Intensified Cloud Competition Will Weaken Performance Yet Spur Renewal

Key Takeaways

• Intensifying competition and evolving technologies threaten long-term customer growth, pricing power, and differentiation in core and higher-value SaaS offerings.
  
• Regulatory, operational, and industry shifts could constrain profit margins and heighten risks to recurring revenue from domain and web presence services.
  
• Revenue growth and margin sustainability are threatened by early-stage product uncertainty, customer concentration risk, competitive pressures, mature market headwinds, and evolving AI-driven industry disruption.

Catalysts

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

• Although GoDaddy is well-positioned to capitalize on the accelerating digital transformation of businesses and the proliferation of small businesses globally, the company faces increasing competitive pressure from bundled web presence solutions offered by large cloud providers, which could limit new customer acquisition and compress average revenue per user in the long run, impacting top-line revenue growth.
  
• While the rollout of AI-powered features and integrated value-added services is driving higher ARPU and greater efficiency, GoDaddy risks insufficient differentiation in higher-value SaaS offerings compared to larger and more innovative peers, leading to potential challenges in conversion rates and customer retention, which may result in muted net margin expansion over time.
  
• Despite the clear benefits of operational leverage and automation through technology investments-demonstrated by improvements in normalized EBITDA margin and cash flow conversion-the company may encounter rising compliance costs and operational complexity due to anticipated global regulatory and privacy changes, which could disproportionately impact future margin growth.
  
• Although GoDaddy's expansion into international markets is creating new growth opportunities and driving 11% year-over-year international revenue growth, the ongoing industry consolidation and the growth of managed SaaS platforms could further intensify price competition and increase customer churn rates, constraining sustainable long-term revenue growth.
  
• While the increasing importance of cybersecurity favors GoDaddy as a trusted provider and supports demand for secure domains and digital identity solutions, the rise of decentralized web technologies and the potential obsolescence of traditional domains over the next decade present a significant structural risk to the durability of its core business and its recurring revenue base.

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 7.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 17.0% today to 19.2% in 3 years time.
• The bearish analysts expect earnings to reach $1.1 billion (and earnings per share of $8.69) by about August 2028, up from $808.5 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 23.1x on those 2028 earnings, up from 22.9x today. This future PE is lower than the current PE for the US IT industry at 28.8x.
• Analysts expect the number of shares outstanding to decline by 1.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.33%, as per the Simply Wall St company report.

GoDaddy Future Earnings Per Share Growth

Risks

• There is evidence of ongoing experimentation with pricing, bundling, and new product rollouts like Airo and Airo Plus, which are still early-stage and unproven at scale, potentially leading to volatility in revenue growth and average revenue per user if customer adoption or attach rates do not materialize as anticipated.
  
• The company has recently exited a registry business (.co), citing insufficient profitability, highlighting the risk that future product lines or segments could face similar competitive pressures, rebid losses, or margin compression, thus putting long-term revenue and net margin growth at risk.
  
• Management indicates that near-term customer count growth has faced residual pressure from migrations and renewal cycles, with growth only expected to return later this year, signaling possible longer-term saturation or headwinds in mature markets that could limit top-line revenue growth and customer acquisition efficiency.
  
• There is an explicit emphasis on targeting high-intent, higher-spend customer cohorts (> $500/year), which while accretive to ARPU and retention, increases reliance on a smaller customer subset; this concentration may amplify the impact on earnings and margins if competition intensifies for these higher-value customers or their churn rates increase unexpectedly.
  
• Although GoDaddy touts AI and Agentic technology as core differentiators, leadership acknowledges a lot of movements over the next 2 to 3 years as the AI capability improves, alluding to uncertainty around technology shifts, fast-moving competitive landscapes (including from managed SaaS platforms and integrated bundles), and the potential for new disruptive entrants or business models that could challenge GoDaddy's relevance-posing long-term risks to revenue growth and earnings sustainability.

Valuation

• The assumed bearish price target for GoDaddy is $150.0, which represents the lowest price target estimate amongst analysts. 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 $250.0, 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 $5.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $133.35, the bearish analyst price target of $150.0 is 11.1% higher.
  
• 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.