TipRanks Smart Value #69: Hidden Domain
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Dear Investors,
Dear Investors,
Welcome to the 69th edition of the TipRanks Smart Value Newsletter.
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This Week’s Top Value Pick: GoDaddy (GDDY)
GoDaddy (GDDY) provides the digital tools and services that enable entrepreneurs and small businesses to establish, manage, and grow their online presence. Its integrated platform combines domain registration, website creation, hosting, e-commerce, digital marketing, payments, and AI-powered business solutions, allowing customers to manage their operations through a single ecosystem. Serving millions of entrepreneurs worldwide, GoDaddy benefits from a highly recurring revenue model supported by strong customer retention and increasing product adoption. As more businesses continue to digitize their operations and leverage AI to strengthen their online presence, GoDaddy is well positioned to deepen customer relationships, expand recurring revenue, and drive long-term growth.
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Domain Dominance
GoDaddy’s history reflects a steady evolution from a domain registrar into one of the world’s leading software platforms for entrepreneurs and small businesses. Founded in 1997, the company initially built its business around domain registration and web hosting, helping individuals and businesses establish an online presence. As digital commerce evolved, management recognized that customers increasingly needed a broader suite of tools to build, market, manage, and grow their businesses, prompting GoDaddy to expand beyond its core domain franchise into software, commerce, payments, and productivity solutions.
Acquisitions played a central role in that transformation. Between 2012 and 2022, GoDaddy completed 28 acquisitions, helping increase annual revenue from approximately $1.15 billion in 2013 to more than $4 billion by 2022, while reducing its reliance on domain registrations through the addition of higher-value subscription services. Early acquisitions such as M.dot in 2013 strengthened the company’s mobile website-building capabilities, while its 2015 initial public offering provided additional capital to accelerate product development and strategic investments.
Management initially focused on expanding GoDaddy’s geographic footprint and broadening its product portfolio. In 2016, the acquisitions of FreedomVoice and ManageWP added cloud-based business communications and WordPress management capabilities. The following year, GoDaddy completed its largest acquisition to date, purchasing Host Europe Group for approximately $1.8 billion. The transaction established GoDaddy as one of Europe’s leading providers of cloud services for small businesses by adding major domain registrars and hosting providers across the United Kingdom and continental Europe. Shortly after completing the acquisition, the company divested the enterprise-focused PlusServer business, using the proceeds to repay acquisition-related debt while sharpening its focus on serving entrepreneurs and small businesses.
GoDaddy continued expanding its software ecosystem through targeted acquisitions that filled important product gaps. The purchase of Sucuri in 2017 strengthened website security offerings, while Main Street Hub added digital marketing and social media management services. In 2019, the acquisition of Sellbrite expanded the company’s e-commerce capabilities by enabling merchants to manage sales across multiple online marketplaces from a single platform.
The company’s strategy shifted further toward higher-value software and commerce solutions in 2020 and 2021. Acquisitions, including Over, SkyVerge, Uniregistry, Neustar’s domain registry business, and Pagely expanded GoDaddy’s capabilities in visual content creation, WordPress commerce, domain management, registry infrastructure, and managed hosting. Among these transactions, the acquisition of Neustar’s registry business was particularly significant, transforming GoDaddy from solely a domain registrar into a registry operator and adding a higher-margin recurring revenue stream.
The most strategically important acquisition came in 2021 with the purchase of Poynt. Rebranded as GoDaddy Payments, the platform integrated online and in-person payment processing into GoDaddy’s ecosystem, allowing merchants to manage websites, commerce, and payments through a unified platform. The acquisition has since become a key growth driver within the company’s Applications & Commerce segment, accelerating GoDaddy’s transition toward higher-margin recurring revenue while creating greater opportunities to cross-sell multiple products to existing customers.
Since acquiring DAN.com and DNAcademy in 2022, GoDaddy has largely stepped away from acquisitions. Instead, management has shifted its focus toward organic innovation, operational efficiency, and shareholder returns. The company reorganized its operations into Applications & Commerce and Core Platform segments, providing greater visibility into its faster-growing software business while continuing to monetize its stable domain franchise. At the same time, GoDaddy has invested heavily in artificial intelligence through its Airo platform and AI-powered business tools while simplifying its product portfolio by exiting lower-value offerings that do not support its integrated platform strategy.
