GoDaddy Achieves Reasonable Growth in 2022 Despite Macroeconomic Headwinds

No-moat GoDaddy GDDY reported sound fiscal 2022 results amid a cycling of pandemic-era tailwinds and challenging global macroeconomic conditions. While our longer-term forecasts are largely unchanged, we raise our fair value estimate 5% to $87 primarily due to time value of money. We continue to expect soft economic conditions in the near term to accelerate small-business attrition and to weigh on demand for higher-value solutions before a bounceback in 2024.

Full-year revenue growth of 7% was in line with our expectations, led by a 13% increase in revenue from website design, email, and commerce solutions including GoDaddy’s integrated payments offering, to 31% of total revenue. This was offset by softer growth in the domain aftermarket business, as this lumpy revenue source cycled large transactions in the prior period, and lower demand for hosting services. Revenue growth moderated sequentially throughout the year as pandemic tailwinds faded, foreign-exchange headwinds compounded, and macroeconomic conditions weighed on revenue retention and new customer additions. Nonetheless, GoDaddy was able to achieve a healthy 260 basis points of operating margin expansion to 12.6%, ahead of our forecast of 11.8%, primarily due to a pullback in marketing spending in a softer demand environment.

We view GoDaddy’s $1.3 billion of share repurchases in 2022 as prudent capital allocation, given that shares were purchased below our fair value estimate on average. However, the firm’s balance sheet is carrying sizable debt, with a year-end 2022 net debt/adjusted EBITDA ratio of 4.5. Given the uncertain economic environment, we would prefer to see the firm deleverage in the near term instead of directing capital to further share repurchases.