Godaddy Inc (NYSE:GDDY) is Arizona-based web hosting and domain name registration company, having a market cap of more than $8 billion. The ‘digital real estate giant’ provides domain name registration, web hosting, cloud business apps, and online marketing services, currently serving around 17 million customers worldwide and managing more than 72 million domain names. The company generated a total revenue of $1.85 billion in 2016, compared to $1.61 billion in 2015, $1.39 billion in 2014, and $1.13 billion in 2013. GDDY is believed to be a high growth stock but investors are getting worried about the continuous slowdown in customer growth and an intensifying competition from companies such Wix.com. I did some research on GDDY and found some important information that might help you in deciding whether or not GDDY is a good stock to buy. In this article, we will take a look at an investment thesis on Godaddy published in Value Investors Club in November by a user Fletch.
According to the thesis, Godaddy Inc (NYSE:GDDY) is the global leader in domain name registration space, managing more than 21% of 335 million domain names worldwide. Such a strong position allows GDDY “to have low customer acquisition costs, high retention rates and ability to sell additional products.” The thesis suggests that GDDY has “multiple ways of growing revenue” and the company is expected to grow its revenue more than “10% for the next five years.”
To compete with Wix.com and other companies in the website customization space, according to the thesis, Godaddy is spending heavily to improve its applications. The company’s “name recognition and low customer acquisition costs should allow them to catch up in the growth of this business,” the thesis said.
While talking about the valuation, Fletch noted in the thesis that “GDDY trades at a discount” to competitors. However, Fletch believes that “GDDY should trade at a premium,” considering the company’s “recurring revenue business, market leadership and consistent growth profile.”
The thesis said:
“I believe in a year, when investors start focusing on 2019 numbers, GDDY should trade at $65 which is 20x 2019 free cash flow or 15x the free cash flow when including the changes in working capital.”
Currently, the stock is trading at around $51.40.
Meanwhile, the thesis suggests that Godaddy Inc (NYSE:GDDY) will be able to pay the majority of its debt balance with cash in just a few years. The company had a total debt of $2.44 billion at the end of the third quarter. As far as the slow customer growth rate is concerned, the thesis said that Godaddy’s recent acquisition of Host Europe Holdings Limited will open up the European market for the company and “customer growth should accelerate in the upcoming quarters.”
Per thesis, catalysts for the stock include mergers and acquisitions, continued payment of debt, dividend/share repurchase announcement, continued solid execution, and further sales by private equity sponsors. As you may already know, Godaddy does not pay any dividend at the time.
Shares of Godaddy’s stock have performed well in 2017. Since the publication of the above investment thesis around 45 days ago, the value of the company’s stock has jumped 4.26%. Meanwhile, over the last 12 months, the share price has increased more than 46%, versus a gain of 22% in the S&P 500 index over the same period. Shares of Godaddy Inc (NYSE:GDDY)’s two main competitors, Web.com and Wix.com, have climbed up 22.76% and 22.21%, respectively, over the last 12-month period.
Meanwhile, GDDY is a popular stock among the hedge funds tracked by us at Insider Monkey. According to our database, there were 34 funds at the end of the second quarter with bullish positions in the web hosting giant.
Disclosure: I do not hold any positions in the companies/stocks that are discussed/mentioned in this article.