Alex Dumortier on Motley Fool took a look at the Go Daddy IPO and honed in on the history of operating losses and whether or not the stock is cheap based on projections.
From the article:
We have a history of operating losses and may not be able to achieve profitability in the future.
That is one of the prominent risk factors that greets prospective investors in GoDaddy’s most recent prospectus. On a GAAP [generally accepted accounting principles] basis, GoDaddy has lost $622 million cumulatively over the past three years – hardly inconsequential for a company that generated $4.2 billion during that period. The good news, however, is that, as of last year, GoDaddy is profitable on the basis of free cash flow (which is what really matters, ultimately — not GAAP earnings).
By my calculations and based on a share price of $18 (the midpoint of the current indicative range of $17 to $19), GoDaddy’s enterprise value-to-EBITDA multiple is 7.2. Enterprise value (EV) is the sum of a company’s market capitalization and its net debt; EBITDA is a measure of cash flow, the acronym refers to earnings before interest, taxes, depreciation and amortization.
It’s cheap, surely
On that basis, GoDaddy is cheaper than all 10 companies in Bloomberg’s selection of comparable companies for which this multiple exists and roughly in line with AOL (NYSE: AOL ) , at 7.5. The median for the group, which includes Facebook, Google, IAC/Interactive (NASDAQ: IACI ) , Yahoo! and Yelp is 15.1.
So, GoDaddy looks cheap, then. If only it were that straightforward. I calculated GoDaddy’s EV/EBITDA using the firm’s own adjusted EBITDA figure of $271.5 million. However, Bloomberg puts 2014 EBITDA at $90.9 million, which would lift the EV/ EBITDA to 21.8. All of a sudden, GoDaddy is more expensive than all but three of its peers and significantly more expensive than Google, for example, at 14.7. As such, using EV/ EBITDA is inconclusive until one examines the adjustments the company makes to derive its EBITDA figure. I would tend to remain skeptical and lean toward an “expensive” verdict here.
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In other Go Daddy related news and analyst at BWS Financial wrote a report that Go Daddy is a greater threat to Web.com than Google. When Google announced it was getting into the registrar business, the price of Web.com (WWWW) declined dramatically.
Javier Hasse wrote on Benzinga.com:
The analyst explained that Godaddy’s initial public offering has provided an underlying bid in the shares of Web.com on the back of its better comps in the market and a higher valuation.
However, the risk that the company has had to deal with in having Godaddy as its largest competitor increases with the IPO.