Airo Plus And Managed WordPress Will Transform Hosting

Key Takeaways

• Improved bundling and pricing strategies in the hosting business could drive significant revenue growth and better product offerings by 2025.
  
• Seamless customer experiences and cost optimizations through AI and technology can enhance revenue, engagement, and operating efficiencies, boosting net margins.
  
• Strategic shifts and marketing investments may pressure short-term metrics, while currency challenges and customer base decline could impact growth and financial stability.

Catalysts

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

• GoDaddy's pricing and bundling strategy is expected to drive significant growth by targeting presence products and specific customer populations within the hosting business in 2025, impacting revenue growth positively through enhanced product offerings.
  
• The seamless experience initiative, which includes the enhanced Managed WordPress platform and Airo Site Designer, is set to improve conversion, renewal rates, and engagement, leading to increased revenue and potentially better net margins as customer satisfaction improves.
  
• The rapid growth in Annualized Gross Payment Volume (GPV), due notably to GoDaddy's commerce initiative, signals a strong upside in transactional payments, potentially boosting revenue and improving net margins due to higher-margin subscription products.
  
• The GoDaddy Airo initiative, including the newly launched Airo Plus, is expected to significantly uplift customer engagement and monetization rates, driving higher average revenue per user (ARPU) and contributing positively to revenue and earnings.
  
• Continued cost optimization efforts, leveraging technology and artificial intelligence for better service delivery, are projected to increase operating efficiencies, thereby enhancing net margins and supporting sustained earnings growth.

GoDaddy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on GoDaddy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming GoDaddy's revenue will grow by 9.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 20.5% today to 24.7% in 3 years time.
• The bullish analysts expect earnings to reach $1.5 billion (and earnings per share of $10.5) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 30.6x on those 2028 earnings, up from 25.9x today. This future PE is lower than the current PE for the US IT industry at 33.3x.
• 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 8.2%, as per the Simply Wall St company report.

GoDaddy Future Earnings Per Share Growth

Risks

• Ongoing currency headwinds are expected, particularly in the first half of the year, which could slow revenue growth and affect consolidated financial results.
  
• A proactive strategic focus on platform integration, including divestitures and product end-of-life efforts in the hosting business, has tempered growth and could continue to impact core platform bookings and related revenues.
  
• The company's ambitious marketing investments, especially around the Airo launch, although positioned for long-term value, could pressure short-term margins and earnings.
  
• Efforts to attract high-value customers, including ending deep discounting, have led to a decline in overall customer base, which may negatively influence booking growth if not effectively countered.
  
• Potential FX impacts and headwinds from transactional businesses could introduce volatility and affect top-line growth, negatively influencing future revenues.

Valuation

• The assumed bullish price target for GoDaddy is $250.32, which represents one standard deviation above the consensus price target of $217.03. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be $6.0 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 30.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $171.65, the bullish analyst price target of $250.32 is 31.4% 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.