Warren Buffett's favorite internet stock is a 'top pick' with 16% upside in 2025, Citi says
University of Nebraska-Lincoln
- Berkshire Hathaway increased its stake in VeriSign in the final days of 2024, its largest internet stock holding.
- VeriSign, a domain registry, is poised for growth in 2025 with a $238 price target by Citi.
- VeriSign is one of the most profitable companies within the S&P 500.
Berkshire Hathaway's biggest internet stock holding was called a "top pick" for 2025 by analysts at Citi.
VeriSign is Berkshire Hathaway's largest internet stock, and the conglomerate increased its stake in the final days of 2024.
Warren Buffett's conglomerate owns a $2.7 billion stake in VeriSign and is the company's largest shareholder, owning nearly 14% of the company.
VeriSign provides domain registration and listing services and operates crucial internet infrastructure. Founded in 1995, it is the sole registry for .com and .net domains and operates two of the 13 global internet root servers.
According to Citi analysts, VeriSign is poised for a solid 2025. Citi assigned a $238 price target, which represents a potential upside of 16% from current levels. In its bull-case scenario, Citi sees VeriSign rising to $312, representing a potential upside of just over 50%.
"We view Verisign as being one of the safer plays in Internet with a narrower range of outcomes given its almost utility-like nature as a domain registry, ability to pass on regular price increases that leads to a resiliant top-line, and best in class EBITDA margins, providing what we believe to be an attractive risk/reward for investors," Citi says.
VeriSign is one of the most profitable companies in the S&P 500.
According to financial data as of the third quarter, the company is ranked fifth in the S&P 500 for the highest profit margin, at about 56%, tied with Nvidia. For operating margin, VeriSign is ranked third, and for gross margin, it's ranked 13th.
Citi said it is encouraged by recent month-over-month growth in .com domain registrations, which could point to year-over-year growth in 2025.
"If trends continue to stabilize this way, and with pricing questions now in the rear-view, VRSN's discount to its historical peak will become more of a bullish driver," Citi said.
VeriSign had a tough year, with the stock up just 2% compared to a 23% gain for the S&P 500. Meanwhile, the stock is down about 20% from its record high reached in December 2021.
That's left VeriSign trading at a price-to-earnings ratio of about 24x, which aligns with its 15-year historical average. VeriSign's price-to-earnings premium relative to the S&P 500 is 27% below its 15-year average and 52% below its peak.
The current valuation setup is what makes VeriSign a top stock pick for Citi.
"If Verisign were back on track for mid- to high-single-digit top-line growth (~5% pricing + ~2% volume), with high incremental margins, and continued share repurchase leading to double-digit EPS growth, shares at this level would prove cheap," Citi said.