Combined with disciplined cost management and industry-leading free cash flow generation, these strategic initiatives have transformed GoDaddy from an acquisition-driven domain registrar into a highly profitable, recurring-revenue software platform with expanding margins, increasing customer lifetime value, and multiple avenues for long-term earnings growth.
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Ecosystem Economics
GoDaddy has evolved beyond its roots as a domain registrar into an integrated software platform that helps entrepreneurs and small businesses establish, manage, and grow their online presence. The company generates revenue through a highly recurring, subscription-based business model spanning domain registration, web hosting, website creation, e-commerce, digital marketing, productivity tools, payments, and AI-powered business solutions. This broad ecosystem enables customers to build and operate nearly every aspect of their online business through a single platform while providing GoDaddy with multiple opportunities to deepen customer relationships over time.
The business is organized into two complementary segments. Core Platform serves as the foundation, generating stable recurring revenue from domain registrations, domain renewals, hosting, domain aftermarket services, and related infrastructure. Domains are typically renewed annually, creating predictable cash flows supported by strong customer retention and a large installed base. While this segment grows at a more moderate pace, it generates attractive margins and serves as the primary entry point for millions of entrepreneurs entering GoDaddy’s ecosystem.
Applications & Commerce represents the company’s primary growth engine. This segment includes website-building tools, managed WordPress hosting, professional email, digital marketing, commerce solutions, GoDaddy Payments, productivity software, and AI-powered offerings such as Airo. These products generally carry higher margins than traditional domain services while encouraging customers to adopt multiple solutions as their businesses expand. Management has consistently emphasized that customers using several GoDaddy products generate substantially higher lifetime value than domain-only customers, making cross-selling one of the company’s most important long-term growth drivers.
Artificial intelligence is further strengthening this ecosystem by lowering the barriers to starting and operating a business online. Through Airo and other AI-powered tools, GoDaddy helps customers create websites, generate marketing content, manage customer interactions, and launch online stores more quickly, increasing product adoption and customer engagement. At the same time, AI is improving internal productivity and operating efficiency, supporting continued margin expansion.
This combination of recurring subscription revenue, high customer retention, increasing average revenue per user, expanding software adoption, and disciplined cost management has created a business with significant operating leverage and exceptional cash generation. As more customers adopt higher-value applications and commerce services while remaining within GoDaddy’s ecosystem, the company is well positioned to continue expanding earnings and generating substantial free cash flow over the long term.
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Beyond Domains
Artificial intelligence is rapidly becoming one of GoDaddy’s most important long-term growth drivers, with management positioning the company as an AI-first platform rather than simply adding AI features to existing products. The centerpiece of this strategy is Airo AI Builder, a natural-language platform that allows entrepreneurs to describe the business they want to create, after which the software automatically builds websites, online stores, marketing content, and other business tools. By simplifying what has traditionally been a complex and time-consuming process, Airo lowers the barriers to starting an online business while encouraging customers to adopt additional GoDaddy products from the outset.
Early adoption has exceeded management’s expectations. Within weeks of its beta launch in early 2026, Airo AI Builder reached an annualized bookings run rate exceeding $10 million despite receiving only a small portion of GoDaddy’s website traffic and requiring very little marketing. The platform already generates revenue through subscription plans and usage-based AI credits, with customers purchasing premium plans and additional credits as they expand their use of the platform. Importantly, management noted that Airo has been profitable since launch, an uncommon achievement for AI products, many of which currently operate at a loss due to high computing costs. GoDaddy attributes this to its disciplined pricing model and the use of its own hosting infrastructure, which helps control costs while maintaining security and reliability.
Beyond creating a new source of revenue, Airo is strengthening the economics of GoDaddy’s broader business. Customers using the platform purchase their second GoDaddy product approximately 30% faster than other customers, accelerating cross-selling and increasing customer lifetime value. Management has consistently demonstrated that customers adopting multiple products generate significantly greater long-term value than those purchasing only a domain name. Rather than disrupting GoDaddy’s existing business model, AI appears to reinforce it by helping entrepreneurs establish their online presence more quickly while encouraging deeper adoption of the company’s software ecosystem. Management also stated that it has seen no evidence that AI is reducing demand for domains or digital services. Instead, by lowering the barriers to starting a business, AI appears to be bringing more entrepreneurs online and expanding the market for GoDaddy’s products.
AI is also becoming an important driver of operating efficiency and profitability. Rather than treating artificial intelligence solely as a customer-facing product, GoDaddy is embedding it across customer support, sales, software development, and internal operations to improve productivity while controlling costs. Management believes these efficiency gains will support continued margin expansion while allowing the company to invest in product innovation without materially increasing operating expenses.
One of the most visible examples is Airo Care, GoDaddy’s AI-powered customer support platform. The system assists customers through voice and chat, helping them resolve technical issues, answer product questions, and complete common tasks without requiring human intervention. Management has expanded Airo Care to more than 50 markets and 20 languages, allowing the company to deliver a more consistent support experience worldwide. Early testing improved customer issue resolution rates by roughly 50%, while deployments in non-English markets increased resolution rates by more than 150%. These improvements enhance customer satisfaction while reducing the cost of providing multilingual customer support.
The company is deploying AI across sales and engineering to cut costs and boost productivity. AI voice agents now handle smaller sales calls end-to-end and have achieved conversion rates comparable to those of human sales representatives, freeing staff for higher-value deals. Meanwhile, software developers are using AI to accelerate application development, and the company is replacing third-party software with internally built tools powered by Airo, all aimed at reducing opex and improving long-term margins.
While Airo AI Builder represents GoDaddy’s near-term AI growth opportunity, management is also investing in a longer-term initiative called “Agent Name Service (ANS)”, which could strengthen the company’s competitive position as artificial intelligence becomes more deeply integrated into the internet. Today, websites use domain names that are located through the Domain Name System (DNS), the internet’s universal addressing system. GoDaddy believes a similar framework will eventually be needed for AI agents – software programs capable of interacting with users and other AI systems on behalf of individuals and businesses. ANS is designed to provide these AI agents with trusted digital identities linked to domain names, allowing them to communicate securely across the open internet.
The opportunity builds on GoDaddy’s existing strengths. With more than 80 million domains under management and decades of experience operating internet infrastructure, the company is well positioned to help establish industry standards for AI identity. Although ANS remains in its early stages and is not expected to contribute meaningfully to revenue in the near term, management has already signed several commercial partnerships, registered thousands of non-GoDaddy AI agents, and is working with larger technology companies to build support for an open industry standard. If AI agents become widely adopted over time, GoDaddy’s leadership in domain registration could provide a valuable new avenue for long-term growth.
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Quality Compounds
Alongside its AI initiatives, GoDaddy is becoming increasingly focused on improving the quality of its customer base rather than simply maximizing customer growth. Management believes entrepreneurs who adopt multiple products, remain customers for longer, and generate higher recurring revenue create significantly greater long-term value than customers purchasing only a single service.
This strategy was evident during the first quarter of 2026. A promotional domain registration campaign attracted more than 100,000 new customers and contributed to a 6% increase in new domain registrations across both direct and partner channels. At the same time, GoDaddy continued simplifying its product portfolio by retiring lower-value offerings that generated little revenue, reducing reported customer counts but having minimal impact on bookings while improving the overall quality of the customer base.
Customer retention remained strong at approximately 84%, with the modest decline primarily reflecting planned product retirements rather than weaker customer demand. Meanwhile, the company’s highest-value customers continue to grow as a share of the business, with approximately one in ten customers now spending more than $500 annually. GoDaddy’s strong brand further reinforces these advantages. The company serves approximately 20 million customers worldwide, and roughly 60% of website traffic comes directly through GoDaddy’s brand channels rather than paid advertising or search engines, lowering customer acquisition costs and strengthening long-term profitability.
Management also acknowledged several near-term headwinds but emphasized that they are largely temporary and do not change the company’s long-term outlook. First-quarter bookings grew more slowly than revenue, primarily due to the expiration of GoDaddy’s contract to operate the .CO internet domain registry, which created a temporary headwind for reported growth. Management expects this impact to disappear once the company laps the comparison period. Results were also affected by difficult comparisons in the domain aftermarket business and promotional pricing initiatives, though management believes these pressures are temporary and should ease over the remainder of 2026.
The company also noted that AI-powered search has modestly reduced top-of-funnel website traffic, but stronger on-site conversion rates have largely offset the impact, leaving overall growth trends unchanged. In addition, GoDaddy has temporarily paused price increases for its Websites + Marketing platform while product enhancements are completed, prioritizing customer adoption over near-term pricing gains. Management views these issues as short-term execution and timing headwinds instead of structural challenges while continuing to expect steady demand, expanding profitability, and strong free cash flow generation.
