- Global market leader in domain name registration.
- Big, dominant brand, 23% top line revenue increase, recurring revenue, 63% gross margin, appears to be moving towards breakeven.
- Per share dilution -$48.54 vs. IPO mid-range of $18 (private equity sucked out as much cash as possible). Price-to-tangible book -.6, one of the lowest we've seen (low is worse).
Based in Scottsdale, AZ, Godaddy Inc (NYSE:GDDY) scheduled a $396 million IPO on the NYSE with a market capitalization of $2.7 billion, at a price range midpoint of $18, for Wednesday, April 1, 2015. Priced at $20, no change in conclusion.
The full IPO calendar is available at IPOpremium.
Manager, Joint managers: Morgan Stanley; J.P. Morgan; Citigroup
Co-managers: Barclays; Deutsche; RBC; KKR; Stifel; Piper Jaffray; Oppenheimer; JMP Securities
End of lockup (180 days): September 28, 2015
End of 40-day quiet period: May 11, 2015
GDDY is a global market leader in domain name registration.
Morgan will try to get an IPO pop as a favor to KKR.
GDDY is a big global brand, and some users will buy without regard to the financials.
- Big, dominant brand
- 23% top line revenue increase
- Recurring revenue
- 63% gross margin
- Appears to be moving towards breakeven.
- And yes, maybe a little like the Facebook Inc (NASDAQ:FB) IPO, where users initially bought without full knowledge of the underlying financials.
- Competition increasing from well-known companies (see "competition" below)
- Never been profitable, accumulated deficit before reorganization of -$675mm
- Growth path to profitability not clear
Per share dilution -$48.54 vs. IPO mid-range of $18
(Private equity sucked out as much cash as possible)
Price-to-tangible book -.6, one of the lowest we've seen (low is worse)
'13 rev +24%; '14 rev +23% (not a dynamic increase, rev is recurring, however)
'14 gross profit 63%, up from 58% in '13
Pro forma '14 operating loss -4% (before interest)
Pro forma '14 net loss -8%
Price-to-sales 2.0. P/E -24
Accumulated deficit ($mm) actual
Accumulated deficit ($mm) as adjusted, see p7
Per share dilution
Mrkt. Cap ($mm)
% offered in IPO
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 the company 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.
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.
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%.
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.
GDDY 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.
As of December 31, 2014, GDDY had 144 issued patents in the United States, covering various aspects of its product offerings. Additionally, as of December 31, 2014, the company had 218 pending U.S. patent applications, and intends to file additional patent applications in the future.
Competitors include providers of:
- Traditional domain registration services and web-hosting solutions, such as Endurance International Group Hldgs Inc (NASDAQ:EIGI), Rightside Group Ltd (NASDAQ:NAME), United Internet AG & (OTC MKTS:UDIRF) and Web.com Group Inc (NASDAQ:WWWW);
- Website creation and management solutions and e-commerce enablement providers such as Shopify, Squarespace, Wix.com Ltd (NASDAQ:WIX) and WordPress;
- Cloud infrastructure services and online security providers, such as Rackspace Hosting, Inc. (NYSE:RAX) and Symantec Corporation (NASDAQ:SYMC);
- Alternative web presence and marketing solutions providers such as Constant Contact Inc (NASDAQ:CTCT), OpenTable, Yelp Inc (NYSE:YELP) and Zillow Group Inc (NASDAQ:Z); and
- Productivity tools including business-class email, calendaring, file-sharing and payments such as Dropbox, Intuit Inc (NASDAQ:INTU), Square and Xero LTD (OTC MKTS:XROLF).
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.com, inc. (NASDAQ:AMZN), Google Inc (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT), 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 Inc (NASDAQ:EBAY) and Facebook Inc (NASDAQ:FB), 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.
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%
No plans to pay a dividend.
Use of proceeds
GDDY expects to net $396 million from its IPO. The proceeds will be allocated as follows:
- 25 million 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.
Disclaimer: This GDDY IPO report is based on a reading and analysis of GDDY's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.