Customer Targeting And Airo Launch Will Offset Risks

Key Takeaways

• Shifts in pricing, bundling, and marketing investment strategies risk slower revenue growth and impact EBITDA margins if customer adoption lags.
  
• Reliance on infrastructure simplification and talent recruitment for cost management faces potential pressure on net margins without significant improvements.
  
• GoDaddy's focus on customer value transformation and strategic innovations drives strong revenue growth, increased cash flow, and improved profitability through enhanced customer engagement and retention.

Catalysts

Engages in the design and development of cloud-based products in the United States and internationally.

• GoDaddy's focus on pricing and bundling is shifting towards specific customer cohorts. If these initiatives do not deliver the expected uplift, it could lead to slower revenue growth amidst challenges in segmenting and addressing distinct customer needs effectively.
  
• The company's strategic pivot towards Airo and front-loading marketing investments might not translate into immediate financial gains, posing a risk to revenue and EBITDA margins in the near term if customer adoption and monetization are slower than anticipated.
  
• GoDaddy's historical reliance on enhancing profit margins through infrastructure simplification and global talent recruitment could face challenges in maintaining cost optimization, resulting in potential pressure on net margins without significant operational improvements.
  
• Currency headwinds are expected to impact revenue, particularly in international segments, creating downside risks to overall revenue projections and possibly affecting earnings if exchange rate impacts are greater than anticipated.
  
• The potential slowdown in aftermarket growth, especially if large transactions do not materialize as expected, could exert pressure on revenue, impacting both immediate quarterly results and long-term revenue growth prospects.

GoDaddy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on GoDaddy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming GoDaddy's revenue will grow by 5.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 20.5% today to 22.3% in 3 years time.
• The bearish analysts expect earnings to reach $1.2 billion (and earnings per share of $7.77) by about April 2028, up from $936.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 27.5x on those 2028 earnings, up from 25.9x today. This future PE is lower than the current PE for the US IT industry at 33.9x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

GoDaddy Future Earnings Per Share Growth

Risks

• GoDaddy's strategy is focused on customer value and transformation into shareholder value, leading to strong revenue growth and EBITDA margin expansion, which positively impacts revenue and earnings.
  
• The company achieved a 25% increase in free cash flow in 2024, linked to strong execution and growth across key areas like Applications & Commerce and Core Platform, boosting net margins and free cash flow.
  
• Innovations such as GoDaddy Airo and GoDaddy Capital have contributed to strong customer engagement and facilitated access to capital for small businesses, potentially increasing revenue and customer retention.
  
• With a focus on high-quality customers and strategic pricing and bundling efforts, GoDaddy sees potential for continuous growth in average order size and customer retention, thereby improving profitability and revenue.
  
• The expansion of the Airo platform has resulted in strong initial success, with a high percentage of website subscriptions starting through Airo, potentially leading to higher conversion rates and net margins.

Valuation

• The assumed bearish price target for GoDaddy is $182.54, which represents one standard deviation below the consensus price target of $215.81. This valuation is based on what can be assumed as the expectations of GoDaddy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $275.0, and the most bearish reporting a price target of just $150.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 27.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $171.78, the bearish analyst price target of $182.54 is 5.9% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.