Verisign Inc's (VRSN.O) third-quarter results modestly beat estimates, but the company that assigns Internet protocol (IP) addresses said the Commerce Department may not renew a contract, sending its shares down 15 percent after market.
The company also lowered the top end of its full-year revenue outlook by $5 million and now expects revenue between $870 million to $875 million.
"The Commerce Department, together with the Department of Justice, is reviewing the .com Registry Agreement's pricing terms," the company said in a statement.
It added that the department may not complete its review and approve the renewal of the agreement before it expires on November 30, 2012.
Shares of the company, which closed at $46.60 on the Nasdaq on Thursday, fell to $39.50 after hours.
Verisign processed 7.8 million new domain name registrations for .com and .net in the third quarter, down 1.1 percent from the year-ago period.
The decline in new domain name registrations was mainly due to search engine adjustments that affect domain monetization, Chief Executive Jim Bidzos said on a conference call with analysts.
Search engines such as that of Google Inc's (GOOG.O) have tweaked the algorithms that control page rankings over the past few months, and websites that are not updated often find themselves on later pages. This has led domain name owners to stop renewing their agreements with Verisign.
"Historically, the domain monetization community has adjusted to such changes over several quarters," Bidzos said.
"We have no way of knowing how long they will be impacted by the changes being made in the current environment, but we are now experiencing the second quarter of these effects."
Verisign also said it was facing weak international renewal rates because of the economic problems in Europe.
Third-quarter net income rose to $78 million, or 47 cents per share, from $59 million, or 36 cents per share, a year earlier.
Excluding items, Verisign earned 50 cents per share.
Revenue rose 13 percent to $224 million.
Analysts expected an adjusted profit of $49 cents per share, on revenue of $224 million, according to Thomson Reuters I/B/E/S.
(Reporting by Sayantani Ghosh and Aurindom Mukherjee in Bangalore; Editing by Roshni Menon)