GoDaddy: Expanded Services Can Bring Growth; Buy (NYSE: GDDY)
I disagree with the Hold rating that Seeking Alpha’s quantitative rating algorithm gave GoDaddy, Inc. (NYSE: GDDY). GoDaddy’s decades-long survival in the web hosting industry is At first glance proof of his tenacity and shine. GDDY’s TTM revenue CAGR is 12.70%. Seeking Alpha’s Hold rating for GDDY is largely due to its growth rating of D+.
The authors of Seeking Alpha have a consensus rating for GoDaddy Inc. My dissenting opinion is that GDDY deserves a buy recommendation. This article will show that GoDaddy has other redeeming qualities. Other authors and AI from Seeking Alpha’s quantitative platform are not happy with GoDaddy due to this 12.70% CAGR of TTM revenue.
GoDaddy’s 10-year average CAGR is 16.03%. The graph below clearly illustrates that GoDaddy tends towards a CAGR of 11% or less.
GoDaddy has no chance of meeting this “at least 20% CAGR of revenue” requirement for growth stock status. Amazon (AMZN), Microsoft (MSFT) and Google (GOOG) (GOOGL) provide web hosting services. These cloud computing giants are the headwinds of GoDaddy’s core business. Amazon Web Services’ $1-$3 monthly web hosting plans partly explain GoDaddy’s lower revenue CAGR.
On the other hand, GoDaddy’s growth prospects are enhanced by its reseller and affiliate programs. A developer like me can build dozens of WordPress-built web hosting sites under my custom Asia-centric brand, but powered by GoDaddy’s server network.
Always number one and profitable
My buy rating for GDDY is due to its resilience. It still hosts 15.6% of all websites, making it number one. Its closest competitors are Amazon Web Services with 11.1% market share and Google Cloud with 7.9%. GoDaddy has over 21 million paying customers.
AWS or Google Cloud can only become number one in web hosting if one of them buys GoDaddy. Those 21 million GoDaddy followers include us, UpWork contractors and contractors. Consolidation is a must as the web hosting industry is growing at 16.89% CAGR. This particular activity is expected to become a $288.29 billion industry by 2030.
Fortune Business Insights believes the global web hosting industry is growing at a CAGR of 18% and will be worth $267.10 billion by 2028. Data Bridge Research’s own forecasts indicate that this industry is growing at a 15.87% and will be worth $254.86 billion by 2029.
We can safely assume that GoDaddy is the leader in an industry that is seeing 16% CAGR growth.
Web hosting is not a high margin business. GDDY consistently earns an A+ profitability rating from Seeking Alpha’s Quantitative Equity Valuation Algorithm.
GoDaddy’s TTM net income margin is only 8.58%. That’s more than 109% above the IT industry average of 4.10%. GoDaddy does better than the majority of its peers in the industry. This 8.58% TTM net income margin is well above GoDaddy’s 5-year average margin of 0.47%.
GDDY prides itself on improving profitability despite growing competition.
Is GoDaddy overrated?
The Hold rating that other Seeking Alpha and Seeking Alpha Quant authors have given to GDDY can also be attributed to its high valuation ratios. Based on the comparison chart below, GDDY’s GAAP TTM P/E of 37.37x is significantly higher than GOOG’s 19.79. On the other hand, the P/E valuation of GDDY is extremely lower than AMZN’s 107.33x.
The significant difference between AMZN’s 37.37x and 107.37x is a market aberration. This bias is unjustified. GoDaddy’s annual revenue CAGR of 12.70% is higher than AMZN’s 9.61%. AMZN’s TTM net income margin is a paltry 2.39%, well below GDDY’s 8.58%. In terms of efficiency, GDDY has a higher Piotroski score than AMZN, 6 versus 5.
GoDaddy is therefore not overvalued compared to no. 2 Amazon web host. Be happy that the much smaller GoDaddy can outperform a $1.23 trillion company like Amazon.
Low-margin domain name sales and web hosting activity could worsen. Amazon is the ancestor of selling low margin products/services. Fortunately, GoDaddy does not sit idle.
GoDaddy is not just a provider of domain names and web hosting services. It is a premium email and Microsoft 365 reseller. Serving as a Microsoft affiliate could help GoDaddy improve its sales and profitability.
Let’s be happy that GoDaddy is selling affordable business email and Microsoft 365 subscriptions to Filipinos like me. The exchange rate is $1 = 58 Philippine pesos. The super-cheap Microsoft 365 isn’t for everyone. This is only for GoDaddy’s best customers.
GoDaddy also allows its customers to take advantage of its subscription-based web security and encryption services. The 299 pesos ($5.16) per month WordPress hosting probably needs GoDaddy’s 339 pesos or $5.84/month web security service. More affluent website owners can benefit from GoDaddy’s SSL and encryption service.
GoDaddy markets the GoDaddy Studio alternative at $9.99/month to the Canva Pro at $12.99/month. Like Canva, GoDaddy Studio is a template-based design Android/iOS app that helps everyday people create awesome logos, brochures, newsletters, and other marketing graphics.
Finally, GoDaddy offers its own digital marketing suite. It is an email campaign/social media/SEO marketing service that costs from $9.99 to $29.99 per month. We should gauge GDDY’s investment quality by calculating its future role in the fast-growing global digital marketing service (19.1% CAGR). GoDaddy’s venture into the $56.52 billion digital marketing industry is worth watching. In my opinion, GoDaddy should only focus on one or two segments of digital marketing. The competition with the all-in-one digital marketing platforms of Google and Facebook (META) is not optimal.
The email marketing industry is a growing opportunity. GoDaddy can laser focus on the 17% CAGR of email marketing. It is estimated at $12.4 billion this year and will reach $59.8 billion by 2032.
GoDaddy persists as no. 1 host. This despite the daunting challenge from AWS and Google Cloud. Declining CAGR sales growth is not a dealbreaker as GDDY has increasing profitability.
GoDaddy has branched out into web security, template-based design services, and digital marketing. These non-essential subscription services could help GoDaddy improve its revenue and bottom line.
Go long on GoDaddy and be happy. I think it could possibly be acquired by Amazon, Microsoft or Google. This estimated 16% CAGR of the web hosting market could actually increase. Blame it on the growing popularity of PWAs (Progressive Web Apps) and WebAssembly. It is highly desirable that GoDaddy start marketing itself as an affordable host of PWA and WebAssembly applications.
Becoming a reseller of Microsoft Azure Application Hosting services is an option for GoDaddy. Application hosting will require large expenditures on server infrastructure.
GoDaddy could be transformative and become a tolerant host of cloud gaming, online betting/gambling, and AR/VR dating sites.
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