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Why Shares of GoDaddy Zoomed 12.5% Higher This Morning

By Nicholas Rossolillo – Nov 4, 2021 at 2:36PM

Key Points

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A solid Q3 report card was better than many had expected.

What happened

Web domain name and website hosting outfit GoDaddy (GDDY -0.38%) was really going today. Shares were up 12.5% as of 1:45 p.m. EDT. The internet firm reported third-quarter earnings that beat the average Wall Street analyst expectations. Q3 revenue was up 14% from a year prior to $964 million, and earnings per share of $0.58 were up 53%.

So what

GoDaddy is a legacy website hosting company. While it has continued to steadily grow over the years, younger cloud-based website building and management software firms like Shopify and have grown at a far faster rate and begun to overshadow GoDaddy's own success. For example, over the past five-year stretch, Shopify's revenue has ballooned and is up nearly 1,000%, and Wix has grown sales nearly 300%. GoDaddy revenue has merely doubled in comparison.  

Two people working on a website for clothing and fashion.

Image source: Getty Images.

GoDaddy is profitable, though, and is quickly ramping up its business applications segment -- including things like digital payment tools, website building and security, and marketing. This has been a great upsell opportunity for the company as it looks for new ways to help the entrepreneurs and small businesses it serves to grow in a new digital era. GoDaddy's business applications sales increased 20% in Q3 to $186 million, constituting just 19% of total revenue.  

Now what

In addition to solid expansion of the business, GoDaddy also completed an accelerated share repurchase program of $250 million in Q3. The company had an additional $750 million remaining on its current repurchase plan, worth nearly 6% of the current market cap.  

However, the outlook for Q4 does imply a slowdown is coming. Revenue guidance of $970 million represents 11% year-over-year growth. Nevertheless, at about 18 times trailing-12-month free cash flow, GoDaddy stock might appeal to investors looking for a value in the website management and e-commerce software space.

Nicholas Rossolillo and his clients own shares of Shopify and The Motley Fool owns shares of and recommends Shopify and The Motley Fool recommends GoDaddy and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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