SQSP - GoDaddy initiated at Sector Perform by RBC Capital
2023-06-05 08:36:15 ET
RBC Capital Markets has started coverage on GoDaddy ( NYSE: GDDY ) at Sector Perform with an $80 price target, as the firm noted that the company has a rock-solid core but call options are still baking.
RBC analysts said that GoDaddy's core business is a mid-single-digit grower & cash machine but based on the firm's channel checks, they think GDDY needs to invest more in product development if it is to create value from its Ecommerce/website building capabilities (where mostly the secular growth is).
GoDaddy' valuation is attractive, but the analysts require more proof of web building gaining traction, namely for Ecommerce, before they can become more constructive with their rating, mainly due to the likely persistent generative AI overhang.
The firm added that GoDaddy's stock trades at 12x EV/'24E FCF which is below peers mainly because of capped domain and hosting growth.
The analysts said GoDaddy's domain and hosting business is arguably the gold standard for branding a B2B business in a relatively commoditized market, while it is low ARPU, it is sticky with the company having about 21M customers, most of which are in the core platform, 85% of its revenue being recurring.
The analysts believe GDDY is headed for FCF margins potentially surpassing the mid-twenties by next year. In addition, GDDY is building a solid portfolio of assets around the web design & Ecommerce space, aimed mostly for SMBs. GoDaddy's is also buying back stock at an annual rate of about 6-7% of its market cap while only issuing ~2% per year in SBC.
Despite these positives, several factors hold back the analysts.
The firm noted that as domains, in particular, are more saturated than web design, and also pricing in future new business formation, GoDaddy has rightly shifted its focus to developing products for static web design, Ecommerce and payments.
However, the firm's checks with web design agencies suggest that GoDaddy is a lagging competitor versus many others in the market including Wix.com ( WIX ), Squarespace ( SQSP ) Weebly, Webflow and Wordpress (open-source free solution and market leader).
Lower-quality, harder-to-use GUI, lacking scalability and relative lack of templated APIs were the main reasons driving the analysts' views. The analysts think that the company likely has to increase investment in products specifically for up-market, Ecommerce merchants if it is to attach itself to secular tailwinds.
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GoDaddy initiated at Sector Perform by RBC Capital