Domain registrar and web services company, GoDaddy (NYSE:GDDY) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 2.02% year on year to $1.04 billion. However, guidance for the next quarter was less impressive, coming in at $1.04 billion at the midpoint, being 1.4% below analyst estimates. GoDaddy made a GAAP profit of $93.6 million, improving on its profit of $87.4 million, in the same quarter last year.
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GoDaddy (GDDY) Q4 FY2022 Highlights:
- Revenue: $1.04 billion vs analyst estimates of $1.04 billion (small miss)
- EPS: $0.60 vs analyst expectations of $0.63 (4.64% miss)
- Revenue guidance for Q1 2023 is $1.04 billion at the midpoint, below analyst estimates of $1.05 billion
- Free cash flow of $919.3 million, up from $296.6 million in previous quarter
- Gross Margin (GAAP): 63.5%, in line with same quarter last year
"GoDaddy achieved strong revenue and cash flow growth in 2022, despite macroeconomic headwinds," 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 slow over the last two years, growing from quarterly revenue of $873.9 million in Q4 FY2020, to $1.04 billion.
GoDaddy's quarterly revenue was only up 2.02% year on year, which might disappoint some shareholders.The growth did slow down compared to last quarter, as the revenue increased by just $6.7 million in Q4, compared to $17.7 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates GoDaddy is expecting revenue to grow 3.72% year on year to $1.04 billion, slowing down from the 11.3% year-over-year increase in revenue the company had recorded in the same quarter last year.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 63.5% in Q4.
That means that for every $1 in revenue the company had $0.64 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 we would like to see it start improving.
Key Takeaways from GoDaddy's Q4 Results
Sporting a market capitalization of $12.6 billion, more than $774 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.
We liked to see the strong free cash flow. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and revenue growth was quite weak. Overall, this quarter's results could have been better. The company is down 3.75% on the results and currently trades at $78 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.