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Here's How GoDaddy Beat the Street Again

By Anders Bylund – Feb 20, 2020 at 8:21AM

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The cloud services specialist is not afraid to spend generously on R&D efforts to drive the company forward.

GoDaddy (GDDY 0.11%) reported fourth-quarter results last Thursday evening. The provider of domain name services and other cloud-based business tools edged out Wall Street's revenue estimates and beat the Street's earnings targets by a much wider margin. The report carried strong echoes of November's third-quarter update, only with a stronger top-line increase.

GoDaddy's fourth-quarter results by the numbers

Metric

Q4 2019

Q4 2018

Change

Analyst Consensus

Revenue

$780 million

$696 million

12%

$777 million

GAAP net income attributable to GoDaddy

$61 million

$43 million

42%

N/A

GAAP earnings per share (diluted)

$0.34

$0.24

42%

$0.31

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

What makes GoDaddy tick?

The company aims to accelerate its rate of innovation, partly by investing in effective R&D efforts of its own and partly by making strategic acquisitions as opportunities present themselves. GoDaddy's R&D expenses rose by 9% in the fourth quarter and 14% in 2019 as a whole.

On the earnings call, CEO Aman Bhutani said that GoDaddy is delivering on these promises by adding new products or significant feature upgrades in every quarter. For the fourth quarter, this included a new back-end structure that will let GoDaddy launch new products simultaneously across all geographic markets. This system is already active for a handful of GoDaddy's brands and will expand to the entire enterprise over the next few months.

GoDaddy is also simplifying the customer experience for building and maintaining websites on the popular WordPress platform. This effort sets GoDaddy apart from other WordPress hosts, driving record results in the company's hosting & presence division.

"Websites + Marketing is taking market share within the captive website building industry, while Managed WordPress subscription sales have been hitting new record levels since our latest launch at the end of October," Bhutani said. "All are signs of a healthy franchise."

A white computer keyboard with a golden key featuring a dollar sign, highlighted under a magnifying glass.

Image source: Getty Images.

Looking ahead

GoDaddy expects first-quarter sales to land near $795 million, while full-year revenues should stop in the vicinity of $3.32 billion. These targets work out to year-over-year increases of 11% to 12%. The book-to-bill ratio clocked in at 1.07 in the fourth quarter, indicating continued revenue growth over the next several quarters. Unlevered free cash flows should rise by 14% to approximately $835 million. This particular metric jumped 40% higher in the fourth quarter, combining a solid business performance with an easy year-over-year comparison. GoDaddy's cash flows were unusually lumpy in 2018.

Investors embraced GoDaddy's solid results, driving share prices more than 10% higher in Friday's trading session. The stock looks a bit frothy right now, trading at 119 times trailing earnings and 50 times forward estimates, and I'm not entirely sure that GoDaddy has earned these premium multiples quite yet. The solid book-to-bill ratio is a good sign and I do like to see technology companies making a conscious investment in higher R&D budgets, but I'm not ready to recommend this stock right now. Attentive investors may want to pounce on the next big dip in GoDaddy's stock price.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends GoDaddy. The Motley Fool has a disclosure policy.

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