GoDaddy Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing; selected Q4 figures are included below. GoDaddy provides domain registration, hosting and online-presence tools, business applications, and customer support to small businesses and individuals.
Financial performance and key metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $2,660.1 million | $2,231.9 million |
| Total bookings (non-GAAP operating metric) | $3,011.5 million | $2,618.2 million |
| Operating income / margin | $149.6 million / 5.6% | $66.9 million / 3.0% |
| Net income | $82.0 million | $139.8 million |
| Net income attributable to GoDaddy Inc. | $77.1 million | $136.4 million |
| Net cash from operating activities | $559.8 million | $475.6 million |
| Cash and cash equivalents at year-end | $932.4 million | $582.7 million |
| Total debt at year-end | $2,457.3 million | $2,482.3 million |
| Deferred revenue at year-end | $2,017.5 million | $1,861.6 million |
- Revenue grew 19.2%; bookings grew 15.0%. Revenue by category was domains $1,220.3 million (46%), hosting and presence $1,017.6 million (38%), and business applications $422.2 million (16%).
- Cost of revenue was 33.6% of revenue, versus 34.7% in 2017. The filing says faster growth in higher-margin hosting, presence, and business applications helped the margin mix.
- Cash from operations increased 17.7%. Investing used $254.8 million, including acquisition and capital spending; financing provided $47.0 million. Year-end cash less total debt was approximately negative $1.52 billion.
- Current assets were $1,427.3 million and current liabilities $1,886.2 million. Current liabilities include substantial deferred revenue from prepaid subscriptions; the filing does not present a conventional liquidity ratio as a key measure.
- Q4 2018: revenue was $695.8 million, operating income $41.8 million, and income from continuing operations $43.5 million. Revenue was $602.2 million in Q4 2017.
- Customer count rose 6.8% to 18.5 million; average revenue per user (ARPU) rose 6.6% to $148. More than 77 million domains were under management. Customer retention exceeded 85% in each of the last five years.
Material changes versus the prior comparable period
- Operating income more than doubled, and operating margin improved to 5.6% from 3.0%, as revenue growth outpaced total operating-expense growth.
- Net income fell to $82.0 million from $139.8 million despite higher operating income. The comparison is affected by a $123.2 million favorable tax-receivable-agreement (TRA) liability adjustment in 2017, versus $14.9 million in 2018, and $14.1 million of discontinued-operation income in 2017. 2017 also included a $33.2 million gain on the sale of PlusServer within discontinued operations.
- International revenue increased 28.7% to $936.2 million; international bookings were approximately 35% of total bookings, up from 33% in 2017. Currency movements modestly reduced reported growth.
- Business applications grew 29.2%, hosting and presence 20.0%, and domains 15.4%. The mix continued shifting away from domains, which represented 45.9% of revenue versus 47.4% in 2017.
- Technology and development expense increased 22.0% to $434.0 million, reflecting product development and headcount; equity-based compensation rose to $125.5 million from $76.4 million.
- GoDaddy acquired Main Street Hub (MSH) in July 2018 for $182.0 million, including contingent earn-outs of up to $50.0 million. It also began a planned migration of most infrastructure to AWS over five to seven years.
Outlook, commentary, risks, and unusual items
- The filing gives no quantified forward revenue or earnings guidance. Management expects continued investment in product development, international growth, customer care, and the AWS migration. It stated existing cash and internally generated cash flows should cover anticipated operating cash needs for at least the next 12 months.
- In November 2018, the board authorized up to $500 million of Class A share repurchases; no shares had been repurchased by year-end. No dividend is expected in the foreseeable future.
- Debt was approximately $2.46 billion, primarily term loans maturing in 2024, with $200 million available and undrawn on the revolving facility. The company reported compliance with debt covenants. Interest-rate exposure is partly hedged.
- The recorded TRA liability was $174.3 million. If specified tax benefits become more likely than not to be used, additional liabilities could reach $1,101.5 million for basis adjustments and $372.3 million for NOL and credit carryforwards. TRA obligations may accelerate in certain transactions or circumstances and could pressure liquidity.
- Security and operational risks include a 2018 incident involving unauthorized access to certain Domain Factory customer data; the Bavarian data-protection authority had not issued a final decision or fine by the filing date. The company also disclosed approximately 4,000 reported customer domains misused in 2018 for abusive email activity.
- Other principal risks include competition and pricing pressure, dependence on renewals and domain registrations, service outages and cyberattacks, reliance on third-party cloud providers, international and currency exposure, privacy regulation (including GDPR and the forthcoming CCPA), and substantial leverage. The company notes that its annual refund rate was 6.4%–6.6% of bookings from 2016 through 2018.
- Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2018; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Separate underlying operating performance from the unusually large 2017 TRA adjustment and discontinued-operation gain when comparing net income.
- Track bookings, renewals, ARPU, customer retention, and deferred revenue together; bookings are a non-GAAP measure and differ from recognized revenue.
- Review debt service, variable-rate exposure, covenant headroom, and the timing and potential acceleration of TRA payments.
- Monitor whether the AWS transition, MSH integration, and international expansion produce expected customer, margin, and cash-flow benefits.
- Follow regulatory outcomes and remediation related to the Domain Factory data incident, as well as continuing security, privacy, and domain-abuse risks.
- Confirm actual execution of the $500 million repurchase authorization and its effect on cash, leverage, and share count.