Post-monopoly NSI faring well

Network Solutions is getting high marks from Wall Street analysts, one day after the publicly traded Internet domain name registrar reached an agreement with the U.S. government to open the market to competition.

Under yesterday's agreement, Network Solutions (NSI) must develop a shared registration system for popular top-level ".com," ".net," and ".org" domains by March 31, with full transition to that system by June 1, 1999. The company also must turn over much of its software and databases to the government in preparation for the transfer of administrative responsibilities from NSI to a new nonprofit organization.

Network Solutions shares, like many technology stocks on the Nasdaq market, were off today. Although shares closed down 3 points or more than 8 percent at 33.25, stock in the company was up nearly 6 percent in midday trading. NSI shares have traded as high as 58 and as low as 11.75 during the past 52 weeks.

But even as Nasdaq fell to a new 52-week low, analysts are not weeping for NSI, which has been preparing for competition for months by adding services and partnerships.

Hambrecht & Quist analyst James Pettit reiterated a "strong buy" rating on NSI today. At Prudential Securities, analyst Paul Merenbloom reiterated his "buy" rating on the company.

"[NSI has] got a lot of opportunity here, and, for the time being, the competitive coast is clear," Merenbloom said.

Analysts have said that the projected growth of the Internet will leave plenty of room for other domain name registry players and that competition ultimately could be the best thing for NSI.

"[NSI] needs competition to get to the next level and it needs free-market stimulation to get there," Merenbloom said.

In the meantime, as the new nonprofit organization is established and guidelines about how to best register future domain names are outlined, NSI will continue administering the primary root server until the government wants it transferred.

"[They're] in this holding pattern," Merenbloom said. "But it's not bad news because it further strengthens the company as the leader, allowing them to mature in an environment free of competition."

Clearly, NSI has benefited from its government-approved monopoly on domain name registrations. The company hauled in revenues of $45 million from registration fees in fiscal 1997, and its revenue through June 1998 totaled nearly $37 million, the company said. NSI has registered 2.3 million domain names to date.

But NSI--along with Wall Street--remains optimistic that it will continue to renew existing accounts and attract new customers. Network Solutions chief executive Gabe Battista yesterday summed up NSI's chances for success in the post-monopoly market in a conference call.

"We have had more than five years of experience and have played a critical role in the historical growth of the Internet," he said. "No one has the breadth of knowledge gleaned from serving more than 2.3 million registrations."

Some analysts have said that the uncertainty surrounding the yearlong negotiations between NSI and the government has hampered the company's stock performance. But Prudential's Merenbloom said he expects the stock to flourish once the "mayhem" and "chaos" have subsided, and has assigned NSI a 12-month price target of $51 a share.