Domain registrar and web services company, GoDaddy (NYSE:GDDY) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 3.53% year on year to $1.07 billion. The company expects next quarter's revenue to be around $1.11 billion, slightly below analysts' estimates. Turning to EPS, GoDaddy made a GAAP profit of $0.89 per share, improving from its profit of $0.63 per share in the same quarter last year.
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GoDaddy (GDDY) Q3 FY2023 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.06 billion (small beat)
- EPS: $0.89 vs analyst estimates of $0.72 (24% beat)
- Revenue Guidance for Q4 2023 is $1.11 billion at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow of $281.6 million, up 46.5% from the previous quarter
- Gross Margin (GAAP): 62.9%, down from 63.8% in the same quarter last year
Founded by Bob Parsons (NYSE:PSN) after selling his first company to Intuit (NASDAQ:INTU), GoDaddy (NYSE:GDDY) provides small and mid-sized businesses with the ability to buy a web domain and tools to create and manage a website.
E-commerce SoftwareWhile e-commerce has been around for over two decades and enjoyed meaningful growth, its overall penetration of retail still remains low. Only around $1 in every $5 spent on retail purchases comes from digital orders, leaving over 80% of the retail market still ripe for online disruption. It is these large swathes of the retail where e-commerce has not yet taken hold that drives the demand for various e-commerce software solutions.
Sales GrowthAs you can see below, GoDaddy's revenue growth has been unimpressive over the last two years, growing from $964 million in Q3 FY2021 to $1.07 billion this quarter.
GoDaddy's quarterly revenue was only up 3.53% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $21.6 million quarter on quarter, re-accelerating from $12.1 million in Q2 2023.
Next quarter's guidance suggests that GoDaddy is expecting revenue to grow 6.26% year on year to $1.11 billion, improving on the 2.02% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 6.77% over the next 12 months before the earnings results announcement.
ProfitabilityWhat makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. GoDaddy's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 62.9% in Q3.
That means that for every $1 in revenue the company had $0.63 left to spend on developing new products, sales and marketing, and general administrative overhead. GoDaddy's gross margin is poor for a SaaS business and we'd like to see it start improving.
Key Takeaways from GoDaddy's Q3 Results Sporting a market capitalization of $10.8 billion, more than $329.2 million in cash on hand, and positive free cash flow over the last 12 months, we believe that GoDaddy is attractively positioned to invest in growth.
Growth is slow these days, but at least GDDY delivered strong free cash flow. Overall, this was a mixed quarter for GoDaddy. The stock is up 2.35% after reporting and currently trades at $76.98 per share.
The author has no position in any of the stocks mentioned in this report.
