Bullish on Go Daddy IPO? Follow These ETFs - ETF News And Commentary
The Internet domain registrar and web hosting company Go Daddy will make its debut on the New York Stock Exchange on Wednesday to cash in on the unparalleled surge in e-commerce business globally. The stock will trade under the ticker code of "GDDY".
The company raised its IPO price to $20 per share at the eleventh hour from its previously specified range of $17 to $19 per share range, to make it worth around $4.5 billion, inclusive of debt, per Reuters. At the end of 2014, the company which builds websites for small companies had $1.3 billion in long-term debt on an adjusted basis.
This 1997-born company was acquired by a private equity group led by KKR & Co LP and Silver Lake Partners LP in 2011 for $2.25 billion including debt. However, with an aim to go public, Go Daddy resorted to a billion dollar seven-year term loan to finance the payout to the private equity consortium.
Renaissance Capital indicated that as many as 25 LBOs went public in the past one year, to see a 2% jump (on average) on the first day and an over 28% surge thereafter. Go Daddy would be the second biggest tech IPO traded so far this year after the $600 million IPO by Inovalon (INOV), per Street.com (read: Will IPO ETFs Continue to Thrive in 2015?).
What’s Behind the Confidence?
Per Renaissance Capital, the company handles about a fifth of the world's Internet domains. Its client base pays an annual subscription fees to register domain names and receive further online services like web hosting. Now, the company plans to move toward a higher-margin website building service while managing its heavy debt load through the IPO proceeds.
In 2014, the company saw its revenues jump to $1.4 billion from $741 million in 2010, corresponding to a CAGR of 17%. Its bookings grew at a CAGR of 16% from 2010 to 2014 to worth a total of $1.7 billion. The company ended 2014 with 12.7 million customers, among which over 1.1 million were added last year.
The company also has global presence with services being offered in countries like Canada, India and the United Kingdom. As of December 31, 2014, about 28% of customers were from the international markets. In fact, an analyst believes that the GO Daddy IPO appears inexpensive.
Is the IPO Really Hot?
The company’s bottom line has been suffering. This is not the first attempt by GoDaddy to go public. It tried way back in 2006 and finally withdrew the filing. The company competes with top-notch players in the market including Google (GOOGL), Amazon (AMZN) and Microsoft (MSFT) (read: ETFs in Focus on Big Amazon Earnings Beat).
Still investors having faith on Go Daddy’s brand name and its huge customer base, can try out the stock. After all, 2015 should be a hot year for tech stocks. However, as debt concerns are associated with the company, investors may tap this in an ETF form to diversify the risk factors. The following ETFs might be in focus in the coming days if Go Daddy IPO becomes successful.
First Trust US IPO Index Fund (FPX)
This ETF targets the U.S. IPO market and follows the IPOX-100 U.S. Index. It has accumulated $608.9 million in AUM and charges 60 bps in fees a year. Volume is decent as it exchanges around 50,000 shares in hand on average. In total, the fund holds 100 securities.
The product has a nice mix of sectors, with the top two being consumer discretionary (24.35%) and information technology (22.51%). Since the ETF focuses on the 100 largest and most liquid U.S. IPOs, new companies can find entry into the fund’s holding after trading for a minimum of 100 days. FPX is up 7.8% so far this year (as of March 31, 2015).
Renaissance IPO ETF (IPO)
This new fund also provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis’ on the fifth day of trading. The fund holds 56 stocks and has attracted $28.2 million in AUM.
It trades in light volume of less than 10,000 shares, ensuring additional cost beyond the expense ratio of 0.60%. From a sector look, technology stocks make up for more than one-third share. Year to date, the fund has added 7% return.
PowerShares Nasdaq Internet Portfolio (PNQI)
This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 99 stocks in its basket with AUM of $247.4 million while charging 60 bps in fees per year. It trades in light volume of around 40,000 shares a day (see: all the Technology ETFs here).
In terms of industrial exposure, Internet software and services makes up for more than three-fifth share in the basket, followed by Internet retail (32.2%). PNQI was up 5% in the year-to-date timeframe (as of March 31, 2015). PNQI has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
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