Company Overview: GoDaddy Inc. (NYSE: GDDY) is an Internet domain registrar and web hosting company, engaged in selling e-business correlated software and services. The company is also involved in providing cloud-based solutions, delivering simple, easy-to-use products, services and outcome-driven, customized advice to small businesses, organizations, individuals, developers, designers, and domain investors. The company is listed on New York Stock Exchange under the ticker symbol “GDDY” and went public on 2 April 2015.

GDDY Details

GDDY Rides on Robust Product Adoption & Acquisition Synergies: GoDaddy Inc. (NYSE: GDDY) designs and develops cloud-based technology products for small businesses, Web design professionals and individuals. The company has mainly three reportable segments namely (1) Domains, (2) Hosting and Presence Offerings and (3) Business Applications. Recently, the company inked a deal to buy Poynt, a payments processor firm, for a purchase consideration of $365 million. The deal is likely to close in 1QFY21, subject to customary closing conditions. The buyout will expand GoDaddy’s commerce offerings and will help the company to gain competitive edge over its biggest competitor, Shopify. Upon the closure of the deal, GoDaddy will combine Poynt's services into its Websites + Marketing and WordPress commerce services. Also, CEO of Poynt, will join GDDY team. This incorporation will allow small businesses to link commerce experiences across numerous channels, which, in turn, will lead GoDaddy grow its commerce services with integrated payments. 

Furthermore, GDDY remains positive towards its growing efforts of enhancing its overall product offerings. The company expects to drive customer momentum, given its freemium model for websites and marketing, which is incorporated with GoFundMe abilities along with PayPal and gift card functionality. Also, the introduction of messaging capability may act as a tailwind towards customer feedback process in the coming quarter. It is worth mentioning that increasing impetus with OpenWeStand is likely to aid the company’s results, going forward, as companies like Cisco, Adobe, LinkedIn, Microsoft, Mastercard, and Uber joined OpenWeStand in the 2QFY20.

Looking at the past performance, GDDY delivered a CAGR of ~16.8% in revenues over the period of FY15 to FY19. Net income in FY19 came in at $138.4 million against a loss of $120.4 million reported in FY15.

Past Performance (Source: Company Reports)

3QFY20 Key Highlights: During the quarter, the company reported adjusted EPS of 38 cents , which was down 9.5% from the prior corresponding period. Total revenues in 3QFY20 increased ~11% on a year over year basis and came in at $844.4 million. On a constant currency basis, revenues went up 11.2% on pcp. The increase in top-line was primarily due to strong global expansion along with robust performance of its product segments. International revenues during the quarter came in at $283.7 million, which increased ~11.6% from the prior corresponding period. In 3QFY20, total bookings went up 11% on pcp and came in at $945 million. On constant currency basis, the same increased 11.2% year over year. The company secured greater than 1 million new customers during the quarter, with addition of more than 400,000 net customer. Operating expenses (technology and development, marketing, and advertising, & general and administrative) came in at $333.2 million, which went up ~24.2% on pcp.

3QFY20 Key Highlights (Source: Company Reports)

Segmental Details: Revenues from Domains segment accounted for ~46% of total 3QFY20 revenues and came in at $387.4 million. The segmental revenues went up 12.2% on a year over year basis, owing to higher average selling price, strong renewals, and registrations. Coming to Hosting and Presence segment, revenue accounted for ~36% of total revenues in 3QFY20 and stood at $302.4 million. The segmental revenues went up by 6.1% on pcp, owing to higher subscriptions to Websites and Marketing, along with broad integrations. Lastly, the Revenues from Business Applications segment stood at $154.6 million and accounted for the remaining 18% of revenues, depicting an increase of 18.7% from the prior corresponding period.

Segments Highlights (Source: Company Reports)

Balance Sheet & Cash Flow Details: The company exited the quarter, with total cash balance of $621.8 million. Accounts and other receivables stood at $38.7 million, up from $33.4 million reported at the end of 2QFY20. Total debt at the quarter end stood at $3,161.7 million and net debt was $2,539.9 million. During the quarter, net cash provided by operating activities came in at $197.3 million, up from $168.1 million reported in 2QFY20. Adjusted free cash flow in 3QFY20 came in at $223.9 million.

Cash Flow Details (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 51.36% of the total shareholdings while the Top 4 constitutes the maximum holding. The Vanguard Group, Inc. and Wellington Management Company, LLP are holding a maximum stake in the company at 9.33% and 9.07%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Chart Created by Kalkine Group 

Key Ratios Metrics: The Company reported Sep’20 gross margin, EBITDA margin and net margin at 65.6%, 18% and 7.7%, higher than industry median of 44.3%, 17.5% and 5.6%, respectively. Sep’20 current ratio stood at 0.51x, higher than the previous quarter figure of 0.44x. Cash cycle of the company stood at negative 15.8 days, as compared to the industry median of 29.9 days. 

Profitability and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Risk Analysis: GDDY’s leveraged balance sheet poses risks with total debt of $3,161.7 million and cash balance of $621.8 million as of September 30, 2020. Furthermore, high debt may limit growth and any further increase in borrowings might worsen its risk profile. Also, rising expenses may weigh on company’s financial performance, going forward.  The ongoing economic doldrums in the wake of the global coronavirus outbreak adds to woes. Further, GoDaddy faces significant competition from peers like Amazon, Google, and Microsoft, eBay, and Facebook which offer robust internet marketing platforms.

Outlook: For the coming quarter, the company predicts revenues to be approximately $865 million, suggesting a growth of 11% on a year over year basis. Segmental wise, the company expects revenue from Domains segment to grow in double digits in 4QFY20. For Hosting and Presence, and Business Applications, the company expects revenues to grow in mid-single digits and high teens, respectively. Further, robust strength across the company’s core business and accelerating renewal rates are likely to contribute to the company’s overall growth in the days ahead. Notably, the company is set to report its 4QFY20 results on February 11, 2021.

Outlook (Source: Company Reports)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~12.3%. The stock made a 52-week low and high of $40.25 and $91.81, respectively. On the technical analysis front, the stock has a support level of ~$76.79 and a resistance level of ~$91.47. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer median, considering its debt burden, higher expenditure, stiff competition, integration risk and foreign currency risk. We have taken peers like Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN), to name few. Considering the company’s track record of delivering substantial cashflows, decent 3QFY20 performance, acquisition synergies, encouraging outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $80.97, up by 3.04% on 01 February 2021.    

GDDY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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