Activist investor to GoDaddy: Cut costs, improve sales, or sell
Starboard Blue LLC says management failed to create shareholder goodness, 'change needed'
GoDaddy needs to cut more jobs, reduce the tech budget, and address why it is falling short of financial targets outlined at its shareholder day in 2022, or the board should consider exploring a sale of the business.
This is the view from activist investor Starboard Blue LLP, GoDaddy's third largest shareholder and one which is agitating for change and a seat on the corporation's board, something it has so far failed to secure.
An open letter [PDF] to GoDaddy's top brass starts off friendly enough, with Starboard Value managing member Peter Feld describing the business as a "one-stop shop for micro- and small-businesses looking to develop a web presence."
Feld says Starboard Value invested in the stock, a move it made public in early 2022, on the basis of opportunities for strong revenue growth, "meaningful margin expansion" and a "more appropriate capital allocation strategy."
"Unfortunately, despite each of these opportunities remaining, over the last 18 months we have been disappointed by GoDaddy's operational, financial and stock price performance," the letter adds.
At the investor day, GoDaddy projected compound annual growth in revenue of 10 percent between 2022 and 2024, as well as 15 percent EBITDA, 20 percent free cashflow per share and $3 billion in share buybacks.
Starboard says these were the right targets but were also ones which left room for outperformance, yet despite some progress last year, "GoDaddy has fallen well of the pace on almost every metric," and is "expected to miss the implied 2023 targets laid out at the Investor Day."
Revenue in calendar 2022, for example, grew 7.2 percent to $4.1 billion and has slowed in the first half of this year to 3.3 percent, reaching $2.08 billion.
Some of this, the investor acknowledges, is related to a slowdown in customer demand amid "macroeconomic weakness and foreign exchange rates" but GoDaddy's recent top line performance has been below the company's own updated expectations," lagging improvements seen within peers including Squarespace Inc and Wix.com.
The letter states that since GoDaddy CEO Aman Bhutani took over six years ago the share price has remained flat and there is room for management to "improve operating and financial performance," areas that may lead to an uplift in the price of the stock.
GoDaddy could "drive significant margin improvement by reducing expenses in multiple cost centers," it claims, with Feld saying the most material area is Technology & Development expenses.
He points out that GoDaddy spent $800 million on tech in 2022, described as "staggering" when compared to peers. "Further, headcount in this function has grown by more than 50 percent since 2018."
Two-thirds of GoDaddy revenues are generated by the Core Platform – domain registration and hosting. "These businesses are more mature and should require far less engineering and development expenses."
Earlier this year, GoDaddy confirmed it was axing 8 percent of its workforce due to the "prolonged, uncertain macroeconomic environment."
Feld continues in the open letter:
"When combining the opportunity to rationalize certain Technology and Development expenses with other growth and margin improvement opportunities, we believe GoDaddy should commit to delivering a growth and profitability metric of at least 40 percent by the end of 2024. This goal would position GoDaddy to be in line with peers' targets on a similar timeframe."
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"Should the company not be able to execute on these goals or should the market continue to discount the opportunity, we believe the Board should also remain open-minded about alternative value creation opportunities, which could include a potential sale of the company."
Starboard Value, which owns 7.8 percent of GoDaddy, says it has tried on multiple occasions to get a seat on the board to press for change, but the company has "repeatedly rejected our requests."
It says GoDaddy has "failed to sustainably create shareholder value" and "changes are needed."
GoDaddy told The Reg: "Since late 2021, the GoDaddy management team and several directors have engaged in regular and constructive discussions with Starboard Value LP. We value their perspective and look forward to continuing the dialogue.
"We remain committed to positioning GoDaddy for sustained growth and profitability through innovations that help microbusinesses grow online and in person, while taking a disciplined approach to controlling costs and driving long-term shareholder value.
"As previously announced, we will update our shareholders on the continued execution of our business strategy at planned investor engagement events in the coming months." ®