Domain registrar and web services company, GoDaddy (NYSE:GDDY) beat analyst expectations in Q4 FY2021 quarter, with revenue up 16.6% year on year to $1.01 billion. However, guidance for the next quarter was less impressive, coming in at $987.5 million at the midpoint, being 0.71% below analyst estimates. GoDaddy made a GAAP profit of $87.4 million, improving on its profit of $70.8 million, in the same quarter last year.
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GoDaddy (GDDY) Q4 FY2021 Highlights:
- Revenue: $1.01 billion vs analyst estimates of $973 million (4.74% beat)
- EPS (GAAP): $0.52
- Revenue guidance for Q1 2022 is $987.5 million at the midpoint, below analyst estimates of $994.6 million
- Management's revenue guidance for upcoming financial year 2022 is $4.15 billion at the midpoint, missing analyst estimates by 0.48% and predicting 8.76% growth (vs 13% in FY2021)
- Free cash flow of $203.2 million, down 19.2% from previous quarter
- Gross Margin (GAAP): 63.3%, down from 65.4% same quarter last year
"GoDaddy accelerated its pace of execution across the business in 2021 and delivered another great year of results," said GoDaddy CEO Aman Bhutani.
Founded by Bob Parsons after selling his first company to Intuit, GoDaddy (NYSE:GDDY) provides small and mid-sized businesses with the ability to buy a web domain and tools to create and manage a website.
While e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales Growth
As you can see below, GoDaddy's revenue growth has been moderate over the last year, growing from quarterly revenue of $873.9 million, to $1.01 billion.
This quarter, GoDaddy's quarterly revenue was once again up 16.6% year on year. We can see that the company increased revenue by $55.3 million quarter on quarter. That's a solid improvement on the $32.7 million increase in Q3 2021, so shareholders should appreciate the re-acceleration of growth.
Guidance for the next quarter indicates GoDaddy is expecting revenue to grow 9.58% year on year to $987.5 million, slowing down from the 13.7% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $4.15 billion at the midpoint, growing 8.76% compared to 13% increase in FY2021.
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Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. GoDaddy's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 63.3% in Q4.
That means that for every $1 in revenue the company had $0.63 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.
Key Takeaways from GoDaddy's Q4 Results
With a market capitalization of $12.4 billion, more than $1.25 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
It was good to see GoDaddy outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, the revenue guidance for next year indicates a slowdown and the revenue guidance for the next quarter missed analysts' expectations. Overall, these results seem mixed. The company is up 5.12% on the results and currently trades at $78 per share.
GoDaddy may have had an ok quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.