UBS Takes A Deep Dive Into Under-The-Radar GoDaddy

Godaddy Inc GDDY enjoys a leading position and has “multiple expansion levers in place,” UBS’s Brent Thill said in a report. He maintained a Buy rating on the company, with a price target of $42.

GoDaddy is targeting a sizable market opportunity, with there being 30 million small businesses in the US and around 300 million worldwide, analyst Brent Thill noted. He added that GoDaddy enjoys an 81 percent brand awareness in the US and has a large customer base of over 14 million customers, which allows the company to operate at significant scale.

Multiple Levers

“We see plenty of room for continued ARPU gains and customer adds via multiple expansion levers (both product and geos) already in place,” Thill wrote. While the company’s domains business accounts for 95 percent of customers, the business applications segment “continues to extend the opportunity across email, marketing, productivity, voice, and security solutions.”

Related Link: GoDaddy: Valuation, Slower Margin Growth Move Citi To Sidelines

International expansion is another important aspect, and the company is focusing primarily on Asia. The model allows GoDaddy to “easily deliver its domestic platform overseas and using localized content w/ just a handful of local resources required,” which gives the company significant competitive advantage versus local providers, the analyst noted.

GoDaddy’s shares have lost 10 percent year-to-date, versus a 1 percent gain in the NASDAQ. The underperformance has come despite the company’s consistent performance and a balanced financial profile, Thill pointed out. He added, “We believe the company will continue to deliver sustained mid-teens revenue growth with margin expansion (Adj. EBITDA margin into mid-20s) and strong FCF generation (>30 percent growth next two years) and that shares look compelling.”

Ratings data available on Benzinga Pro.

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