3 Key Ideas Behind GoDaddy's Business Model

GoDaddy (GDDY 0.04%), a leading domain name registrar and rising provider of cloud-based tools for small to medium businesses, reported third-quarter results after the closing bell on Wednesday. The analyst consensus was calling for earnings near $0.21 per share on revenues in the neighborhood of $761 million. GoDaddy crushed the earnings target while falling just short of sales estimates. Investors embraced that mixed report, driving share prices 10% higher in the after-hours trading session.

GoDaddy's third-quarter results by the numbers

Data source: GoDaddy. GAAP = generally accepted accounting principles.

What's going on with GoDaddy?

• The total top-line growth followed from a combination of rising customer counts and higher service prices. GoDaddy's customer roll grew by 5% to 19.1 million names, while the average revenue per user (ARPU) rose 7% to $155 per year.
• Order bookings increased by 15% year over year to $851 million, outpacing the company's top-line results both in terms of revenue growth and the current book-to-bill ratio. That's a pretty clear sign that GoDaddy's sales growth should accelerate over the next few quarters.
• The lion's share of GoDaddy's sales growth rested on its smallest reporting segment, which also happens to be on the quickest growth trajectory. Sales of business applications rose 22% year over year, landing at $130 million. The company is enjoying strong customer uptake of Microsoft's Office 365 email and productivity tools, hosted and supported by GoDaddy through a unified subscription portal.

Image source: Getty Images.

3 core concepts from the corner office

In the earnings call, GoDaddy CEO Aman Bhutani ended his prepared remarks with three points of paramount importance to GoDaddy and its investors.

"One, GoDaddy sits in a privileged position relative to a massive opportunity," Bhutani said. "Two, our brand is differentiated in the minds of our customers, and we will be leaning into guidance, seamlessly intuitive experiences, and activating our community. And three, our execution focus will be on strengthening our platform, increasing our experimentation, and continually accelerating our product. "

In this context, "guidance" doesn't refer to financial targets but to the concept of keeping GoDaddy's business tools intuitive and thoroughly explained so its users can focus on running their business rather than on learning how to maintain their websites, online shopping carts, and domain names.

The three core tenets outlined above will form the heart of GoDaddy's strategy over the next several years, Bhutani explained. "These are the underpinnings of our ability to increase value to our customers and financial outcomes for our shareholders for years to come."

CFO Ray Winborne added his own verse to that tune, reinforcing Bhutani's second point.

"There is a huge opportunity in serving the needs of the everyday entrepreneur, and we're excited about delivering on the promise of making the GoDaddy experience seamlessly intuitive," Winborne said.

What's next for GoDaddy?

The company reiterated its full-year revenue guidance of approximately $3 billion at a year-over-year growth rate of roughly 12%. This implies a fourth-quarter reading in the neighborhood of $782 million, 12% above the year-ago result. Likewise, its full-year target for free cash flows held steady at a 19% increase or approximately $735 million.

If the 10% after-hours price gain holds up in the morning, GoDaddy's stock will be back almost exactly where it was a full year ago. This ticker trades like a proper growth stock, more directly supported by rapid revenue growth than by strong bottom-line profits. The price-to-earnings ratio sits north of 100 times adjusted earnings. So it's no surprise to see GoDaddy's stock swinging wildly on the quality of each earnings report, and this was a strong one.