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Why Is GoDaddy (GDDY) Down 7.3% Since Last Earnings Report?

It has been about a month since the last earnings report for GoDaddy (GDDY). Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GoDaddy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

GoDaddy Q3 Earnings Beat Estimates, Revenues Rise Y/Y

GoDaddy reported third-quarter 2021 earnings of 58 cents per share, beating the Zacks Consensus Estimate by 65.7%. The reported earnings also increased 52.6% on a year-over-year basis.

The company generated revenues of $964 million, up 14.2% year over year or 13.5% on a constant-currency (CC) basis. The reported figure also surpassed the Zacks Consensus Estimate by 1.9%.

Revenue growth was driven by solid demand for products across all segments. It introduced an OmniCommerce solution for Websites + Marketing, and a new feature in the Hub by GoDaddy Pro named Invoicing and Payments, which remained tailwinds.

International revenues were $319.7 million for the third quarter, up 12.7% year over year or 10.6% on a CC basis.

Total bookings of $1.04 billion for the reported quarter increased 9.9% year over year or 9.1% on a CC basis.

For the reported quarter, Websites + Marketing annualized recurring revenues (ARR) grew more than 20% year over year. Also, Commerce ARR increased more than 30%.

Segmental Revenues

GoDaddy generates revenues from three segments — Domains, Hosting and Presence as well as Business Applications.

Domains: The company generated revenues of $453.2 million (accounting for 47% of total revenues) from this segment. The figure improved 17% from the year-ago quarter, driven by strong renewals on primary registrations and strong performance in the aftermarket.

Hosting and Presence: This segment generated revenues of $324.7 million (34% of revenues), which increased 7.4% on a year-over-year basis. The revenue growth can be primarily attributed to higher subscriptions to Websites + Marketing.

Business Applications: Revenues from this segment came in at $186.1 million (19% of revenues), increasing 20.4% year over year. The increase was driven by new customer inclusion, strong renewals, and addition of additional seats of email and productivity solutions by existing customers.

Operating Results

Gross margin was 64.1%, down 150 basis points (bps) from the prior-year quarter, driven by product mix.

Operating expenses (technology and development, marketing and advertising, customer care as well as general and administrative) of $451.6 million increased 11% year over year. As a percentage of revenues, operating expenses contracted 133 bps.

For the reported quarter, operating margin was 13.6%. It expanded 268 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2021, total cash and cash equivalents were $1.14 billion compared with $1.38 billion on Jun 30, 2021. Accounts and other receivables were $63.8 million compared with $54.6 million in the second quarter.

Total debt was $3.93 billion and net debt was $2.79 billion for the third quarter.

Net cash provided by operating activities was $226.4 million compared with $209.4 million in the second quarter.

On a trailing 12-month basis, capital expenditure was reported at $61.1 million.

Additionally, free cash flow was $251.5 million for the reported quarter.

Guidance

For fourth-quarter 2021, management expects revenues to be $970 million, indicating year-over-year growth of 11%.

For 2021, management has raised the guidance for revenues from $3.75 billion to $3.77 billion, suggesting year-over-year growth of 14%.

For 2021, it also expects free cash flow to be $960 million, representing 16% year over year growth.

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How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, GoDaddy has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, GoDaddy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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