3 Reasons to Avoid GDDY and 1 Stock to Buy Instead

Over the last six months, GoDaddy’s shares have sunk to $145, producing a disappointing 18.4% loss - a stark contrast to the S&P 500’s 9.7% gain. This might have investors contemplating their next move.

Is there a buying opportunity in GoDaddy, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is GoDaddy Not Exciting?

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons we avoid GDDY and a stock we'd rather own.

1. Weak Bookings Point to Soft Demand

In addition to reported revenue, it is useful to analyze bookings for GoDaddy because they show the value of contracts signed in a period. It could be a better indicator of demand, as reported revenue is subject to recognition rules based on when products and services are delivered.

GoDaddy’s bookings came in at $1.29 billion in Q2, and over the last four quarters, its year-on-year growth averaged 8.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing new contracts or renewals.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect GoDaddy’s revenue to rise by 6.9%, close to This projection doesn't excite us and implies its newer products and services will not catalyze better top-line performance yet.

3. Low Gross Margin Reveals Weak Structural Profitability

For software companies like GoDaddy, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

GoDaddy’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 64% gross margin over the last year. Said differently, GoDaddy had to pay a chunky $36.03 to its service providers for every $100 in revenue.

Final Judgment

GoDaddy’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 4× forward price-to-sales (or $145 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our top software and edge computing picks.

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