Some people will wonder if GoDaddy Inc. (NYSE: GDDY) is a value investment. To elaborate, GoDaddy sells a product that many view as old-fashioned, obsolete, and boring – websites.
Indeed, some observers, including Medium writer Rob Stux claim websites are dead. GoDaddy (GDDY) offers data that shows rumors of websites’ demise are exaggerated.
For example, GoDaddy claims to have added 1.4 million new customers to its platform in 2020. A press release claims that number is almost double the number of customers GoDaddy added in 2019. GoDaddy claimed its bookings grew by 11% in 2020.
Does GoDaddy Generate Float?
Overall, GoDaddy (NYSE: GDDY) claims to have over 20 million customers and supply users with over 82 million domain names. Many investors will smell value at GoDaddy because it charges each of those customers $6.99 to $17.49 a month to host websites.
Hence, GoDaddy is a subscription service. Subscriptions generate a regular stream of cash because the customer gets cut off if he or she does not pay a bill.
Warren Buffett loves subscription services because they generate float. Float is a regular stream of cash a business can tap for expansion, or to cover costs. Companies with float can accumulate cash.
Historically, Buffett has invested in float generating businesses such as newspapers, utilities, and insurance companies. Okay, most newspapers are dying, but GoDaddy is a digital subscription service that is growing.
Moreover, GoDaddy is a cheap stock. Mr. Market paid $75.63 for it on 10 September 2021. GoDaddy’s price is stable. On 10 September 2020, Mr. Market paid $76.43 for GoDaddy.
Does GoDaddy Make Money?
Okay, GoDaddy (GDDY) has value characteristics, but does it make money?
GoDaddy makes some money, but its income and gross profit are growing. For instance, GoDaddy’s quarterly operating income rose from $22.90 on 30 June 2020 to $88 on 30 June 2021. Similarly, GoDaddy’s quarterly revenues rose from $805.20 million on 30 June 2020 to $933 million on 30 June 2021.
Stockrow credits GoDaddy with seven straight quarters of revenue growth between December 2019 and June 2021. For example, GoDaddy’s revenues grew by 9.22% in the quarter ending on 30 June 2020 and 15.95% in the quarter ending on 30 June 2021. Hence, many people will wonder if GoDaddy is a pandemic-resistant business.
How Much Cash Does GoDaddy Generate?
The reason value investors seek float is to identify cash-rich companies. Hence, we need to ask if GoDaddy (NYSE: GDDY) is a cash-rich company?
GoDaddy reported a quarterly operating cash flow of $209.40 million on 30 June 2021. The quarterly operating cash flow grew from $168.10 million on 30 June 2020.
However, GoDaddy reported a quarterly ending cash flow of $82.10 million on 30 June 2021. The quarterly ending cash flow grew from -$78.70 million on 30 June 2020.
GoDaddy has more Cash
GoDaddy (GDDY) reported a quarterly ending cash flow of $1.293 billion on 31 December 2020. However, $613.70 million of that cash came from financing or borrowing. GoDaddy reported a quarterly financing cash flow of $613.70 million on 31 December 2020.
Consequently, GoDaddy’s debt grew during the pandemic. GoDaddy reported a total debt of $2.609 billion on 30 June 2020 that grew to $4.089 billion on 30 June 2021.
Importantly, GoDaddy finished the pandemic with more cash. GoDaddy’s cash and short-term investments grew from $773 million on 30 June 2020 to $1.375 billion on 30 June 2021.
What Value Does GoDaddy Have?
GoDaddy’s value grew over the past year. For example, GoDaddy’s Total Assets grew from $6.092 billion on 30 June 2020 to $7.362 billion on 30 June 2021.
Thus, GoDaddy (NYSE: GDDY) is a growing company with a cheap and stable stock. However, I do not consider GoDaddy a value investment because its ability to generate cash and revenue is small. Additionally, GoDaddy pays no dividend.
I think there are better internet stocks out there. For instance, Oracle (NYSE: ORCL) and Microsoft (MSFT). To explain, Microsoft and Oracle have enormous amounts of cash and pay dividends. Microsoft had $130.334 billion in cash and short-term investments on 30 June 2021. In comparison, Oracle had $46.544 billion in cash and short-term investments on 31 May 2021.
I think smart investors need to avoid GoDaddy because its ability to generate cash and revenues is small.
Originally published at https://marketmadhouse.com on September 9, 2021.