Stock Story -
Domain registrar and web services company, GoDaddy (NYSE:GDDY) beat analysts' expectations in Q2 CY2024, with revenue up 7.3% year on year to $1.12 billion. The company expects next quarter's revenue to be around $1.14 billion, in line with analysts' estimates. It made a GAAP profit of $1.01 per share, improving from its profit of $0.54 per share in the same quarter last year.
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GoDaddy (GDDY) Q2 CY2024 Highlights:
- Revenue: $1.12 billion vs analyst estimates of $1.11 billion (small beat)
- EPS: $1.01 vs analyst expectations of $1.08 (6.4% miss)
- Revenue Guidance for Q3 CY2024 is $1.14 billion at the midpoint, roughly in line with what analysts were expecting
- The company slightly lifted its revenue guidance for the full year from $4.53 billion to $4.55 billion at the midpoint
- Gross Margin (GAAP): 63.7%, up from 62.9% in the same quarter last year
- Free Cash Flow of $323.4 million, similar to the previous quarter
- Market Capitalization: $20.5 billion
E-commerce SoftwareWhile e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales GrowthAs you can see below, GoDaddy's revenue growth has been weak over the last three years, growing from $931.3 million in Q2 2021 to $1.12 billion this quarter.
GoDaddy's quarterly revenue was only up 7.3% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $16 million quarter on quarter, accelerating from $8.2 million in Q1 CY2024.
Next quarter's guidance suggests that GoDaddy is expecting revenue to grow 6.6% year on year to $1.14 billion, improving on the 3.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 6.6% over the next 12 months before the earnings results announcement.
Gross Margin & Pricing PowerSoftware is eating the world. It's one of our favorite business models because once you develop the product, it usually doesn't cost much to provide it as an ongoing service.
These costs include servers, licenses, and certain personnel, and leverage on them can decide the winners in competitive markets because they determine how much can be invested into new products, sales, and talent.
GoDaddy's gross margin is substantially worse than most other software businesses, signaling it has relatively high infrastructure costs and poor pricing power because alternative solutions are available. As you can see below, it averaged a paltry 63.2% gross margin over the last year.
In Q2, GoDaddy produced a 63.7% gross profit margin, which is in line with the same quarter last year. On a wider time horizon, the company's full-year margin has been consistent over the past eight quarters, suggesting its input costs have been stable and it isn't under pressure to lower prices.
Key Takeaways from GoDaddy's Q2 Results It was good to see GoDaddy slightly beat on revenue and slightly improve its gross margin this quarter. That the company slightly lifted full year guidance for revenue means the company is on track. Zooming out, we think this was a decent quarter. The stock traded up 5.1% to $148.50 immediately after reporting.
