GoDaddy Earnings: Soft Aftermarket Demand and Foreign-Exchange Headwinds Drag on Results

We maintain our $87 fair value estimate for no-moat GoDaddy GDDY following the release of mixed second-quarter fiscal 2023 results. Top-line growth fell marginally below our expectations as normalizing aftermarket demand, foreign-exchange headwinds, and a disposal of assets in the hosting business continued to drag on performance. Following the results, we have trimmed our near-term assumptions, but our longer-term forecasts and valuation remain intact. At current prices, GoDaddy shares trade at an attractive 17% discount to our unchanged fair value estimate.

Second-quarter revenue increased 3% year on year, led by a stronger-than-expected 11% increase in revenue from higher-margin website design, email, and commerce solutions to 34% of total revenue. This was offset by flat revenue growth in the larger domains business, as improved primary domain volumes and pricing were outweighed by declining aftermarket revenue cycling large transactions in the prior period and lower hosting revenue. Nevertheless, average revenue per user increased 3% year on year, supported by improved product bundling, including greater attachment of GoDaddy’s proprietary payment offering and like-for-like price increases.

Softer-than-forecast revenue growth during the quarter weighed on profitability, with adjusted EBITDA margins declining marginally by 20 basis points to 25%. This was partly offset by a pullback in marketing spending and mix shift to higher-margin commerce solutions.