IPO Report: GoDaddy (GDDY)

Francis Gaskins |

GoDaddy.jpgGoDaddy (GDDY) is a global market leader in domain name registration.

GDDY is one of two new IPOs scheduled for this week. The full IPO calendar is available at IPOpremium.

The manager and joint-managers are Morgan Stanley; J.P. Morgan; Citigroup. The co-managers are  Barclays; Deutsche; RBC; KKR; Stifel; Piper Jaffray; Oppenheimer; JMP Securities. SEC filings

The company is based in Scottsdale, AZ, GoDaddy (GDDY). The IPO is scheduled for $396 million IPO on the NYSE, at the price range mid-pointof $18. The estimated market capitalization is $2.7 billion. The GDDY IPO is planned for Wednesday, April 1, 2015.

GoDaddy Valuation

Glossary

Accumulated deficit (mm) actual

.

.

-$675

     

Accumulated deficit (mm) as adjusted, see p7

.

.

-$51

     

Per share dilution

.

.

-$48.54

     

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Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

GoDaddy (GDDY)

$2,718

2.0

-23.8

4.9

-0.6

15%

GoDaddy Conclusion

Neutral plus

Morgan will  try to get an IPO pop as  a favor to KKR.
GDDY is a big  global brand & some users will buy without regard to the financials.

Positives: big, dominant brand, 23% top line revenue increase, recurring revenue, 63% gross margin, appears to be moving towards break even. And yes, may be a little like the facebook IPO, where users initially bought without full knowledge of the underlying financials.

Negatives:

Competition increasing from well-known companies (see "competition" below)

Never been profitable, accumulated deficit before reorganization of -$675mm

Growth path to profitability not clear

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Per share dilution -$48.54 vs IPO mid-range of $18

(private equity sucked out as much cash as possible)

Price-to-tangible bk -.6, one of the lowest  we've seen (low is worse)

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'13 rev +24%; '14 rev +23% (not a dynamic increase, rev is recurring, however)

'14 gross profit 63%, up from 58% in '13

Proforma '14 operating loss -4% (before interest)

Proforma '14 net loss -8%

Price-to-sales 2.0.  P/E -24

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GoDaddy Business

GDDY is a global market leader in domain name registration.

Securing a domain is a necessary first step to creating a digital identity and GDDY's domain products often serve as the starting point in customer relationships.

As of December 31, 2014, more than 92% of customers had purchased a domain from GDDY and GDDY  had approximately 59 million domains under management, which represented approximately 21% of the world’s registered domains according to VeriSign’s Domain Name Industry Brief.

GoDaddyStructure

Immediately following this offering, GoDaddy Inc. will be a holding company, and either directly or through its wholly owned subsidiary GD Subsidiary Inc., its principal asset will be a controlling equity interest in Desert Newco.

GoDaddy Recurring revenue

In each of the five years ended December 31, 2014, customer retention rate exceeded 85% and the  retention rate for customers who had been with GDDY for over three years was approximately 90%.

GoDaddy Revenue segments

Domains

GDDY generated 51% of 2014 total bookings from the sale of domain products, primarily from domain name registrations and renewals, domain add-ons such as privacy and aftermarket sales. Total bookings from domains grew an average of 11% annually from 2010 to 2014.

Hosting and Presence
GDDY generated 39% of 2014 total bookings from the sale of hosting and presence products, primarily from a variety of web-hosting offerings, website builder products, SSL certificates and online commerce products.

These products generally have higher margins than domains. Total bookings from hosting and presence products grew an average of 19% annually from 2010 to 2014.

Business Applications

GDDYe generated 10% of 2014 total bookings from the sale of business applications products, primarily from productivity tools such as domain-specific email accounts, which also have higher margins than domains. Total bookings from business applications grew an average of 29% annually from 2010 to 2014.

GoDaddy Intellectual property

As of December 31, 2014, GDDY had 144 issued patents in the United States covering various aspects of our product offerings. Additionally, as of December 31, 2014, GDDY had 218 pending U.S. patent applications and intends to file additional patent applications in the future.

GoDaddy Competition

Competitors include providers of:

 •  traditional domain registration services and web-hosting solutions such as Endurance, Rightside, United Internet and Web.com;

 •  website creation and management solutions and e-commerce enablement providers such as Shopify, Squarespace, Wix and WordPress;

 •  cloud-infrastructure services and online security providers such as Rackspace and Symantec;

  •  alternative web presence and marketing solutions providers such as Constant Contact, OpenTable, Yelp and Zillow; and

  •  productivity tools including business-class email, calendaring, file-sharing and payments such as Dropbox, Intuit, Square and Xero.

GDDY expects continued competition from competitors in the domain, hosting and presence markets such as Endurance, Rightside, United Internet and Web.com, as well as potential increased competition from companies like Amazon, Google and Microsoft, all of which are providers of web-hosting and other cloud-based services and have recently entered the domain name registration business as upstream registries, and eBay and Facebook, both of which offer robust Internet marketing platforms.

Google recently launched a beta version of its new Google Domains service, whereby it intends to sell domain name registration services to third-parties

GoDaddy 5% Shareholders Pre-IPO

Entities Affiliated with KKR 21%

Entities Affiliated with Silver Lake 22%

Entities Affiliated with TCV 12%

The Go Daddy Group, Inc. 40%

GoDaddy Dividends

No plans to pay a dividend

GoDaddy Use of proceeds

GDDY expects to net $396 million from its IPO.  Proceeds are allocated as follows:

25 million of to GD Subsidiary Inc.

Use the remaining proceeds, and to cause GD Subsidiary Inc. to use the proceeds contributed to it, to purchase newly-issued LLC Units from Desert Newco

GDDY intends to cause Desert Newco to

(i) pay the unpaid expenses of this offering payable by GDDY, including the assumed underwriting discounts and commissions, which GDDY estimates will be $33 million in the aggregate,

(ii) make a final payment, which GDDY estimates will be $26 million in the aggregate, to the Sponsors and TCV upon the termination of the transaction and monitoring fee agreement, in accordance with its terms, in connection with the completion of this offering,

(iii) make a payment of $3 million to Bob Parsons upon the termination of the executive chairman services agreement, in accordance with its terms, in connection with the completion of this offering and

(iv) make a payment of $315 million to repay the senior note, including related prepayment premiums and accrued interest. Any remaining proceeds will be used for general corporate purposes.

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
GDDY GoDaddy Inc 36.72 0.11 0.30 488,840

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