The sheets on GoDaddy — Pulling back
GoDaddy’s IPO filing shows us what’s going on at the world’s largest domain registrar.
I speculated regarding GoDaddy’s imminent IPO back in December of last year. Now we all know the firm is going public. I just spent a good amount of my afternoon reading GoDaddy’s S-1, which it is required to file ahead of going public. GoDaddy (The Go Daddy Group, Inc.) plans to go public on the NASDAQ stock exchange using the ticker symbol “DADY”.
I’ve long been fascinated by GoDaddy’s stratospheric rise and the S-1 was my first chance to read the details behind the firm. The S-1 doesn’t disclose some numbers I’d like to see, such as revenue from domain parking on clients’ and the firm’s domains, but it tells us just regarding everything else.
GoDaddy is growing — fast. GoDaddy was a modest firm in 2001 with just $4.3M in revenue. In 2004 it grew to a whopping $73M. Double that a year later. Its 2005 revenue was almost $140M. That’s a fantastic growth rate. As of the end of March 2006 the firm employeed over 1100 people, 752 of which are in client service.
GoDaddy loses money. GoDaddy isn’t profitable and its annual losses are increasing. The firm lost under $1M in 2003, lost $3.7M in 2004, and lost $11.6M in 2005. GoDaddy’s spending on marketing has exploded from $1.2M in 2003 to over $15M in 2005. This is partly due to expensive Super Bowl commercials. GoDaddy’s S-1 mentions the term “Super Bowl” 13 times. These commercials have been a big expense for the firm, but one that Bob Parsons strongly defends.
Domain names generate the most revenue. Although it might not account for the greatest margin, domain registrations account for 60% of GoDaddy’s revenue. GoDaddy is North America’s largest shared webhosting firm and generates a bit over 20% of its revenue from hosting. The rest of its revenue comes from extra services like e-mail, SSL certificates, faxing services, and revenue from parked domain names.
GoDaddy has good reason to be worried regarding ICANN’s settlement with VeriSign. 73% of the domains registered at GoDaddy are .com domains. GoDaddy right now nets regarding $2.95 from each .com sale. If VeriSign increases its prices GoDaddy will be forced to eat more margin or increase prices.
Bob Parsons owns the firm. Literally. GoDaddy founder Bob Parsons owns 100% of outstanding shares in the firm. The firm has doled out significant stock options, but no one owns shares other than Parsons. The firm remained an S-Corp for a long time, which is rare but not surprising given the firm’s lack of outside funding.
GoDaddy relies on repeat business. This is a no brainer. All registrars rely on repeat business. But we now have a view into GoDaddy’s sales operations. First, the average order is $26.81. The average order from clients that talk to a client service rep is $65.00. The firm’s domain renewal rate was 62% in 2005.
That’s a lot of information to digest. But I have a couple other thoughts regarding GoDaddy going public:
I may have been right regarding GoDaddy’s transfer-out policies. Last month I wrote regarding how I believe GoDaddy is violating ICANN’s domain transfer policy by making it difficult to transfer domains away from GoDaddy to its competitors. I even mentioned this to Vint Cerf (ICANN board chairman) at an event last month. So I found it interesting when I read the following paragraph in the firm’s S-1:
“We are right now implementing a revised process to meet fresh ICANN policies on how we transfer, and acknowledge the transfer of, domain names. Pursuant to these fresh policies, we will no longer be able to use certain safeguards that we had in place to acknowledge transfer requests, which could increase the risk of unauthorized or fraudulent transfers.”
These “safeguards” have been overzealous in the past, counting locking domains from transfer for 60 days if you fix a typo on your registrant information. The effect of this lock has done more to prevent clients from leaving GoDaddy than to stop fraudulent transfers.
Going public will cramp Bob Parson’s style. Sure, he’ll be able to drive whatever car he wants. But Parsons is a bit outspoken for a public firm’s CEO. He once blogged regarding torture. His popular blog sticks mostly to domain name issues these days. But I feel sorry for whomever is in charge of handling Parsons during the so-called “quiet period” ahead of the firm goes public.
A year from now we’ll hopefully know if GoDaddy will be a Google or the next big IPO flop.
