Disclaimer, this post contains my personal thoughts and not that of my company XYZ. I am a proud shareholder of GoDaddy ($GDDY). I am also a shareholder of Rightside ($NAME).
Every investor has their own philosophy and style. One of the main takeaways I’ve learned from Warren Buffett and other great investors, is to invest in strong brands and things you’re knowledgeable about. GoDaddy hits both of those metrics for me.
GoDaddy is in the business of supporting businesses, helping individuals and SMBs start and grow an online presence.They are one of the most recognized brands sprouting from the domain industry with over 13 million global customers, 59+ million domains under management, known for its award-winning customer service, and of course, its controversial (yet effectively memorable) commercials.
Over the past few months, I have been asked for my professional opinion on GoDaddy as they were nearing their IPO date. From an interview with the South China Morning Post, to on-air with Fox Business News’s Maria Bartiromo, I provided my insight on their business and the future of the domain industry as a whole.
As a matter of fact, personally, I stepped up my investments in new domain extensions (gTLDs) when GoDaddy rebranded from “GoDaddy.com” to “GoDaddy”, dropping the .COM. The rebrand was representative of their support of the new era of gTLDs, and legitimizes the opportunity that these gTLDs will provide. I knew that any long term business decision by GoDaddy was one to follow.
Now that the IPO is successfully complete and the recent announcement of their first earnings as a public company, I thought I would share my thoughts about the company and points discussed on the earnings call that really stood out to me.
I believe GoDaddy is a great investment and will forge forward as a global industry leader because of its:
management and organizational culture
and business model
GoDaddy’s innovative organizational culture
One thing I closely look into when investing in a company is its culture. And GoDaddy has a well-defined, innovative culture that acts as a strong foundation for the company. Founder Bob Parsons is a true visionary who attracted an extremely loyal and talented team that has shaped GoDaddy into what it is today.
Did you know that GoDaddy’s customer care center reps bring in 30%+ of their business? #GoReps. I had the privilege of experiencing GoDaddy’s culture first-hand when I went on a roadshow for .xyz and met 5,000+ GoDaddy employees across Gilbert, Scottsdale, and Tempe in Arizona, and Hiawatha, Iowa.
It was especially amazing to meet employees who have been onboard since 1991 when the company was Parsons Technology – and they are still growing GoDaddy into what it is today.
I also had the pleasure of meeting their CEO Blake Irving, who is a motivating, charismatic, seasoned leader. I am pleased with the direction he has taken the company, and believe he is the right leader to take GoDaddy to the next level.
With Blake in June 2014, shortly after launching .xyz (and my celebratory shofar)
Product offerings to succeed in the global market
The second unique attribute that makes GoDaddy an industry leader is its product offerings that support small businesses grow their online presence. Even without fully launching in emerging internet markets where businesses are building an online presence for the first time, GoDaddy already holds 21% of the entire global domain market share.
There are around 300 million domains out there today. Considering we ran out of IPV4 addresses a few years back (4.2+ billion) and are now onto IPV6, I think the number of domains will grow exponentially over the next 5 – 10 years and exceed 1 billion, where GoDaddy will continue to hold 21%, if not more, of the entire share.
Additionally, GoDaddy’s early adoption of new gTLDs has widened their product breadth at higher gross margins due to the higher prices certain premium domain names could potentially sell for. Companies and individuals who have missed out on their chance to register a meaningful domain on traditional extensions such as .com and .net years ago, are paying a premium to secure them in the aftermarket. GoDaddy is profiting off that as well, but I believe they will eventually make more by selling premium gTLDs.
The 10 Banger
Recently, a mentor and business partner of mine introduced me to the term “10 Banger”. It’s a more fun way of saying 10X, or “ten times”.
On their recent earnings call, GoDaddy discussed the effectiveness of their marketing approach for new customer acquisition, and I find it extraordinary! Their average customer acquisition cost (CAC) was in the range of $50 to $60, while the average customer generates $550 of gross profit over their lifetime (LTV).
In my opinion, the LTV is low and has major room to grow, however, the LTV / CAC ratio translates to GoDaddy generating 10X of what is spent on marketing. Their CFO mentioned it as one of the most compelling pieces of GoDaddy.
They will use this LTV / CAC profile as a guideline when entering new international markets, and while it may drop slightly at first entrance, I see that ratio picking back up as they refine their service offerings. Reminds me of another brand I am fond of (Netflix).
Not only is the LTV / CAC ratio impressive, the company also experiences low churn as over 85% of customers and 90% of revenue are retained annually. If we think about it logically, these retention percentages should continue at these high levels, given that GoDaddy’s products provide individuals and small businesses an online presence – something you don’t just abandon and renewing your product subscriptions is a given.
GoDaddy’s investment opportunity reminds me of eBay (EBAY) and Netflix (NFLX) when they came out. Both were already established brands when they IPO’d, unlike other recent IPO’s like Box, or alternative startup investment Slack ($2.6 billion valuation), which have been on the decline since going public.
If I could go back to 1998 and buy 1 share of EBAY at its opening price of $53.50, it would be 24 shares today after all the splits, worth somewhere around $1,600. That’s 3048.29% appreciation (source: Google Finance). On a more extreme level, 1 share of NFLX at $15 would be 2 today, worth $1,160.22. That’s 6749% appreciation (source: Google Finance).
[Source: Google Finance; Retrieved 5/14/2015]
[Source: Google Finance; Retrieved 5/14/2015]
GoDaddy is a great long term investment, given its innovative culture, SMB product offerings, and business model. I mean, who doesn’t like a 10 Banger.
#GDDYUP. It’s go time.