Domain registrar and web services company, GoDaddy (NYSE:GDDY) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 7.17% year on year to $1.03 billion. Guidance for the next quarter slightly missed analyst expectations with revenues guided to $1.04 billion at the midpoint, or 2.25% below analyst estimates. GoDaddy made a GAAP profit of $99.8 million, improving on its profit of $97.7 million, in the same quarter last year.
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GoDaddy (GDDY) Q3 FY2022 Highlights:
- Revenue: $1.03 billion vs analyst estimates of $1.03 billion (small miss)
- EPS: $0.63 vs analyst estimates of $0.60 (5.21% beat)
- Revenue guidance for Q4 2022 is $1.04 billion at the midpoint, below analyst estimates of $1.06 billion
- Free cash flow of $296.6 million, up 27.2% from previous quarter
- Gross Margin (GAAP): 63.7%, in line with same quarter last year
"GoDaddy delivered solid results in the third quarter despite macroeconomic headwinds and foreign exchange rate pressure," 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 unremarkable over the last two years, growing from quarterly revenue of $844.4 million in Q3 FY2020, to $1.03 billion.
GoDaddy's quarterly revenue was only up 7.17% year on year, which might disappoint some shareholders. We can see that the company increased revenue by $17.7 million quarter on quarter re-accelerating up on $12.8 million in Q2 2022.
Guidance for the next quarter indicates GoDaddy is expecting revenue to grow 2.03% year on year to $1.04 billion, slowing down from the 16.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 6.74% over the next twelve months.
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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 63.7% in Q3.
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 dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.
Key Takeaways from GoDaddy's Q3 Results
Sporting a market capitalization of $11.5 billion, more than $826.2 million in cash and with positive free cash flow over the last twelve months, we're confident that GoDaddy has the resources it needs to pursue a high growth business strategy.
It was good to see strong cash flow but on the other hand, it was unfortunate that revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a mixed quarter for GoDaddy. The company is flat on the results and currently trades at $72.65 per share.
GoDaddy may have had a tough 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.