This article is proudly sponsored by the Business Ethics Team at the University of Texas at Austin!
About GoDaddy
It’s quite simple, really.
We’re just really big fans of the Bossy Aussie, the Astonishing Australian, Melbourne’s most talented basketball phenom, up-and-coming National Basketball Association (NBA) superstar who plays for the Oklahoma City Thunder, Josh Giddey, hence the selection of today’s ticker symbol.
Well, ok, not really, but if you know anything about us you know we like basketball, so deal with it.
What we’re actually going to be spending most of our time on is analyzing the core financials of one of the more prominent internet domain registration companies and databases, among other things, Scottsdale, Arizona-headquartered GoDaddy.
The company makes a major chunk of its total annual revenue from basically being a broker when it comes to domain names, which are pretty much any “.com” or “.net” or any other host of domain styles that you type to access some of your favorite or most commonly viewed web pages.
Let’s take our website for example.
If you go to GoDaddy’s website, type in “macrohint.com,” you will find that this domain name is taken (who would’ve thought?) but the company expresses that they “might be able to help you get it.”
For this sort of service, the company asks for a fee of $69.99 from the interested party.
It is our estimation that each time one does this it leads to a fairly tidy profit for GoDaddy and as more and more influencers, businesses and other entities come out of the woodworks and look for more ways to connect with others across the World Wide Web, more will naturally seek to purchase already taken domains that they’re interested in and use GoDaddy as the broker.
Along a few other supplemental lines of business and streams of revenue such as website development, web hosting and digital marketing, GoDaddy has put together quite a solid business for itself and has seemingly largely remained abreast with the competition in each respective market it operates within.
Even if this is actually the case, it would serve a prospective investor well to perform some analysis in efforts of determining whether or not the company and its stock in question is worth considering investing in for the long haul.
GoDaddy’s stock financials
With a share price of $71.86, a market capitalization of $11.1 billion, a price-to-earnings (P/E) ratio of 34.44 and no annually distributed dividend to its shareholder base, GoDaddy’s stock appears to be a bit overvalued according to its present price-to-earnings ratio.
Specifically, given that it is well above the standard fair value benchmark of 20, it doesn’t seem as though getting in on this company’s stock (NYSE: GDDY) at fair value or at a discount for that matter is in the cards right now.
Nevertheless, growth, at times, can justify paying up for a company’s stock.
Additionally, we’re not bummed or taken aback by the fact that GoDaddy doesn’t issue a consistent annual dividend to its shareholders given that it would act as a cash drain for the company, as it operates in an industry that particularly demands constant investment and reinvestment.
Let’s get a little more familiar with this company’s financials and its overall growth.
First, looking at the state of the company’s balance sheet, GoDaddy’s executive team is tasked with tending to around $7 billion in terms of total assets and total liabilities in the amount of just north of $7.3 billion.
This doesn’t scare us but it certainly spooks us.
We would’ve expected this company to be somewhat total liability-heavy (however, not maintaining more total liabilities than total assets, just having a healthy amount of debt on its books relative to its total assets) given the intense amount of investment and reinvestment that is required to solidify its spot at the top, however, we didn’t expect it to have more total liabilities than total assets given how mature this company is, especially relevant to its peers in the domain registrar industry.
However, it can be said that competition within the website development space as a whole is heating up immensely, thus the heightened amount of total liabilities on its books, as it needs to fund its growth and hold its ground against the opposition somehow.
This isn’t the end of the world but we would further implore ourselves to do more research on why this happens to be the case for this company, if not just spending to hold its ground in the website development and registrar areas.
As it relates to the company’s income statement, GoDaddy’s total annual revenues have been steadily rising since 2018, which is a good sign, especially throughout the last handful of rather rough years for the economy.
For instance, the company’s total annual revenues stood at around $2.6 billion in 2018, rose the following year to almost $3 billion, leading all the way up to its latest reported figure (on TD Ameritrade’s platform) of nearly $4.1 billion, as reported in 2022.
To us, this indicates that the company is either doing a solid job at expanding its product and service offerings or it is adding new customers to its current product lines and services.
Or maybe both.
Either way, we’re happy campers.
With respect to the company’s cash flow statement, GoDaddy’s net income has been positive and stable overall, excluding, of course, its 2020 figure of -$494 million, which to a certain degree was to be expected given the state of the economy at the time and the fact that the company likely opted to write-down some of its losses in that era.
Nevertheless, total cash from operations during each year between 2018 and 2022 remained positive (yes, even during 2020), which speaks a bit to the company’s ability to generate cash from its mere existence and operation, which can be somewhat uncommon for technology platforms such as GoDaddy’s.
This is a plus.
GoDaddy’s stock fundamentals
When taking a gander at how the company’s trailing twelve month (TTM) net profit margin compares to the industry’s average, there lies yet another plus.
Specifically, according to TD Ameritrade’s platform, GoDaddy’s TTM net profit margin sits at 8.04% to the industry’s average of -3.38%, which is frankly better than what we had initially anticipated, but probably comes with the territory of being a leader in the domain registrar sector.
Lastly, when it comes to the company’s TTM returns on assets and investment(s), GoDaddy’s respectively stand at 4.74% and 7.44% to the industry’s respective averages of 1.78% and 5.48%, which is another point of favor for GoDaddy, as these metrics generally imply that this company is objectively better than the industry (on average) at attaining returns on its projects and other business initiatives.
Should you buy GoDaddy stock?
Barring the company’s current valuation, GoDaddy has a lot of wind pushing its back.
Its TTM returns on both assets and investment(s) trump the industry’s averages, its TTM net profit margin does the exact same, its revenues have been growing and from a broad vantage point, the demand for its products and services aren’t likely to subside anytime soon.
However, with a just ok balance sheet and its valuation being far too rich, we view ourselves as having little to no choice in giving the company’s stock a “sell” rating until its share price comes down to fair, reasonable levels.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.