Benchmark maintained a Buy rating on GoDaddy Inc (NYSE:GDDY) with a steady price target of $186.00. The firm's stance comes ahead of GoDaddy's third-quarter earnings report, which is scheduled for release after the market closes on October 31. The analyst highlighted that the company's guidance for adjusted EBITDA in the third quarter implies a conservative outlook despite a favorable shift in revenue towards the Applications & Commerce (A&C) segment, which offers higher incremental margins.
The report also pointed out potential operational leverage from automation and offshoring opportunities that could extend across GoDaddy's profit and loss statement following the global rollout of their customer care system, Gabi, in the second quarter. The analyst will focus on the company's bookings momentum during the earnings call, noting that management's projection for year-over-year growth seems conservative, especially considering several factors that are not yet reflected in the model.
These factors include the growing contribution from Airo, progress in acquiring larger e-commerce customers due to GoDaddy's enhanced AI/ML capabilities, additional product attachments like Digital Marketing that could significantly increase average revenue per user (ARPU), and sustainable pricing momentum from product bundling. The firm believes that the stock's current valuation does not fully appreciate these potential ARPU growth drivers.
Benchmark's forecast for GoDaddy's Core Platform growth through 2025 is described as conservative, given the year-to-date improvement in Aftermarket prospects and the diminishing impact of past divestitures in the Hosting segment. The price target of $186 reflects a 19.5x multiple on the firm's 2025 estimated enterprise value to free cash flow (EV/FCF), which is roughly in line with GoDaddy's own free cash flow per share compound annual growth rate (CAGR) target for 2024-2026.
GoDaddy Inc. saw a flurry of activity from various analyst firms. Barclays adjusted its outlook on GoDaddy, raising its price target to $185 while maintaining an Overweight rating. The firm's analysis pointed to GoDaddy's revenue sub-segments, highlighting the importance of GoDaddy's primary and aftermarket domain businesses. Barclays anticipates that GoDaddy's gross margin will remain stable in the near future, suggesting a strategic area for the company to focus on for growth.
GoDaddy reported a 7% increase in total revenue for Q2, reaching $1.1 billion, with a notable 15% growth in the Applications and Commerce segment. This strong performance led the company to raise its full-year revenue guidance. A series of analyst notes followed these developments. Baird maintained an Outperform rating and a $190.00 price target for GoDaddy's stock, while Cantor Fitzgerald initiated coverage with a Neutral rating and a price target of $170.
Benchmark raised its price target from $170 to $186, maintaining a Buy rating, influenced by GoDaddy's Free Cash Flow per Share Compound Annual Growth Rate target for the years 2024 to 2026. RBC Capital Markets also increased its price target from $145 to $175, maintaining an Outperform rating, following GoDaddy's strong Q2 performance. Despite carrying a net debt of $3.4 billion, GoDaddy remains committed to its AI initiatives, including GoDaddy Airo and GABI, a customer service tool.
InvestingPro Insights
GoDaddy's financial metrics and market performance align well with Benchmark's bullish outlook. According to InvestingPro data, the company's revenue growth remains solid, with a 5.91% increase over the last twelve months and a 7.29% quarterly growth as of Q2 2024. This growth trajectory supports the analyst's expectations for continued momentum in bookings and ARPU.
The company's profitability is also noteworthy, with a gross profit margin of 63.16% and an operating income margin of 18.06% for the last twelve months. These figures suggest that GoDaddy is effectively managing its costs while growing revenue, which could lead to the operational leverage Benchmark anticipates from automation and offshoring initiatives.
InvestingPro Tips highlight that GoDaddy has been "aggressively buying back shares," which often signals management's confidence in the company's future prospects. Additionally, the company is "trading near its 52-week high" and has shown a "large price uptick over the last six months," with a remarkable 35.13% price return in that period. These trends align with Benchmark's view that the current valuation may not fully reflect GoDaddy's growth potential.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips for GoDaddy, providing a deeper understanding of the company's financial health and market position.
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