GoDaddy Races Out of the Gate on IPO, but it Looks Overvalued in the Long Run

Steve Kanaval |

GoDaddy_Car.jpg

GoDaddy Inc. (GDDY) went public today in one of the largest IPOs of the year to date, issuing at $20 per share and trading 30% higher on opening day, creating a $4 billion market cap. The company netted about $460 million via the public offering, and many on Wall Street are asking questions about sustaining share price as they will be under scrutiny as a public company and the whim of shareholder sentiment.

Thirteen million customers use GoDaddy for hosting and related services. If you have ever launched a website, the multitude of services and sales traps in “any” hosting site – be it Domain.com, Yahoo Small Business from Yahoo! Inc. (YHOO) , Web.com Group Inc. (WWWW) or another – you’re likely well aware of how overwhelming it can feel while getting started. Many of these services will ping your credit card for services you will never use…I know I’ve fallen for this more than once.

All told, it costs about $10 per year to host a site once you have a URL and your site has been launched. GoDaddy spent big bucks on branding, and in July 2011, GoDaddy founder Bob Parsons sold approximately 70% of the company to a private equity consortium while resigning his position as CEO. In June 2014, he stepped down from his position as Executive Chairman, and currently serves on Go Daddy's board. Parsons owns 28% of the company, and is its largest shareholder. As of September 2014, Parsons had an estimated net worth of $1.85 billion and was ranked #353 on the Forbes 400 ranking of the world's wealthiest people.

Can GoDaddy Go Mobile?

The critical mass question is about the growth and transition to mobile apps – and the market share that GoDaddy can garner. Understand also that GoDaddy has been around for 20 years, and has not made money over the last six years. I really doubt the company can hold this multiple and market cap. Every hedge fund manager in the world is looking to find a borrow (a way to short shares) and get short above the initial IPO level.

Once shares trade below IPO price, they often have trouble. Nearly all IPOs with volume below their initial IPO price fail, and shares never recover. There are a few companies, like Facebook, Inc. (FB) that traded below and have had enormous success, but these are the exception rather than the rule. 

The capital markets and IPOs that raise capital for companies and shareholders are the ones assuming risks. The vehicle has worked for many years through all market cycles. In fact, it’s the underpinning of how capitalism works – through the transfer of risk, and the beauty of speculation.

In the case of GoDaddy, it will have little to do with what Danica Patrick wears during a Super Bowl commercial moving forward. It will only have to do with how many websites they host, how much they upsell you and how much of that $10 they keep.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FB Facebook Inc. 117.95 0.64 0.55 21,913,658
GDDY GoDaddy Inc 36.04 -0.33 -0.91 1,136,043
YHOO Yahoo! Inc. 40.52 0.55 1.38 7,208,492
WWWW Web.com Group Inc. n/a n/a n/a 0

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