There are few businesses like Verisign (VRSN). The company is a global provider of domain name registry services, with complete control over the .com and .net domain names. The monopolistic nature of the business allows them to have operating margins in the mid-’60s. The magic of VRSN lies in the fact, that the business doesn’t require any capital to grow, as cash is received upfront (deferred revenue) and reinvested into the business. However, CAPEX is minimal averaging only 3.5% of total sales. That allows VRSN to have FCF margins of 55% based on 10-year median numbers.

Businesses like this never sell for cheap. It is well known that VRSN holds a monopoly for .com and .net domain names. They are a mixture between a technology company and a regulated utility business. The “toll-bridge” business model makes VRSN a candidate for a buy and forget type of investment. Because of their strong moat, buying the dip could also be a sensible approach to accumulating shares.

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