Domain registrar and web services company, GoDaddy (NYSE:GDDY) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 3.53% year on year to $1.07 billion. The company expects next quarter's revenue to be around $1.11 billion, slightly below analysts' estimates. Turning to EPS, GoDaddy made a GAAP profit of $0.89 per share, improving from its profit of $0.63 per share in the same quarter last year.
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GoDaddy (GDDY) Q3 FY2023 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.06 billion (small beat)
- EPS: $0.89 vs analyst estimates of $0.72 (24% beat)
- Revenue Guidance for Q4 2023 is $1.11 billion at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow of $281.6 million, up 46.5% from the previous quarter
- Gross Margin (GAAP): 62.9%, down from 63.8% in the same quarter last year
"GoDaddy is at the forefront of one of our most exciting eras yet, with the product investments we've made over the past several years driving cutting-edge solutions that cater to the evolving needs of our customers," 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.
E-commerce Software
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 unimpressive over the last two years, growing from $964 million in Q3 FY2021 to $1.07 billion this quarter.
GoDaddy's quarterly revenue was only up 3.53% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $21.6 million quarter on quarter, re-accelerating from $12.1 million in Q2 2023.
Next quarter's guidance suggests that GoDaddy is expecting revenue to grow 6.26% year on year to $1.11 billion, improving on the 2.02% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 6.77% over the next 12 months before the earnings results announcement.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its 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.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 62.9% in Q3.
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 Q3 Results
Sporting a market capitalization of $10.8 billion, more than $329.2 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.
Growth is slow these days, but at least GDDY delivered strong free cash flow. Overall, this was a mixed quarter for GoDaddy. The stock is up 2.35% after reporting and currently trades at $76.98 per share.
So should you invest in GoDaddy 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.
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The author has no position in any of the stocks mentioned in this report.