For GoDaddy to cut costs — Starboard calls
Sizable GoDaddy investor states firm ought to cut costs and not pin hopes on a return of revenue growth.
Activist investor Starboard Value, which owns 7.8% of outstanding GoDaddy (NYSE: GDDY) stock, has called for change at the firm.
In a letter to the firm and board (pdf), Starboard noted that GoDaddy is significantly missing its Investor Day targets and that it seems GoDaddy is counting on revenue acceleration to hit profitability metrics. Starboard noted that revenue growth “has proven to be elusive.”
The investor is asking the firm to cut costs:
We believe GoDaddy can drive significant margin improvement by reducing expenses in multiple cost centers, with the greatest opportunity in Technology & Development expenses. Technology & Development expense growth (counting stock-based compensation) has outpaced revenue growth over the last five years, as expenses have grown at a 16% CAGR, while revenue has grown at an 11% rate. In the technology industry, demonstrating operating leverage is crucial as firms scale, but unfortunately for shareholders, GoDaddy’s Technology & Development expense growth has continued to outpace revenue growth and increase as a percentage of revenue.
Last year, GoDaddy spent nearly $800 million in Technology & Development expenses, a staggering number when compared to the absolute spending levels of peers. Further, headcount in this function has grown by more than 50% since 201810. While we understand that a portion of these expenses are related to the Firm’s technology infrastructure, we believe it is notable to note that approximately two-thirds of GoDaddy’s revenue is generated by the Core Platform segment, which largely consists of the Firm’s domain registration and hosting businesses. These businesses are more mature and ought to require far less engineering and development expenses.
Starboard stated it has continually asked for direct representation on GoDaddy’s board, which the firm has denied.
Shares in GoDaddy are up slightly today.
