Domain registrar and web services company, GoDaddy (NYSE:GDDY) fell short of analysts' expectations in Q2 FY2023, with revenue up 3.21% year on year to $1.05 billion. GoDaddy made a GAAP profit of $83.1 million, down from its profit of $90.5 million in the same quarter last year.
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GoDaddy (GDDY) Q2 FY2023 Highlights:
- Revenue: $1.05 billion vs analyst estimates of $1.05 billion (0.61% miss)
- EPS: $0.54 vs analyst expectations of $0.56 (4.25% miss)
- Revenue Guidance for Q3 2023 is $1.07 billion at the midpoint, below analyst estimates of $1.09 billion
- Free Cash Flow of $185.4 million, down 25.1% from the previous quarter
- Gross Margin (GAAP): 62.9%, down from 64.5% in the same quarter last year
"Our mission at GoDaddy – to empower entrepreneurs everywhere, making opportunity more inclusive for all – is getting an unprecedented boost by AI technology," 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.
As you can see below, GoDaddy's revenue growth has been unremarkable over the last two years, growing from $931.3 million in Q2 FY2021 to $1.05 billion this quarter.
GoDaddy's quarterly revenue was only up 3.21% year on year, which might disappoint some shareholders. However, its revenue increased $12.1 million quarter on quarter, a strong improvement from the $3.9 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that GoDaddy is expecting revenue to grow 3.08% year on year to $1.07 billion, slowing down from the 7.18% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 6.82% over the next 12 months.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 62.9% in Q2.
That means that for every $1 in revenue the company had $0.63 left to spend on developing new products, sales and marketing, and general administrative overhead. GoDaddy's gross margin is poor for a SaaS business and we'd like to see it start improving.
Key Takeaways from GoDaddy's Q2 Results
Sporting a market capitalization of $11.6 billion, more than $582.6 million in cash on hand, and positive free cash flow over the last 12 months, we believe that GoDaddy is attractively positioned to invest in growth.
We struggled to find many strong positives in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing. Within the quarter, GoDaddy missed Wall Street's revenue and normalized EBITDA expectations. Overall, the results could have been better. The company is down 7.55% on the results and currently trades at $70 per share.
GoDaddy may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned in this report.