GoDaddy Inc. (GDDY), the Internet registrar famous for its eye-catching advertisements, made a splashy debut on Wednesday as its shares soared 31% on the first day of trading on the New York Stock Exchange.
On Wednesday, the stock closed at $26.15. The company priced 23 million shares in its initial public offering at $20 a piece after the market closed on Tuesday. The first-day gain increased GoDaddy’s market valuation by $1 billion to nearly $4 billion.
After the offering, founder Bob Parsons, who stepped down as executive chairman in June, holds 40% of GoDaddy's class B shares and nearly 24% of class A shares. The company is presently led by Blake Irving.
The lead underwriters of the IPO were Morgan Stanley, JPMorgan and Citigroup.
The Initial Years & the Journey Thus Far
Jomax Technologies was established in 1997 by Bob Parsons. Two years later, in 1999, a group of employees at Jomax Technologies decided to change the company name. Parsons came up with the name “GoDaddy" as he thought the name made people smile and remember it.
Based in Scottsdale, AZ, GoDaddy is a privately held Internet domain registrar and web hosting company. It also sells e-business related software and services.
The company claims to have 59 million domain names under management (as of 2014), making it the world's largest ICANN-accredited registrar.
This employer of more than 4,000 people serves 12 million customers and is also a NASCAR sponsor. It has however been in the midst of quite a few controversies relating to security and privacy.
Should you Consider Investing in the Stock?
GoDaddy has finally managed to enter the public market after quite a few attempts. It first tried to go public way back in 2006. However, it ultimately withdrew. Five years later, in 2011, private equity firms, KKR and Silver Lake Partners, acquired the company for $2.25 billion. In June last year, it finally filed for an IPO.
Before jumping to buy this latest offering, investors should consider the following points.
GoDaddy deals with a particularly low-margin business of domain registration. What makes things worse is that Google GOOGL now sells domain names directly.
At the same time, it is also involved in the highly competitive business of web hosting. The big names in the cloud business include the likes of Google, Amazon AMZN and Microsoft MSFT.
Along with these big cloud companies, a lot of small hosting companies offer extremely low prices. (For instance – DigitalOcean).
Last year, GoDaddy’s revenues rose 23% to $1.4 billion. However, this wasn’t enough to cover costs, which netted a loss of $143.3 million. This doesn’t speak well ofa mature, 18-year old company.
The company has debt worth $1.4 billion (it paid $85 million in interest in 2014.)
The IPO will definitely provide it with cash. However, going forward, the company will still have a lot of debt. This will make it harder for GoDaddy to record profits.
However, what works in its favor is that it has a huge customer base and the brand name that it has created over the years.
GoDaddy’s customers (GoGetter’s as the company calls them) are mainly local service-based businesses (most have fewer than five employees), identifying themselves as having little to no technology skills. The shift toward dynamic online presence by small businesses is attributed to the emergence of simple (yet powerful) cloud-based technologies that can easily be utilized by individuals with limited technical skills. The Parallels SMB Cloud Insights for Global 2014 report estimates that the cloud market for small business will be approximately $125 billion by 2016. This along with its growing international presence keeps the growth prospects of the company high.
According to Business Insider, around 28% of its customers were located in international markets (such as Canada, India, and UK) as of Dec 31, 2014. To continue its expansion in international markets, GoDaddy is investing in technology, marketing programs and customer care teams.
Besides, its marketing practices are highly unconventional (and controversial) but do manage to attract attention (take for instance the recent Super Bowl commercial).
Last Word
According to data from Dealogic, first-day share gains have averaged 10% in the U.S. this year (the lowest average one-day gain in four years). The year so far has been a quiet one for IPOs. As many as 36 companies have managed to raise $6.2 billion in flotations this year – only 50% of what was recorded in the first three months of 2014.
Box Inc. BOX, which is considered to be the first tech IPO of 2015, hasn’t fared too well as its shares have dropped 27% since its launch. Box had also raised its IPO price to $14 from the initial range of $11-$13.
GoDaddy’s IPO comes after Box’s not-so-successful attempt.
Whether GoDaddy faces the same consequences as Box will depend on its ability to drive down cost.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment