Starboard Value LLP, the third largest shareholder of GoDaddy common stock with 7.8% in holdings, has delivered a letter to GoDaddy; the letter is critical of the stock’s performance based on what GoDaddy delivers currently:
Unfortunately, despite each of these opportunities remaining, over the last 18 months we have been disappointed by GoDaddy’s operational, financial, and stock price performance.
The company believes the GoDaddy stock is undervalued and that GoDaddy is missing out on an opportunity to deliver better value to its shareholders, in order to keep up with competition:
Although the Company initially made some progress towards these targets in 2022, during 2023, GoDaddy has fallen well off the pace on almost every metric it presented at the Investor Day. Revenue growth has meaningfully decelerated, and margins have not expanded nearly enough to offset the shortfall in revenue. As a result, revenue, Adjusted EBITDA, and FCF are all expected to miss the implied 2023 targets laid out at the Investor Day. While the Company has stated that a portion of the shortfall is due to macroeconomic weakness and foreign exchange rates, we believe it is important to note that GoDaddy’s recent top-line performance has been below the Company’s own updated expectations and has not exhibited the reacceleration seen by many of the Company’s peers, such as Squarespace, Inc. (“Squarespace”) and Wix.com Ltd (“Wix”), both of which have seen solid acceleration in revenue growth during 2023.
Starboard Value LLP points out that it has faith in GoDaddy’s potential, but asks GoDaddy to take measures that ensure the direction it is heading to remains positive:
Despite our disappointment with these results and the Company’s stagnant stock price, we believe there are significant opportunities within the control of the management team and Board to improve operating and financial performance. More specifically, we believe GoDaddy has the scale, product portfolio, and margin improvement potential to improve its growth + profitability metric to be above historical levels with only a modest improvement in revenue growth. To be clear, we are of course supportive of improved revenue growth, but we urge the Board and management team to be objective and realistic in assessing the prospects for significant revenue growth acceleration and remain open to driving an improved financial profile through meaningful margin expansion.
The GoDaddy shareholder brings up the issue of performance (earnings vs. cost) of the so-called “core services” at GoDaddy:
While we understand that a portion of these expenses are related to the Company’s technology infrastructure, we believe it is important to note that approximately two-thirds of GoDaddy’s revenue is generated by the Core Platform segment, which largely consists of the Company’s domain registration and hosting businesses. These businesses are more mature and should require far less engineering and development expenses.
Following the press release, GoDaddy stock (GDDY) at the NYSE jumped more than 3% on valuation potential.
Note: This is not an endorsement of the GoDaddy stock; we do not hold any GoDaddy positions at this time.
Read the press release from Starboard Value LLP. Read the full text of Starboard’s letter to the GoDaddy CEO and Chairman.
