IPO Lockup Expiration: GoDaddy

GoDaddy Inc. (NYSE: GDDY) - Sell or Short Recommendation - PT $23.25

September 28, 2015 ends the 180-day lockup period on GoDaddy Inc. .

With the conclusion of the lockup period, the company's pre-IPO shareholders will have an opportunity to sell their own shares totaling over 38 million units, significantly more than the 23 million shares initially offered.

This potential for a sharp increase in the stock available in the secondary market could result in a dramatic decrease in the stock price.

Business Summary: Provider of Domain Registration and Web Hosting Services

Famous as much for its controversial advertising campaigns as it is for providing Internet services, GoDaddy is currently the world's largest registrar of domain names. The company has over 13 million customers with over 60 million domains under management. The company provides an array of web hosting and domain registration services such as initial registration, transfer and renewal of domain names with .COM, .NET, .ORG, .BIZ, .INFO AND .US domains. In addition, the company offers sales and marketing software, e-commerce solutions, website design and creation and other cloud-based services surrounding website management.

GoDaddy stock fell in August by 11.8 percent and ended the month off 24 percent from its high of $31.82 in June. Currently, however, at just above $24.50, the stock trades above its initial price of $20.

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(Nasdaq.com)

Mixed Results in August

GoDaddy announced its second quarterly results as a publicly traded company in early August. Analysts had predicted a net loss of around $0.17 per share on revenue of around $393 million. The company exceeded the revenue expectations with $395 million in sales; however, EPS results were a disappointing loss of $0.46 per unit. The day after that announcement, shares in GoDaddy declined by 11 percent.

The stock recovered a bit by the end of August, coinciding with an interview conducted by Business Insider with CEO Blake Irving. The article cast GoDaddy in a positive light, much like an innovative newcomer rather than an 18 year old, maturing company.

A significant portion of the Q2 losses resulted from early debt extinguishment fees, as GoDaddy paid down $300 million of its debt to improve its balance sheet. The company reduced its long-term debt to $1.05 billion, and without the additional expenses, the net loss reported would have been closer to a loss of $0.13 per share.

Second Quarter 2015 Financial Highlights

• Revenue increased 16.5 percent to a total of $394.5 million
• Total bookings increased 16 percent for a total of $475.9 million
• Adjusted EBITDA increased 29 percent to $82.3 million
• Unlevered free cash flow increased 21.1 percent to $77.0 million
• Total customers increased 9.1 percent to 13.3 million
• Annual ARPU rose 8.6 percent to $118

Full Results HERE.

Management Team: Bringing Experience From Yahoo! and other Tech Giants

Prior to joining GoDaddy, CEO and Board Director Blake Irving was EVP and Chief Product Officer at Yahoo! (NASDAQ:YHOO). He been in his current position since 2013. Blake's previous experience includes positions at Microsoft (NASDAQ:MSFT), Xerox (NYSE:XRX) and Compaq. In addition, he was a professor at Pepperdine's School of Business. He holds a B.A. from San Diego State University and an MBA from Pepperdine.

Founder and Director Robert Parsons launched GoDaddy in 1997. His previous experience includes positions at Parsons Technology, which was acquired by Intuit in 1994. He served in the U.S. Marine Corps and is a recipient of the Purple Heart Medal and Combat Action Ribbon. He is a Certified Public Accountant and he holds a Bachelor of Science degree in Accounting from University of Baltimore.

Competition: Amazon, Microsoft, Google, Facebook and Bluehost

GoDaddy offers its web hosting services primarily to small businesses and individuals, and these services include domain registration, web hosting, ecommerce solutions, website design and creation, and other services such as calendars, email and file sharing. Companies that compete with GoDaddy include Bluehost, Web.com (NASDAQ:WWWW), Weebly, Shopify (NYSE:SHOP), Rightside (NASDAQ:NAME), Wix (NASDAQ:WIX), Constant Contact (NASDAQ:CTCT), Yelp (NYSE:YELP), OpenTable (NASDAQ:OPEN), and Symantec (NASDAQ:SYMC). In addition, Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), eBay (NASDAQ:EBAY), Microsoft , and Amazon (NASDAQ:AMZN) offer similar services.

Conclusion: Shorting GDDY Ahead of Its Lockup Expiration Could Bring Greatest Gains

We are keen on shorting GDDY ahead of its lockup expiration on Sept. 28th.17 individulas and 4 firms (including KKR) hold restricted shares; if even some of these insiders decide to sell, an oversupply of shares available for public sale could send GDDY's share price tumbling down.

Our firm has found abnormal negative returns of -5.8% in a window of time, approximately two weeks, surrounding many firms' IPO lockup expirations. These are particularly pronounced for tech firms, like GDDY.