GoDaddy Is Changing Its Business — But Investors Worry the Change Isn’t Fast Enough
Five weeks after going public, and Blake Irving’s strategy at GoDaddy appears to be working. But investors remain worried that the transitions are not happening fast enough.
The company reported better-than-expected first quarter earnings Tuesday in its first report since the IPO, with strong growth in its web presence and business software segments just as its core business selling web domains starts to level off. Revenues grew by 17% from a year earlier and guidance for the next quarter was stronger than expected, but investors sold off shares in after-hours trading.
The company faces the same strategic challenge it faced when Irving joined in 2013: transition the existing domain customers to other services before the domain sales business matures and revenue growth grinds to a halt. The company has gone on a buying spree in the past two years, acquiring a range of small business software companies that offer everything from accounting services to email marketing.
Those acquisitions appear to be paying off. In the first quarter, domain sales generated a little over $199 million, which represented just over half of the firm’s revenue as growth, with segment revenue growth declining from 12% to 10% on a year over year basis. But the slowing growth was bolstered by strong performance in its hosting and presence segment, which includes a number of website development services, and its business application category that includes payroll, payments and marketing products.
Earlier this month, the company announced a new product line, GoDaddy Pro, aimed at web development professionals that service the small business market. During an earnings call Tuesday evening, CEO Blake Irving said he believes the the product, which provides developers with tools to build websites for clients, would help bolster its hosting and application category by creating an additional channel to reach small businesses.
“We look at the [GoDaddy] Pro product not only as a new customer base but as a channel as well,” said Irving. Those new professionals will bring new small business customers to us since we know that 60% of small businesses today have someone build their website for them.”
The company also launched a new email marketing product in the quarter built around Mad Mimi, a startup GoDaddy acquired in last summer. The product, which is part of quickly growing and far more profitable business application segment, aims to take share away from pure-play email marketing firms such as Constant Contact and MailChimp through direct integrations with a customer’s other products on GoDaddy.
One of the critical benefits of the hosting, presence and business applications products is that they are far more profitable than its domain business. CFO Scott Wagner said during the call Tuesday that the customers which the firm acquired last year at $50 to $60, were generating roughly $155 the year following.
To an extent, the average revenue the company generates from its existing customers will be more indicative of the success of GoDaddy’s strategy than the number of customers it adds each quarter. The company, which currently has a little over 13 million customers, generated $155 per customer in the first quarter, a 9.5% increase from a year earlier, roughly the same growth rate as the prior four quarters.
The thesis on which GoDaddy is building its business is now widely accepted in the small business technology industry. The question for GoDaddy is whether the market will evolve fast enough so that the company can transition its domain customers onto these new products before investors begin to worry.
Steven Jacobs is Street Fight’s deputy editor.