Airo's Global Expansion And SaaS Innovations Set To Skyrocket User Engagement And Profits

Key Takeaways

• Expansion of AI-powered services and focus on premium subscription plans could notably enhance user engagement, customer satisfaction, and drive high-margin revenue.
  
• Strategic pricing, bundling, and capital allocation aimed at increasing EPS could bolster investor appeal and potentially uplift the company's market valuation.
  
• Dependency on new initiatives like Airo for growth and proactive divestitures may reduce customer base, posing risks to future revenue and profitability amidst operational inaccuracies and unpredictable aftermarket sales momentum.

Catalysts

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

• The rollout and expansion of GoDaddy Airo, an AI-powered experience, into English-speaking markets and the planned expansion into over 90 countries could significantly enhance user engagement and conversion rates, positively impacting revenues and ARPU (Average Revenue Per User).
  
• The implementation of GABI, GoDaddy's AI-powered guide assist bot, which supports over 60 languages, can improve operational efficiency and customer service, potentially leading to cost savings and higher customer satisfaction, which may enhance customer retention and contribute to revenue growth.
  
• The introduction of new SaaS plans like Point-Of-Sale Plus and Invoicing Plus, which offer premium features and discounted transaction fees, could drive higher-margin subscription revenue, positively influencing net margins.
  
• The continued focus on pricing and bundling strategies, led by productivity solutions, has been a significant growth driver for Applications & Commerce bookings. This approach could continue to drive revenue growth and customer base expansion.
  
• The disciplined capital allocation strategy focusing on share buybacks and reducing fully diluted shares outstanding could positively impact EPS growth, making the stock more attractive to investors and potentially leading to an upward revaluation of the stock.
  

Assumptions

• Analysts are assuming GoDaddy's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 40.7% today to 21.3% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $9.32) by about August 2027, down from $1.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $816.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.7x on those 2027 earnings, up from 12.3x today. This future PE is lower than the current PE for the US IT industry at 28.3x.
• Analysts expect the number of shares outstanding to decline by 4.18% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.34%, as per the Simply Wall St company report.

Risks

• The proactive divestiture and migration efforts leading to a slight customer count decline could negatively affect future revenues by reducing the overall customer base, potentially impacting revenue growth.
  
• The risk associated with the dependency on the success of new initiatives like Airo for future growth and profitability, as early data on monetization are not yet conclusive, could affect net margins and earnings if these initiatives do not perform as expected.
  
• The overestimated domains under management due to errors related to European TLDs, despite the correction not impacting financial forecasts, presents risks related to operational inaccuracies that could undermine investor confidence and potentially impact revenue predictions.
  
• Despite strong Q2 results, the continued strength and momentum in aftermarket sales being hard to predict, especially considering macroeconomic impacts, could lead to volatility in revenue and margins, affecting stable growth expectations.
  
• The capital allocation strategy focusing significantly on share buybacks, while supportive of shareholder value, could limit available capital for investment in growth opportunities or innovation, potentially impacting long-term revenue growth and net leverage ratios.

Valuation

• The analysts have a consensus price target of $166.0 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 $190.0, and the most bearish reporting a price target of just $120.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.5 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $156.84, the analyst's price target of $166.0 is 5.5% higher. The relatively low difference between the current share price and the analyst consensus 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.