GoDaddy: Potential Upside as Starboard Value Shows Interest

If you haven’t noticed GoDaddy (GDDY) since its risque Super Bowl ads from the early 2010s, you’re probably not alone. The stock essentially quadrupled after its 2015 IPO but has been relatively flat over the past three years.

However, all of a sudden, there are some new catalysts ahead and new involvement from a renowned activist, which makes me bullish going forward. (See Analysts’ Top Stocks on TipRanks)

GoDaddy could be breaking out of these doldrums after yesterday’s announcement that Starboard Value had taken a stake in the company.

Furthermore, the company is expanding its offerings with services like payments and Managed WordPress that can transform it into a one-stop shop for e-commerce merchants as opposed to just a web hosting company. 

Starboard Makes Its Presence Known

On Monday, December 27th, it was reported that Starboard Value had taken a 6.5% stake in GoDaddy by buying about $800 million worth of shares. The market clearly liked this news as shares gained over 8% that day.

While it is not yet clear what Starboard’s agenda is here or what specific changes they plan to push for, they have a storied history of actuating turnarounds at companies they get involved in.

Perhaps the most famous example of this was Starboard’s legendary involvement in Darden (DRI), the parent company of Olive Garden and Longhorn Steakhouse.

Starboard got involved in minute details like changing the manner in which waiters served the unlimited breadsticks on demand at Olive Garden (still unlimited but served on demand instead of a big basket of breadsticks all at once) to how much salt was being used for cooking the pasta.

While it may sound funny, these small changes (among others) added up, and Starboard made at least a 60% return on this investment, so this is the type of activist investor I like to ride along with.

GoDaddy has reported impressive revenues and earnings, but the share price is basically where it was in 2018, so it stands to reason that Starboard has plans on how to crystallize more value for shareholders. 

Recent Pivots

Best known for web hosting and domain name registration, under CEO Aman Bhutani, GoDaddy has been pivoting to branch out into complementary areas to its core business that both expand its TAM and bring it into some lucrative segments.

Executing these moves are the keys to taking GoDaddy from a hosting and registration business to the next level as a full-fledged web service ecosystem for entrepreneurs, small businesses, and creators. 

GoDaddy has expanded into payments and invoicing, which is a lucrative market and an intuitive one for the company as it makes sense as a solution for merchants who are already using GoDaddy’s hosting for their e-commerce websites.

The company even recently rolled out point-of-sale devices so that GoDaddy customers can process payments offline for their business as well. To be clear, there is a lot of competition from strong players in the payments field, and this is a ‘show me’ story for GoDaddy at this point, but I think it is an exciting path to go down. 

GoDaddy’s acquisition of Pagely will also further enhance its importance to online businesses by increasing its expertise in Managed WordPress and WooCommerce (open-source e-commerce software). GoDaddy states that it “plans to build a world-class WooCommerce SaaS platform providing the highest levels of reliability, scalability, flexibility, security, and performance.” 

I also view GoDaddy as a play on trends like the Great Resignation and the shift to the gig economy, as people leaving their corporate jobs and starting their own web-based businesses and other endeavors will lead to more use of GoDaddy’s services. 

Valuation

GoDaddy trades at about 27x forward earnings. While this is by no means cheap, it is favorable when compared to many other tech and web companies that are either not profitable or that trade at nosebleed P/E valuations if they are.

These types of companies are often valued on a price-to-sales basis, and at about 3.3x price to sales, GoDaddy’s valuation looks very reasonable. 

Returns to Shareholders

GoDaddy does not pay a dividend, but under the new management team, it has been aggressively buying back shares to return capital to shareholders. Since January 2020, the company has repurchased nearly 17 million shares or about 9% of the total shares outstanding. 

Wall Street’s Take

The nine analysts covering GoDaddy collectively consider it to be a Moderate Buy. The stock currently has six Buys and three Hold ratings assigned in the past three months. The average GoDaddy price target of $97.22 implies 16.5% upside from current prices. 

Looking Ahead

GoDaddy’s expanding footprint in areas like payments, invoicing, and managed WordPress show that the company is pivoting into becoming a one-stop shop for online businesses. These moves, combined with the further involvement of Starboard Value, lead me to believe that there is more upside in store for GoDaddy in the near future. 

Lastly, it is also worth pointing out that GoDaddy will be hosting an Investor Day in February 2022. Companies often use these events to showcase their long-term strategic roadmap and capital allocation plans, so perhaps there will also be some interesting announcements or strategic shifts that are unveiled at this meeting. 

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Disclosure: At the time of publication, Michael Byrne owned shares of GoDaddy.