Company Overview: GoDaddy Inc. (NYSE: GDDY) offers cloud-based goods and customized customer services to small enterprises, web designers and individuals. It develops and secures an online presence for its consumers by providing website construction, hosting, and security solutions. In addition, it makes money by selling subscriptions, such as domain registrations and renewals, hosting and presenting solutions, and business apps.

GDDY Details

Key Takeaways from Q3FY21 (ended September 30, 2021)

• Boost in Revenues: The company's total revenues in Q3FY21 were USD 964.0 million, a 14.16% increase YoY from USD 844.4 million in Q3FY20, driven by a growth in total customers and average revenue per user and contributions from the recent acquisition of Poynt, an all-in-one payment platform in February 2021.
• Expansion in Bottomline: Net income was USD 97.7 million in Q3FY21, compared to USD 65.1 million in Q3FY20, representing a diluted EPS of USD 0.58.
• Surge in Bookings: It recorded an increase in total bookings to USD 1.04 billion in Q3FY21 vs. USD 0.95 billion in Q3FY20.

Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• On November 11, 2021, GDDY announced a formal deal to purchase Pagely, the business that created Managed WordPress in 2009. The deal's specifics, however, were not made public.
• On September 28, 2021, GDDY announced the debut of two points of sale (POS) devices, including a countertop Smart Terminal and a mobile Card Reader.
• On August 24, 2021, GDDY unveiled a new invoicing and payment solutions feature under GoDaddy Pro. This new feature offers more straightforward and faster-invoice processing solutions for web designers and developers.
• GDDY engaged in an accelerated share repurchase agreement (ASR) in August 2021 to repurchase shares of its Class A common stock for an upfront payment of USD 250.0 million. The ASR was completed in Q3FY21, with a total of 3,425 shares repurchased at an average price of USD 72.99 per share.

Balance Sheet & Liquidity Position

• Progress in Cash Balance: The company exited Q3FY21 with a cash balance of USD 1.14 billion, up 49.42% from USD 0.77 billion as of December 31, 2020.
• Improvement in Cashflow from Operations: Net operating cash inflow during 9MFY21 was USD 657.1 million vs. USD 598.7 million during 9MFY20.
• Rise in Debt Profile: As of September 30, 2021, GDDY's total outstanding debt was USD 3.89 billion, a 24.83% increase from the USD 3.11 billion at the end of FY20.

Key Metrics: In Q3FY21, GDDY's EBITDA and net margins were 17.3% and 10.1%, improving from 14.8% and 5.0% in Q2FY21, respectively. Its operating margin stood at 13.6% in Q3FY21, higher than the peer average of 10.2%.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 54.13% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and Capital International Investors hold the maximum stake in the company at 9.76% and 8.06%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Booking Concentration Risk: Bookings outside the United States accounted for roughly 32%, 33%, and 35% of GDDY's totals in FY20, FY19, and FY18, respectively. Hence, unexpected occurrences, such as geopolitical shifts, disturbances in US trade ties, and other concerns related to its operations globally might jeopardize its development prospects and harm its business.
• Third-Party Reliance: GDDY is in the process of moving away from company-owned and co-located data centers and toward third-party cloud computing and hosting providers. These third parties are sensitive to operational and technical interruptions, which may negatively impact its ability to deliver services and ultimately impact its business operations.
• Intense Competition: The company operates in a highly fragmented and competitive industry. Cloud-based solutions are also continuously developing, allowing new rivals to enter the market with point-solution goods. Greater industry competition may result in fewer sales, price reductions, lower margins, loss of market share, and increased marketing expenditures.
• Technological Risk: The level of traffic to GDDY's websites, the number of clients whose websites it hosts on its servers, and the availability of its customer care operations all significantly impact the company's income. As a result, any system malfunction or outage might result in unwanted publicity, notably on social media, harming the company's brand and financial outcomes.

Outlook

• Looking ahead, GDDY expects its Q4FY21 revenues to be over USD 970 million, reflecting an 11% increase YoY.
• Further, GDDY expects its FY21 revenues to be about USD 3.765 billion, reflecting a YoY boost of 14%. It also increased its FY21 unlevered free cash flow projection to over USD 960 million, reflecting a 16% growth.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the past nine months, GDDY corrected ~17.22%. The stock is currently leaning towards the lower band of its 52-week range of USD 66.46 to USD 93.75. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its market dominance in the domain name registration, strong profitability margins, and global market presence. We have taken peers like Verisign, Inc. (NASDAQ: VRSN), Squarespace, Inc. (NYSE: SQSP), and others. Considering the robust top and bottom-line performance, market dominance, strong track record, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 70.99, up ~0.05%, as of November 15, 2021, 9:43 AM ET.

GDDY Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.