GoDaddy Gives the IPO Road Another Shot

Unfortunately, that money is going toward PE sponsors and debt

   

GoDaddy.com, which operates a cloud platform for small businesses, has filed for an initial public offering. However, while the market for new stocks has perked up lately — see Arista Networks (ANET) and Zendesk (ZEN) — the GoDaddy IPO might ultimately be a lackluster deal.

godaddy 300x126 GoDaddy Gives the IPO Road Another ShotGoDaddy.com isn’t your typical youthful, up-and-coming offering — in fact, the company got its start back in 1997. At the time, founder Bob Parsons saw a big opportunity to provide tools to help build websites as well as register domain names.

A key to his strategy — and one that eventually became well known in the public domain — was going big on marketing. The web business quickly became a commodity, so Parsons spent massive amounts on television commercials and Super Bowl spots. By using shock ads featuring girls in bikinis instead of servers, Parsons created GoDaddy’s unique and well-known brand. He also signed celebrities, such as race car driver Danica Patrick and supermodel Bar Refaeli (also featured in bikinis).

GoDaddy IPO Background

In 2006, GoDaddy.com actually filed for an IPO, but the registration statement was withdrawn, and instead, Parsons sold 68.6% of the company to KKR (KKR), Silver Lake Management LLC and Technology Crossover Ventures for $2.25 billion.

Which, in a way, that was a beneficial result, as these investors have provided effective stewardship. As of right now, GoDaddy.com has 12 million customers and 57 million domains under management. The company also has added new services such as online storage, bookkeeping and payment solutions, marketing for Google (GOOG), Facebook (FB) and Twitter (TWTR) and mobile apps.

GoDaddy.com also has invested heavily in its Customer Care organization, which has more than 2,900 employees that provide 24/7 service — that plays an important role in selling new products as well.

But for all those positives, growth has been fairly moderate. For instance, from 2012 to 2013, revenues went from $910.9 million to $1.1 billion, and that came with substantial losses. Last year, the company bled $200 million — sure, that’s because of substantial spends on tech infrastructure and marketing, but you’d better believe that could be a headwind for the GoDaddy IPO.

Granted, GoDaddy.com still has a sizable market opportunity — the U.S. alone boasts 28 million small businesses, more than half of which don’t have websites. But international expansion is a necessity, too … not necessarily bad for GoDaddy, which has had success in Canada, the U.K. and India.

And over the past year, several GoDaddy.com competitors have gone public, but to so-so returns. Wix.com (WIX) is up 6% since going public. Endurance International’s (EIGI) return is about 13%.

Given all this, it wouldn’t be surprising to see the GoDaddy IPO not perform all that well.

But perhaps the thing really driving my pessimism is where the money will be going. GoDaddy.com continues to rack up large losses, which isn’t doing any favors for the debt load (at $1.5 billion, vs. just $133 million in the bank). The IPO proceeds thus will be heading not necessarily toward growth, but instead to private equity sponsors and paying down a portion of its liabilities.

Not exactly the growthy kind of offering it’s easy to get excited about.

GoDaddy IPO Filing Notes

  • In the S-1 filing, GoDaddy.com did not indicate the pricing terms or the exchange it will list on.
  • Lead underwriters include Morgan Stanley (MS), JPMorgan (JPM) and Citi (C).
  • The offering is likely to hit the markets within late summer or early fall.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/godaddy-ipo-20140613/.

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