Why Is GoDaddy (GDDY) Up 12% Since Its Last Earnings Report?
It has been about a month since the last earnings report for GoDaddy Inc. GDDY. Shares have added about 12% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is GDDY due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
GoDaddy Q1 Earnings In Line, Revenues Beat Estimates
GoDaddy’s first-quarter 2018 adjusted earnings of 2 cents per share were in line with the Zacks Consensus Estimate. Earnings increased 100% from the year-ago quarter.
Management remains positive about strong product and marketing roadmap for 2018. Also, the company’s mobile-optimized website builder, GoCentral, has been gaining momentum. Also, the company has been making continuous efforts to enhance its features, thereby making its products more attractive.
Revenues
Revenues of $633.2 million increased 5.1% sequentially and 29.3% year over year, beating the Zacks Consensus Estimate of $622 million. Moreover, the reported figure came above management’s guidance of $620-$625 million.
At the end of the first quarter, customers were nearly 17.7 million, increasing 17.4% from the prior-year quarter. Also, average revenue per user (ARPU) was $138, up 5.8% from the prior-year quarter.
Strong growth in customers, contribution from HEG acquisition and expanding ARPU led to the improvement.
Segmental Revenues
GoDaddy generates revenues from three segments — Domain, Hosting and Presence, and Business Applications.
Domain revenues of $291.7 million contributed 46.1% to the total revenues. Revenues were up 3.6% sequentially and 21.1% year over year.
Hosting and Presence revenues of $239.8 million accounted for 37.9% of the total revenues. The figure represented 4.8% sequential and 34.5% year-over-year growth.
Business Applications revenues of $101.7 million, accounting for 16.1% of the total revenues, increased 10.8% sequentially and 44.1% from the year-ago quarter.
Booking
GoDaddy uses total bookings as a performance measure, since payment is usually collected at the time of sale, and recognizes revenues ratably over the term of customer contracts. In the first quarter, total bookings of $783.1 million increased 25.3% year over year.
Margins
Gross margin was 66%, down 46 basis points (bps) sequentially but up 210 bps from the prior-year quarter.
Operating expenses of $252.9 million increased 21% year over year.
Net Income
The quarter’s GAAP net income was $3.3million compared with net income of $0.6 million in the year-ago quarter.
Pro-forma earnings were 2 cents compared with 1 cent reported in the prior-year quarter.
Balance Sheet & Cash Flow
On Mar 31, 2018, total cash and cash equivalents, and short-term investments were $729.5 million compared with $595 million in the fourth quarter. Accounts and other receivables were $24 million compared with $18.4 million in the last reported quarter.
Total long-term debt, including current portion, was $2.48 billion, while net debt was $1.75 billion in the first quarter.
Net cash provided by operating activities in the first quarter was $148.4 million compared with $104.3 million in the last reported quarter.
Guidance
For the second quarter of 2018, the company expects revenues in the range of $640-$645 million.
For full-year 2018, GoDaddy raised its revenue guidance to $2.620-$2.640 billion, representing year-over-year growth of approximately 18%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions higher for the current quarter compared to six lower.
VGM Scores
At this time, GDDY has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, GDDY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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