Domain registrar and web services company, GoDaddy (NYSE:GDDY) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 5.8% year on year to $1.1 billion. On the other hand, the company expects next quarter's revenue to be around $1.10 billion, slightly below analysts' estimates. It made a GAAP profit of $7.85 per share, improving from its profit of $0.60 per share in the same quarter last year.
GoDaddy (GDDY) Q4 FY2023 Highlights:
- Revenue: $1.1 billion vs analyst estimates of $1.10 billion (small miss)
- EPS: $7.85 vs analyst estimates of $1.05 (651% beat due to release of valuation allowance on U.S. and state deferred tax assets, resulting in a non-routine non-cash benefit of approximately $1 billion recorded to income taxes)
- Revenue Guidance for Q1 2024 is $1.10 billion at the midpoint, in line with analyst estimates of $1.10 billion
- Management's revenue guidance for the upcoming financial year 2024 is $4.52 billion at the midpoint, missing analyst estimates by 0.7% and implying 6.3% growth (vs 4% in FY2023)
- Free Cash Flow of $291.1 million, similar to the previous quarter
- Gross Margin (GAAP): 63.4%, in line with the same quarter last year
- Market Capitalization: $15.82 billion
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.
Successfully setting up an online store is difficult for most small business owners. GoDaddy offers most of the e-commerce functionalities to simplify the entire process of starting and maintaining an online business.
By making it easy for even non-technical users to set up a fully functioning website within a short period, GoDaddy helps its customers to focus their time on their primary business function.
For example, you don’t need computers to make food, however, restaurants rely on computers and websites to sell and deliver food to customers. For a small restaurant business, GoDaddy starts by providing a fitting domain name. It then provides all the tools to host, build, and manage a website. It also integrates with third-party applications to provide payment, marketing, and other e-commerce features.
GoDaddy was founded when the sale and management of domain names were popular and lucrative. As more companies moved into the domain name business, GoDaddy expanded into the e-commerce space by offering more robust website services to stay competitive.
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.
GoDaddy faces competition from Automattic, Shopify (NYSE: SHOP), Squarespace (NYSE: SQSP), and Wix (NASDAQ: WIX).
As you can see below, GoDaddy's revenue growth has been unimpressive over the last two years, growing from $1.02 billion in Q4 FY2021 to $1.1 billion this quarter.
GoDaddy's quarterly revenue was only up 5.8% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $30.6 million quarter on quarter, re-accelerating from $21.6 million in Q3 2023.
Next quarter's guidance suggests that GoDaddy is expecting revenue to grow 5.7% year on year to $1.10 billion, improving on the 3.3% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $4.52 billion at the midpoint, growing 6.3% year on year compared to the 4% increase in FY2023.
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 63.4% in Q4.
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.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. GoDaddy's free cash flow came in at $291.1 million in Q4, up 52.5% year on year.
GoDaddy has generated $1.00 billion in free cash flow over the last 12 months, an impressive 23.5% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from GoDaddy's Q4 Results
It was great to see GoDaddy expecting revenue growth to accelerate next year. That stood out as a positive in these results. On the other hand, despite the acceleration the full-year revenue guidance missed Wall Street's estimates. Overall, this was a mixed quarter for GoDaddy. The stock is flat after reporting and currently trades at $113.1 per share.
Is Now The Time?
When considering an investment in GoDaddy, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We cheer for everyone who's making the lives of others easier through technology, but in case of GoDaddy, we'll be cheering from the sidelines. Its , and analysts don't see anything changing. And while its bountiful generation of free cash flow empowers it to invest in growth initiatives, the downside is its existing customers have been reducing their spend, which is a bit of a concern. On top of that, its customer acquisition is less efficient than many comparable companies.
GoDaddy's price-to-sales ratio based on the next 12 months is 3.6x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.
Wall Street analysts covering the company had a one-year price target of $113.59 per share right before these results (compared to the current share price of $113.10).
To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.