups with The Investor’s Podcast Network Check out the books mentioned in the podcast here. Enjoy ad-free episodes when you subscribe to our Premium Feed. NEW TO THE SHOW? Follow our official social media accounts: X (Twitter) | LinkedIn | Instagram | Facebook | TikTok. Browse through all our episodes (complete with transcripts) here. Try Shawn's favorite tool for picking stock winners and managing our portfolios: TIP Finance. Enjoy exclusive perks from our favorite Apps and Services. Learn how to better start, manage, and grow your business with the best business podcasts. SPONSORS Support our free podcast by supporting our sponsors: Netsuite TurboTax Public Airbnb Connect with Shawn: Twitter | LinkedIn | Email HELP US OUT! Help us reach new listeners by leaving us a rating and review on Spotify! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

Transcript

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0:00.0	You're listening to TIP. To use the already overuse metaphor of it being better to invest in
0:07.3	companies that sell picks and shovels during a gold rush than actually rushing for gold,
0:12.9	I can think of no better company that embodies that example than Veracine, the focus of today's
0:18.7	episode. Veracine is not just any old picks and shovels company.
0:23.6	Its services are the backbone of the greatest gold rush to ever exist, the internet.
0:29.5	The company provides the infrastructure behind the modern internet and many of the websites
0:33.6	you use, and that has made it one of the most profitable companies I've ever studied.
0:39.0	Their margins are actually higher than any Mag 7 big tech name, rivaled only by NVIDIA.
0:45.1	With 50% returns on capital and a nearly 90% gross profit margin, this is an unbelievably attractive
0:51.8	business that has caught the eye of Berkshire Hathaway, with Buffett's
0:55.5	companies snapping up millions of more shares in Veracine in recent months.
0:59.9	Today, I'll dig into Veracine to see how they've been able to protect these juicy margins
1:04.5	from competition and decide whether its stock is still attractively valued after it has gotten
1:08.8	some attention for making into the Berkshire stock
1:11.0	portfolio. This is a company I'm really excited to tell you guys about because I can't imagine
1:15.9	a better toll road business than Veracine. In short, the thesis is that every website in the world
1:22.0	that ends with dot com and a number of other websites all have to pay the equivalent of about
1:27.2	$10.26 a year, and in some
1:30.0	cases more for the right to have their domain continue to function, because Veracine is a domain
1:36.1	registry manager who has essentially a monopoly over the dot com domain. It is about as compelling
1:43.2	as a business I've ever seen.
1:46.1	So with that, we will cover it all in more detail and explain exactly what that means.
	...

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