Wednesday, Morgan Stanley (NYSE:MS) raised its price target on GoDaddy Inc (NYSE:GDDY) shares to $120 from $111, while maintaining an Equalweight rating. The firm highlighted GoDaddy's Q4 revenue growth of 5.8% year-over-year (YoY), which aligned with the company's guidance of 5-7%. However, bookings growth at 6.9% YoY was slightly below the expected 7.6%. The Applications and Commerce (A&C) sector, with a 16% increase YoY, alongside domains, which saw a 7% rise, are expected to drive a faster growth pace in FY24.
GoDaddy's initial FY24 revenue guidance suggests approximately 6% growth at the midpoint, or around 7% excluding hosting headwinds, compared to the 6% reported in Q4 of 2023. GoDaddy's strategy of increasing average revenue per user (ARPU) through customer product attachment—now over 50% of customers use more than two products—has been successful. This strategy is anticipated to enhance retention, accelerate revenue growth, and expand margins.
The introduction of GoDaddy Airo, an AI-generated website and marketing tool, aims to attract new customers to its A&C product portfolio. Early indications show that customers using Airo are monetizing at faster rates. GoDaddy is also focusing on operational efficiencies and disciplined spending to increase profitability. These efforts are expected to raise operating margins to 29% in FY24 and to 31% by the end of the year.
The company's targets for unlevered free cash flow (uFCF) at $1.4 billion and free cash flow (FCF) at $1.2 billion for FY24 are consistent with consensus expectations. The revised price target of $120 reflects the guidance for $1.2 billion FCF in FY24 and a stable outlook for FY25 FCF of $1.4 billion. The valuation is based on a 1.0x enterprise value to free cash flow to growth (EV/FCF/G) multiple, which is in line with the small to mid-size (SMID) average of 0.90x.
InvestingPro Insights
GoDaddy Inc (NYSE:GDDY) has been showing a robust performance with a strong return of 24.72% over the last three months, indicating investor confidence in the company's growth trajectory. This aligns with Morgan Stanley's raised price target and reflects the company's successful strategies and operational efficiencies. Notably, GoDaddy's revenue for the last twelve months as of Q4 2023 stood at $4.254 billion, with a growth of 5.81% in Q4, highlighting its consistent upward momentum.
The company's aggressive share buyback program, as noted in one of the InvestingPro Tips, suggests management's belief in the intrinsic value of the company, potentially offering a signal to investors about the stock's future prospects. Additionally, GoDaddy's high shareholder yield is a testament to its commitment to returning value to its investors.
InvestingPro Data metrics reveal a P/E ratio of 11.73, which is slightly lower than the adjusted P/E ratio for the last twelve months as of Q4 2023, at 11.22. This could indicate that the stock is reasonably valued in the current market. Moreover, the company's Price / Book ratio stands at 194.9, which, while high, may be justified by the company's significant revenue growth and strong return on assets of 19.15%.
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