Airo Platform And Bundling Will Deliver Future Success

Key Takeaways

• Strategic pricing initiatives and high-margin product integrations are enhancing revenue growth and net margins, minimizing churn and boosting long-term earnings.
  
• Focus on high-value customers and innovative AI-driven platforms strengthens customer retention, with share buybacks poised to increase shareholder value.
  
• Economic uncertainty, high debt, and execution risks on new initiatives could impact GoDaddy's revenue, growth, and long-term earnings.

Catalysts

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

• GoDaddy's pricing and bundling initiative is described as a multiyear strategy, which delivered ahead of expectations in Q1 2025. This is likely to enhance revenue growth as it continues to create customer value and minimize churn across its segments.
  
• The integration of high-margin products such as GoDaddy Capital and same-day payouts into GoDaddy's commerce offerings indicates potential for increased net margins. These are gaining traction despite being relatively new offerings.
  
• The company's strategic focus on attracting high-intent, higher lifetime value customers is showing positive results through higher average order sizes and improved customer retention, potentially boosting long-term earnings growth.
  
• GoDaddy's Airo platform, utilizing AI to enhance customer experiences and increase product adoption, is driving improved attach rates and renewals. This development may lead to increased revenue through cross-selling and upselling of additional products and services.
  
• The commitment to share buybacks, with a new $3 billion authorization through 2027, suggests an intention to enhance earnings per share (EPS), providing a potential boost to shareholder value if the stock is currently undervalued.

GoDaddy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GoDaddy's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 21.5% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $9.48) by about May 2028, up from $754.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 34.5x today. This future PE is lower than the current PE for the US IT industry at 31.8x.
• Analysts expect the number of shares outstanding to grow by 1.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.

GoDaddy Future Earnings Per Share Growth

Risks

• Global economic uncertainty and pressure on small business sentiment could affect customer spending, impacting GoDaddy's revenue and net margins.
  
• The success of Airo and other AI-driven initiatives remains uncertain as they are in early stages, posing risks to the expected long-term earnings.
  
• A shift in focus towards higher-intent customers might not fully offset a potential decline in total customer base, affecting revenue growth.
  
• The integration and monetization of third-party products through bundling are subject to testing outcomes and may face execution challenges, impacting future bookings and profitability.
  
• High debt levels (net leverage of 1.9x) could pose a financial risk if there are adverse changes in cash flow or credit markets, affecting net margins and earnings.

Valuation

• The analysts have a consensus price target of $210.752 for GoDaddy based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $182.54, the analyst price target of $210.75 is 13.4% 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.