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3 Reasons Why GoDaddy Stock Keeps Hitting New Highs

By Rick Munarriz - Sep 5, 2018 at 10:06AM

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Diversification, a thriving ecosystem, and a bottom-line turnaround have led to the leading domain name registration site to quadruple since going public in 2015.

The internet continues to pay off for GoDaddy (GDDY 1.97%). Shares of the fast-growing registrar are hitting fresh all-time highs this week, and the stock has soared 63% so far in 2018. GoDaddy shares have more than quadrupled since going public at $20 three years ago.

A steady string of strong financial results find analysts perpetually jacking up their price targets on the investment. Let's go over the reasons why GoDaddy remains one of the star pupils of the IPO class of 2015.

GoDaddy offices in Sunnyvale, California.

Image source: GoDaddy.

1. Diversification is the key

GoDaddy's bread-and-butter business is registering and renewing domain names, and in its latest quarter, domains revenue accounted for nearly half -- 47% -- of the $651.6 million that it rang up in revenue. There's nothing wrong with this business, and with domains revenue rising 16%, it's not exactly sandbagging the overall 17% in top-line growth.

It obviously doesn't hurt that GoDaddy uses dirt-cheap domain registrations as a way to get its foot in the door with dot-com hobbyists and potential entrepreneurs, breeding opportunities to cash in elsewhere. The balance of GoDaddy's business consists of selling hosting and presence (up 14%) and business applications (up 28%). 

There's also some healthy global diversification taking place at GoDaddy. International revenue rose 24% to $233.3 million in the second quarter, a hearty 36% slice of the revenue-mix pie. 

2. The GoDaddy ecosystem is addictive

GoDaddy knows how to draw a crowd. It had 18 million customers at the end of June. It's a big number, but it's just 7% more than where its client count stood last summer. The meaty metric here is average revenue user, up 10% to $142 over the past year. 

Whether GoDaddy is getting its customers to buy more domains, transfer over their digital digs from other registrars, or pay up for additional online services, all roads lead to better monetization of its platform. 

The polished ecosystem also makes acquisitions more valuable. GoDaddy recently paid $127 million -- plus up to $50 million in potential future earnouts -- for Main Street Hub. The acquired business provides small businesses with a seamless platform to manage engagement across social networking sites and review hubs. Main Street Hub had just 10,000 customers on its rolls when GoDaddy came knocking earlier this year. It's a fair bet that we'll see that number explode as the platform gets promoted to GoDaddy's 18 million users. 

3. Guidance keeps inching higher

GoDaddy has bumped its full-year revenue outlook in back-to-back quarters. It went from targeting 16% top-line growth for all of 2018 back in February to 18% in May and 19% in August. GoDaddy also bumped its free cash flow forecast higher. 

There was some skepticism at the time of its IPO. GoDaddy had a long history of losing money, but after 20 consecutive years of red ink, it finally turned a profit last year. GoDaddy is building on its bottom-line turnaround in 2018, posting better-than-expected earnings in each of this year's first two quarters. GoDaddy keeps raising the bar, and the stock chart is following suit. 

 

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