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Recurring Returns
Over the past five years, GoDaddy has delivered steady financial growth, with revenue and EPS increasing at a CAGR of approximately 8% and 34.8%, respectively. This performance has been driven by the company’s ongoing shift toward its higher-growth, higher-margin Applications & Commerce and payments businesses, disciplined cost management that has steadily expanded normalized EBITDA and free cash flow (FCF) margins, and an aggressive share repurchase program that has accelerated per-share earnings growth beyond what revenue and net income growth alone would have achieved.
The company continued this momentum in the first quarter of 2026, reporting revenue of $1.3 billion, up 6% year-over-year and at the high end of management’s guidance. Revenue also increased 6% on a constant-currency basis, while Annual Recurring Revenue (ARR) rose 6% to $4.3 billion, underscoring the strength and stability of GoDaddy’s subscription-based business model.
Growth was led by the Applications & Commerce (A&C) segment, where revenue increased 12% to approximately $500 million and ARR grew 10%. Segment EBITDA margin expanded 110 basis points to 45%, reflecting continued operating leverage and a greater contribution from higher-margin software offerings. As a result, A&C now accounts for roughly 40% of total revenue, highlighting GoDaddy’s ongoing transition toward a more software-centric business. Meanwhile, Core Platform revenue increased 3% to $769 million, supported by 5% growth in primary domains, particularly higher-priced non-.COM top-level domains. This growth was partially offset by continued weakness in non-core hosting, the expiration of the .CO registry contract, and difficult comparisons in the domain aftermarket business. Despite these headwinds, Core Platform EBITDA margin expanded 150 basis points to 33%.
Bookings increased a more modest 3% to $1.5 billion, lagging reported revenue growth due to several temporary factors, including promotional domain pricing, the expiration of the .CO registry contract, and unusually strong aftermarket activity in the prior-year period. Applications & Commerce bookings rose 9%, while Core Platform bookings declined 1%. Management described the first quarter as the period of peak impact from these headwinds and expects bookings growth to return to parity with, or exceed, revenue growth during the remainder of 2026.
Profitability remained a standout feature of the quarter. Normalized EBITDA increased 13% to $414 million, while the margin expanded 210 basis points to 33%, exceeding management’s guidance. The results demonstrated meaningful operating leverage, with EBITDA growing more than twice as fast as revenue. GoDaddy also continued to generate exceptional cash flow, with free cash flow increasing 15% to $474 million. On a trailing 12-month basis, free cash flow reached $1.68 billion, exceeding normalized EBITDA and reinforcing management’s view that free cash flow is the company’s primary measure of long-term value creation.
The balance sheet also remained strong. GoDaddy ended the quarter with $1.3 billion in cash, total liquidity of $2.3 billion, and net debt of $2.6 billion, representing a modest net leverage ratio of 1.4x, comfortably within management’s target range. Customer monetization continued to improve as average revenue per user (ARPU) increased 9% to $246, supported by higher product attachment rates, while customer retention remained above 85%.
Looking ahead, management reaffirmed its full-year 2026 guidance, projecting revenue of $5.24 billion at the midpoint, representing approximately 6% year-over-year growth. Applications & Commerce is expected to continue growing at a low double-digit rate, while Core Platform is projected to deliver low-single-digit growth for both the second quarter and the full year. The company also expects normalized EBITDA margin to remain above 33% and reiterated its target of approximately $1.8 billion in free cash flow, reinforcing its long-term objective of delivering more than 20% annual free cash flow growth. Management noted that its revenue guidance incorporates roughly 200 basis points of temporary headwinds, including the expiration of the .CO registry contract, the absence of unusually large aftermarket transactions, ongoing product portfolio changes, and the impact of promotional pricing initiatives. As a result, management believes the underlying growth trajectory of the business remains stronger than reported results alone suggest.
For the second quarter of 2026, GoDaddy expects revenue of approximately $1.23 billion, representing about 6% year-over-year growth at the midpoint of its guidance range, along with a normalized EBITDA margin of approximately 33%.
