GoDaddy Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone Q4 report; selected Q4 figures are noted below. GoDaddy provides domain registration, hosting and online-presence products, business applications, and customer guidance to entrepreneurs and small businesses.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $2,988.1 million | $2,660.1 million | +12.3% |
| Operating income | $202.6 million | $149.6 million | +35.4% |
| Net income | $138.4 million | $82.0 million | +68.8% |
| Net income attributable to GoDaddy | $137.0 million | $77.1 million | +77.7% |
| Net cash from operating activities | $723.4 million | $559.8 million | +29.2% |
| Total bookings (non-GAAP operating metric) | $3,401.2 million | $3,011.5 million | +12.9% |
Margins: Operating margin was 6.8%, up from 5.6%; net margin was 4.6%, up from 3.1%. Calculated gross margin, using cost of revenue excluding depreciation and amortization, was approximately 65.7%, versus 66.4% in 2018. Diluted EPS attributable to GoDaddy was $0.76, compared with $0.45.
Revenue mix: Domains generated $1,351.6 million (45.2% of revenue; +10.8%); hosting and presence $1,126.5 million (37.7%; +10.7%); and business applications $510.0 million (17.1%; +20.8%). Management said faster growth in hosting, presence and applications improved the product mix and supported margins.
Scale and customer metrics: Customers increased 4.1% to 19.3 million; average revenue per user rose 6.6% to $158. Domains under management reached 79.6 million. Customer retention exceeded 85% for each of the past five years; retention among customers with more than three years’ tenure was approximately 92% in 2019.
Liquidity, debt and cash flow
- Cash and cash equivalents were $1,062.8 million at year-end, versus $932.4 million; total debt was $2,432.3 million, versus $2,457.3 million. The company reported $600 million available under its revolving facility, with no borrowings outstanding, and said it was in compliance with debt covenants.
- Net cash used in investing activities was $135.3 million, primarily reflecting acquisitions and capital expenditures. Net cash used in financing activities was $456.9 million, including $458.6 million of share repurchases.
- In June 2019, GoDaddy issued $600 million of unsecured 5.25% senior notes and used the proceeds to prepay term loans. It also increased revolving-credit capacity to $600 million and reduced term-loan interest margins in October. A $14.8 million debt-extinguishment loss was recorded, primarily related to the partial prepayment.
- Deferred revenue was $2,198.8 million, up from $2,017.5 million, reflecting advance customer payments; it is expected to be recognized as the related services are delivered. Management stated existing cash and internally generated cash flows were expected to cover operating cash needs for at least 12 months.
Period comparison and Q4 detail
Revenue growth was driven by customer and domain growth, higher customer spend, broader adoption of non-domain products, and a full year of revenue from the 2018 Main Street Hub acquisition; foreign exchange partly offset growth. Total bookings growth was also supported by higher aftermarket domain sales. International revenue was $1,008.5 million, up 7.7% reported (approximately 11.4% in constant currency).
FY operating income increased faster than revenue, while cost of revenue rose 14.9%. Marketing and advertising expense rose 18.6%, and technology and development expense rose 14%. Depreciation and amortization fell 10.4%, primarily because certain intangible assets became fully amortized. Reported net income also reflects the $14.8 million debt-extinguishment loss, a $22.0 million gain in other income, and an $8.7 million benefit from a tax receivable agreement liability adjustment.
In Q4 2019, revenue was $780.4 million, versus $695.8 million in Q4 2018; operating income was $73.5 million, versus $41.8 million; and net income was $61.1 million, versus $43.5 million.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management described continued investment in product development, international expansion, marketing, customer care and migration of infrastructure to AWS, which it said is expected to take five to seven years.
- Key risks include intense competition and pressure on pricing and customer acquisition costs; reliance on subscription renewals and domain demand; service availability, cybersecurity and data privacy; dependence on third-party cloud and other providers; foreign-exchange exposure; and substantial debt and restrictive covenants.
- Regulatory exposure includes GDPR and the California Consumer Privacy Act, which took effect January 1, 2020, as well as evolving ICANN and domain-registry policies and fees. The filing notes a proposed .com registry agreement that could increase wholesale fees, subject to approval.
- GoDaddy recorded an $18.1 million legal accrual for a proposed settlement of three TCPA class actions, with total settlement funding of up to $35 million subject to court approval. The company continued to deny the allegations.
- The company identified and reversed $15.6 million of prior-period equity-compensation expense in 2019; it concluded the prior-period amounts were immaterial. Management reported the related significant deficiency had been remediated by year-end. Management and the auditor concluded internal control over financial reporting was effective.
- CEO Aman Bhutani was appointed in September 2019 following Scott Wagner’s resignation. In February 2020, GoDaddy entered agreements for two acquisitions with an aggregate purchase price of approximately $196.9 million; $149.1 million had been paid in cash, with the balance subject to approvals, closing conditions and holdbacks.
- The recorded tax receivable agreement liability was $175.3 million. The company disclosed that up to an additional $1,579.3 million could be recorded if use of certain tax attributes becomes more likely than not; timing and amounts depend on future taxable income and attribute utilization.
Investor verification points
- Verify the drivers and sustainability of growth in bookings, revenue per user, customer retention and the faster-growing applications and hosting categories.
- Review operating cash flow relative to share repurchases, acquisitions, debt service and upcoming contractual obligations; assess the large scheduled 2024 term-loan maturity.
- Track the status and final cost of the TCPA settlement, the Domain Factory data incident investigation, and other legal or regulatory contingencies.
- Assess the assumptions behind future taxable income, the recorded TRA liability and the potential additional TRA obligations.
- Monitor AWS migration execution, service reliability and security, foreign-exchange effects, and the impact of domain-registry fee changes.
- Review the February 2020 acquisitions’ closing status, consideration and expected contribution; the filing does not provide a quantified outlook for their financial effects.