GoDaddy: The activist investor Starboard Value sees the company as significantly undervalued. 40% discount to the peer group!
- The activist investor Starboard Value is invested in Godaddy. In yesterday's letter to shareholders, they point out that the FCF multiple is at least 40% undervalued.
- B.Riley raised the target to $107 today. The market could start to play a reduction of the undervaluation and the big picture breakout could start.
Godaddy (GDDY) is the world's largest registrar of confirmed domains, a provider of web hosting services, and tools for building websites, email and marketing. The SMB market is covered. For Godaddy has a predictable and recurring business, as they have about 21 million paying customers. Customer retention is around 85%. AI is already being used successfully by the company. This is because every domain purchase also comes with an AI-generated website and personalized logo. AI also helps when people want to describe products in their own web stores. In 2023, Godaddy should generate EBITDA of $1.1 billion on revenue of $4.25 billion to $4.325 billion. Free cash flow should also exceed the USD 1 billion mark.
Still, activist investor Starboard Value is not happy with management. Starboard Value has secured a 7.8% stake in Godaddy and is the third largest shareholder. It demands to push growth as well as profitability, seeing as the development of the last 18 months has been disappointing. There has been no progress with the share price. Because of the economic weakness, Godaddy has fallen behind its targets of 10% revenue growth and at least 15% EBITDA growth. According to Starboard Value, Godaddy could lift margins significantly if it cut costs, and especially in Technology & Development, where it drained about $800 million in 2022. Instead, more money should flow into the higher-growth applications and commerce segment (websites, marketing, productivity apps, payments).
According to Starboard Value, Godaddy is valued at only 11 times 2023 FCF. If you increase growth and margin, as well as generate more cash flow, the valuation should also increase. That's because other companies with well-planned revenues have FCF multiples of 14 to 30. Godaddy's discount to the majority is 40%! B. Riley analysts used the activist investor's comments to revise their valuation model. They raised the target from $102 to $107. That represents a 40% potential upside for the stock. The market may be starting to gamble that Godaddy management will manage to lift more value. The stock is headed for a big picture breakout from the correction since 2021.
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