A month has gone by since the last earnings report for GoDaddy (GDDY - Free Report) . Shares have lost about 2.5% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is GoDaddy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
GoDaddy’s Q3 Earnings Miss Estimates, Revenues Beat
GoDaddy Inc.’s third-quarter 2018 adjusted earnings of 8 cents per share missed the Zacks Consensus Estimate by 18 cents. Earnings decreased 27.3% sequentially but increased 14.3% from the year-ago quarter.
Higher acquisition and international expansion-related expenses incurred by the company impacted profits.
The company generated revenues of $680 million, which increased 4.3% sequentially and 16.7% year over year, beating the Zacks Consensus Estimate of $674 million. Moreover, the reported figure exceeded management’s guided range of $670-$675 million.
Management remains positive about its strong product and marketing roadmap for 2019. The company’s mobile-optimized website builder, GoCentral, has been gaining momentum. GoDaddy has been making continuous efforts to enhance its features, thereby making the products more attractive.
At the end of the third quarter, customers were nearly 18.3 million, increasing 6.7% from the prior-year quarter. Also, average revenue per user (ARPU) was $145, up 8.6% from the prior-year quarter.
Strong customer growth and expanding ARPU led to the improvement.
GoDaddy generates revenues from three segments — Domain, Hosting and Presence, and Business Applications.
Domain revenues of $309.5 million contributed 45.5% to the total revenues. Revenues were up 1.5% sequentially and 14% year over year.
Hosting and Presence revenues of $263.2 million accounted for 38.7% of the total revenues. The figure represented 7.6% sequential and 16.5% year-over-year growth.
Business Applications revenues of $106.8 million, accounting for 25.9% of the total revenues, increased 4.5% sequentially and 25.9% from the year-ago quarter.
GoDaddy uses total bookings as a performance measure, since payment is usually collected at the time of sale, and recognizes revenues ratably over the term of customer contracts. In the third quarter, total bookings of $741.8 million increased 11% year over year.
Gross margin was 66.6%, up 60 basis points (bps) sequentially and 100 bps from the prior-year quarter.
Operating expenses of $353.8 million increased 12.1% year over year.
Balance Sheet & Cash Flow
On Sep 30, 2018, total cash and cash equivalents, coupled with short-term investments were $852.2 million compared with $828.5 million in the second quarter. Accounts and other receivables were $22.5 million compared with $23.6 million in the last reported quarter.
Long-term debt was $16.7 million in the third quarter.
Net cash provided by operating activities in the third quarter was $154 million compared with $128.9 million in the last reported quarter.
For full-year 2018, GoDaddy raised its revenue guidance to $2.655-$2.660 billion, representing year-over-year growth of approximately 19%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -39.17% due to these changes.
At this time, GoDaddy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise GoDaddy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.