GoDaddy (GDDY) Benefits From Strong Portfolio, Risks Persist

On Jan 12, we issued an updated research report on GoDaddy Inc. (NYSE:GDDY) .

GoDaddy is engaged in the designing and development of cloud-based technology products for small businesses, Web design professionals and individuals.

Growth Drivers

Notably, GoDaddy has outperformed the industry on a 12-month basis. Shares of the company have gained approximately 46.2% compared with the industry’s growth of nearly 45.8% in the same time period.

GoDaddy has a well-diversified product portfolio, which will continue to drive its revenue base. The most important among these is the growing demand for security products. Given that cybercrime is increasingly becoming a concern, GoDaddy has been continuously investing in security and compliance technology.

Recently, the company announced the expansion of its security product portfolio with the launch of GoDaddy Website Security. Also, GoDaddy's new mobile-optimized website builder, GoCentral, has been gaining momentum and will be contributing to the company's top-line growth.

GoDaddy’s focus on international expansion keeps the growth prospects high. The company has more than 5 million customers outside of the United States, notably Canada, India and the United Kingdom. In 2016, GoDaddy derived approximately 28% of the total bookings from international sales compared with 25% and 26% in 2014 and 2015, respectively.

In order to continue expanding its international presence, the company is investing in technology, marketing programs and customer care teams. Moreover, the acquisition of HEG will help the company in increasing its customer base by more than 40%, thus further expanding its international business.

GoDaddy is quite active on the acquisition front. Last year, the company completed the acquisition of Host Europe Group (“HEG”), a European web hosting provider, for €1.69 billion (US$1.79 billion). The deal will strengthen GoDaddy’s foothold in the European market. In 2016, the company acquired Serbia-based WordPress site management tool maker, ManageWP. This deal will enable GoDaddy to provide a single destination for web professionals to manage their WordPress sites. The acquisition was intended to augment GoDaddy’s portfolio and build its global market share.

Positive Earnings Surprise History: GoDaddy has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive earnings surprise of 120.8%.

Headwinds

The company has a high debt burden of more than $1 billion. This in turn will take up a lot of cash flow to cover interest payments and make it difficult for the company to navigate if the economy weakens. The debt has to be paid off or refinanced in 2019 and 2021. There remains a risk that lenders might be unwilling to finance the company then and interest rates could also Increase. This will make it harder for GoDaddy to earn profits.

GoDaddy faces intense competition in domain, hosting and presence markets from companies like Endurance, Rightside, and Web.com, as well as Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), which provide web-hosting and other cloud-based services. Along with these big cloud companies, a lot of small hosting companies offer extremely affordable services.

Zacks Rank & Stocks to Consider

GoDaddy carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are ASML Holding (AS:ASML) N.V. (NASDAQ:ASML) , Lam Research Corporation (NASDAQ:LRCX) and PetMed Express, Inc. (NASDAQ:PETS) , each sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for ASML Holding, Lam Research and PetMed Express is projected to be 22.6%, 14.9% and 10%, respectively.

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