GDDY: Continued AI Expansion Will Drive Future Small Business Opportunities

Key Takeaways

• Accelerated AI adoption and integrated SaaS offerings are boosting retention, average order value, and profitability through higher-margin, recurring revenue streams.
  
• Strategic ecosystem expansion from domain services into commerce and marketing enhances cross-selling, cash flow, and resilience against market headwinds.
  
• Rising competition, customer churn, pricing pressure, and execution risk on new products threaten GoDaddy's margins, market share, and long-term profitability in an evolving digital landscape.

Catalysts

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

• The increasing need for online presence among small and medium businesses, coupled with greater global internet adoption, is driving expansion in GoDaddy's addressable market-reflected in double-digit growth for high-margin Applications & Commerce (A&C) revenue and bookings. This is likely to support sustained top-line growth.
  
• Rapid rollout and growing penetration of AI-powered solutions such as Airo and Ask Airo are leading to higher attach rates, near-perfect retention among higher-intent customer cohorts, greater average order size, and strong ARPU growth (up 10% to $230)-all supportive of rising net margins and long-term earnings leverage.
  
• Large-scale adoption of subscription-based SaaS and bundling initiatives, enabled by accelerated AI-driven product development, is shifting revenue mix toward recurring and higher-margin streams, improving revenue predictability and EBITDA margin expansion (targeting 33% by 2026).
  
• Enhanced cross-sell and up-sell capabilities, especially through AI-powered seamless experiences, are compounding growth within GoDaddy's significant SMB base-boosting ARPU and conversion rates, which directly benefit free cash flow and profitability.
  
• Strategic focus on building an integrated ecosystem starting from GoDaddy's dominant domain registration position, and moving customers seamlessly into commerce, marketing, and value-added services, positions the company to capitalize on long-term digitalization and recover faster from cyclical headwinds, strengthening both revenue and cash flow growth.

GoDaddy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GoDaddy's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.0% today to 21.3% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $9.57) by about September 2028, up from $808.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $991.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.4x on those 2028 earnings, up from 25.5x today. This future PE is lower than the current PE for the US IT industry at 29.0x.
• Analysts expect the number of shares outstanding to decline by 1.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.41%, as per the Simply Wall St company report.

GoDaddy Future Earnings Per Share Growth

Risks

• The rapid advancement and widespread adoption of no-code/low-code solutions and all-in-one platforms (such as Shopify, Wix, and Squarespace) could reduce demand for GoDaddy's traditional domain registration and do-it-yourself web hosting, potentially resulting in long-term revenue pressure as SMBs migrate to more integrated competitors.
  
• Intense competition from global cloud providers (like AWS, Google Cloud, and Microsoft Azure) and the risk of further industry consolidation may compress margins and erode GoDaddy's market share over time, which could dampen both revenue growth and long-term earnings potential.
  
• Persistently high levels of customer churn-particularly among lower-spending, single-product SMB customers-and exposure to pricing pressures could increase costs associated with new customer acquisition and limit the overall expansion of average revenue per user and net margins.
  
• Heavy reliance on continuous product bundling, upselling, and aggressive experimentation in AI-driven customer experiences poses execution risk: if the new AI-powered initiatives (such as Airo and Ask Airo) fail to resonate broadly or are matched by competitors, it could constrain long-term ARPU and high-value cohort growth, directly impacting net margins and earnings.
  
• The evolving landscape of SEO, online traffic sources, and regulatory or cybersecurity challenges increases operational complexity and expense; rising compliance and security costs, or shifts in how small businesses are discovered online, could erode GoDaddy's profitability and constrain future free cash flow growth.

Valuation

• The analysts have a consensus price target of $192.529 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 $5.9 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 26.4x, assuming you use a discount rate of 9.4%.
• Given the current share price of $148.88, the analyst price target of $192.53 is 22.7% 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.