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GoDaddy (NYSE:GDDY) Q1 Sales Beat Estimates


Full Report / May 04, 2022
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Domain registrar and web services company, GoDaddy (NYSE:GDDY) beat analyst expectations in Q1 FY2022 quarter, with revenue up 11.2% year on year to $1 billion. However, guidance for the next quarter was less impressive, coming in at $1.01 billion at the midpoint, being 0.13% below analyst estimates. GoDaddy made a GAAP profit of $68.6 million, improving on its profit of $10.8 million, in the same quarter last year.

GoDaddy (GDDY) Q1 FY2022 Highlights:

  • Revenue: $1 billion vs analyst estimates of $989.1 million (1.36% beat)
  • EPS (GAAP): $0.41
  • Revenue guidance for Q2 2022 is $1.01 billion at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $4.15 billion at the midpoint
  • Free cash flow of $238.6 million, up 17.4% from previous quarter
  • Gross Margin (GAAP): 63%, down from 64.3% same quarter last year

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).

Sales Growth

As you can see below, GoDaddy's revenue growth has been mediocre over the last year, growing from quarterly revenue of $901.1 million, to $1 billion.

GoDaddy Total Revenue

This quarter, GoDaddy's quarterly revenue was once again up 11.2% year on year. But the revenue actually decreased by $16.6 million in Q1, compared to $55.3 million increase in Q4 2021. We'd like to see revenue increase each quarter, but a one-off fluctuation is usually not concerning and the management is guiding for growth to rebound in the next quarter.

Guidance for the next quarter indicates GoDaddy is expecting revenue to grow 8.98% year on year to $1.01 billion, slowing down from the 15.4% 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 8.27% over the next twelve months.

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% in Q1.

GoDaddy Gross Margin (GAAP)

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 we would like to see it start improving.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. GoDaddy's free cash flow came in at $238.6 million in Q1, down 11% year on year.

GoDaddy Free Cash Flow

GoDaddy has generated $930.3 million in free cash flow over the last twelve months, an impressive 23.7% of revenues. This extremely high FCF margin is a result of GoDaddy asset lite business model and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from GoDaddy's Q1 Results

With a market capitalization of $13.2 billion, more than $742.7 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

GoDaddy topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, revenue growth is overall a bit slower these days. The company is up 1.91% on the results and currently trades at $83.75 per share.

Is Now The Time?

GoDaddy may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We cheer for everyone who is making the lives of others easier through technology, but in case of GoDaddy we will be cheering from the sidelines. Its revenue growth has been weak, and analysts expect growth rates to deteriorate from there. And while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately gross margins show its business model is much less lucrative than the best software businesses.

GoDaddy's price to sales ratio based on the next twelve months is 3.2x, 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, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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