In 1997 Bob Parsons founded a software development company to build websites for customers. Twelve years later, Go Daddy.com had established itself as a market leader - both in providing its core services of internet domain registration and web hosting, but also for its own risqué advertising strategies. You don’t have to be a NASCAR fan to know that Danica Patrick plays a prominent role in the company's television ads. And reality show junkies no doubt recognized "The Biggest Loser" host Jillian Michaels when she began appearing in Go Daddy's commercials in 2010. Go Daddy.com is an example of an internet business that enjoyed tremendous growth over the past decade because of massive growth in web traffic. But investors can't buy this stock because it's not a public company. It filed for an IPO in 2006, but subsequently canceled it. Late 2010 reports, like this one from the Wall Street Journal, state the company might be worth upwards of $1.5 billion. All is not lost however for small cap investors who want exposure to growth in web development. Two years after Mr. Parsons started his company, in 1999 Darian Brannan started the website design company Website Pros, and began offering services to companies looking to build and maintain a presence online. The company grew quickly as a leader in its core markets. A $65 million investment from a venture consortium and a 2005 IPO and the company was off to the races. In 2007 it became Web.com Group (NasdaqGS:WWWW - News) and currently has more than 275,000 subscribers. The company really began drawing attention in 2010 when it made a key acquisition. At the time the stock was trading around $3 when it announced the purchase of Register.com - the largest privately held domain registration and website design company - for $135 million.
Suddenly, investors noticed that the company was growing rapidly - even without a race car driver like Danica Patrick out front promoting it.
Now, the company is trading around $15.50 and has a market cap of $407 million. It will report its first quarter results today after the close. Jim Cramer, of CNBC's Mad Money, was asked about the stock on his show last Wednesday - he said he didn't know of it and would do some research to answer the caller's question. If the company beats earnings this afternoon, which are expected to come in around $0.21, I'll bet he'll be getting a lot more calls on the stock. Web.com Group's strength is servicing small businesses looking to establish a Web presence. Bringing Register.com aboard broadened its portfolio of services which now include domain name registration, website design and publishing, internet marketing and advertising, search engine optimization, logo design and even call center services. Many small businesses, which may have previously resisted spending to develop a presence on the internet, are suddenly waking up to this 21st century necessity. The meteoric rise of Groupon and similar online deal delivery sites has encouraged many small business owners to dish up their own offers to potential customers.
This trend should help Web.com Group grow its business too.
Despite posting a loss in fiscal year 2010, Web.com Group reported a strong fourth quarter with revenue increasing 43 percent year-over-year. It's been profitable in some quarters, most recently the fourth quarter of 2009 and the third quarter of 2010, but has not yet linked together consistent profitable quarters.
The company's guidance calls for earnings in 2011 of around $1 per share. Naturally, this would be a big improvement over the $0.26 per share loss 2010, and a full year of profitability would most likely keep the stock's price trading higher.
Based on this forward guidance, the stock isn't expensive, with shares trading around 14-times 2011 expected earnings.
It should be an interesting earnings release and conference call this afternoon, even if it will (most likely) lack the entertainment value of competitor Go Daddy.com's publicity stunts. Disclosure: None