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Web Worth
GoDaddy’s shares have fallen by more than 50% over the past year, even though the company has continued to grow revenue, expand margins, and generate strong free cash flow. The disconnect between the company’s operating performance and its share price reflects a significant shift in investor sentiment rather than a deterioration in the underlying business. The selloff began after management disclosed that promotional domain pricing would temporarily reduce bookings and issued a softer-than-expected FY26 revenue forecast, raising concerns about the company’s near-term growth trajectory. Investor sentiment was further weighed down by fears that artificial intelligence could disrupt GoDaddy’s core domain and website business, while a broader selloff across software stocks significantly compressed sector valuations, placing additional downward pressure on the company’s shares. Management, however, believes these headwinds are largely temporary. The impact of promotional pricing and the expiration of the .CO registry contract is expected to be short-lived, while the company’s early AI initiatives are already showing signs of becoming meaningful drivers of future revenue growth and long-term earnings.
The company is currently trading at a substantial discount to its historical averages based on non-GAAP trailing and forward P/E ratios and forward EV/EBITDA. Compared with peers such as Wix.com, Shopify, and Verisign, GDDY is trading in the low valuation range based on non-GAAP trailing and forward P/E ratios, forward EV/EBITDA, and EV/Sales, substantially below higher-growth software companies such as Shopify and even below Verisign despite delivering comparable or better earnings growth in several key areas. Its forward PEG ratio of just 0.43 also suggests investors are paying relatively little for the company’s expected earnings growth.
Over the past three years, GoDaddy has compounded EBITDA, net income, and EPS at double-digit rates, supported by disciplined cost management, operating leverage, and an aggressive share repurchase program. Combined with industry-leading gross and operating margins, strong free cash flow generation, and the ongoing shift toward higher-margin software, commerce, payments, and AI-powered services, the current valuation does not fully reflect the company’s long-term earnings and cash flow potential.
Analysts remain optimistic about GDDY because the company’s business is supported by strong and growing free cash flow, high-margin recurring revenue, and expanding profitability, providing ample resources to fund product innovation, share repurchases, and future growth without relying heavily on external financing. At the same time, continued margin expansion and increasing adoption of its higher-margin Applications & Commerce offerings enhance operating leverage, improve cash generation, and create a more predictable and resilient earnings profile over the long term.
Reflecting these strengths, Wall Street’s consensus price target implies a roughly 30% upside from current levels, while the most optimistic analyst estimates suggest potential upside of 117%. The wide dispersion in analysts’ price targets reflects different assumptions about GoDaddy’s future rather than disagreement about its current business. The consensus target assumes steady execution and moderate growth, while the most optimistic forecasts assume the company’s AI strategy successfully drives faster revenue growth, higher customer lifetime value, and continued margin expansion, leading to a meaningful re-rating of the stock. In addition, discounted cash flow analysis indicates that the shares may be trading at roughly a 72% discount to intrinsic value.
GoDaddy maintains a disciplined capital allocation strategy focused on maximizing long-term shareholder value. Management prioritizes investing in organic innovation and AI-driven product development before returning excess cash to shareholders through share repurchases while pursuing acquisitions only when they can meaningfully enhance customer lifetime value or strengthen the business. The company repurchased $280 million of shares during the first quarter of 2026, well below its $474 million of free cash flow generation. Management said the difference reflected the timing of repurchases rather than any change in its commitment to returning capital to shareholders. Over the past four years, the company has returned approximately 95% of its free cash flow to shareholders through buybacks, reducing its fully diluted share count by more than 30% since 2022. Combined with strong free cash flow generation and a healthy balance sheet, this disciplined approach has supported faster per-share earnings growth while preserving flexibility to invest in future growth opportunities.
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Investing Takeaway
For value-oriented investors, GoDaddy presents an intriguing opportunity. Despite continuing to grow revenue, expand margins, and generate substantial free cash flow, the stock has declined sharply as investors focused on temporary booking headwinds, AI-related concerns, and a weaker near-term outlook. Yet the underlying business appears stronger than market sentiment suggests. GoDaddy’s recurring revenue model, high customer retention, expanding software and payments ecosystem, and disciplined cost management continue to drive rising profitability and cash generation. At the same time, management is using that cash to aggressively reduce the share count while investing in AI initiatives that could support future growth. For patient value investors, the current disconnect between GoDaddy’s fundamentals and its valuation could represent an unusually attractive opportunity to buy a high-quality compounder while market sentiment remains overly pessimistic.
