Is Trouble Already Brewing for GoDaddy Shareholders?

GoDaddy Inc. (NYSE: GDDY) has only been public for a week, but its trading pattern might indicate that some of the premium after the initial public offering (IPO) may already be too frothy for some investors. GoDaddy is one of the top website hosting and domain registration outfits for businesses and individuals.

There has effectively been no real news since the initial public offering, but the concern is over the trading patterns over the past week. The notion that Standard & Poor’s decided to raise GoDaddy’s corporate credit ratings to B+ from B on Tuesday did not do much for the stock.

24/7 Wall St. questioned whether a $4 billion valuation was sustainable at the actual pricing of this deal. Nothing has changed there, except that GoDaddy’s trading pattern has been weak. Also, GoDaddy is currently running with operating losses.

GoDaddy sold 23,000,000 common shares of its Class A stock at $20.00 per share in the IPO. GoDaddy granted the underwriters an overallotment option to purchase up to 3 million additional class A shares. It would seem a safe assumption that those shares were exercised.

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The opening price was $26.15 on the IPO, and the stock traded as high as $26.84 before closing on the first day back at $26.15. The first full trading day brought a $26.50 close, which might have made some investors think there was extra demand. Now we have seen three consecutive trading days of lower closes, and the higher intraday prints have not held up.

Wednesday’s closing price was $25.15 and the intraday low was $25.00.

Here is what was truly a concern by 24/7 Wall St. Again, there has been no real news and this is based on trading patterns only. The trend is that IPOs are just not being treated with as much fanfare so far in 2015, with volumes lower and companies issuing secondary offerings galore, and with the market close to or at all-time highs. The $20 price was $1 ahead of the $17 to $19 range indicated by the syndicate.

The first trading day saw 23.17 million shares trade hands. That is only one times the volume of the whole IPO — or less than 1.0 times the volume if the overallotment option was exercised. The volume then fell to 5.1 million on day two, then 2.1 million on day three. GoDaddy shares did not even trade a million shares a day for each of the past two days.

One thing that GoDaddy’s IPO does have going for it was that the IPO included 2,500,000 shares that were purchased at the IPO price by affiliates of the principal beneficial holders of its Class A common stock.

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Here were some of the basic statistics from the company’s IPO filing:

  • As of December 31, 2014, GoDaddy had approximately 12.7 million customers, and in 2014, it added more than 1.1 million customers.
  • In 2014, the company generated $1.7 billion in total bookings up from $939 million in 2010, representing a compound annual growth rate (CAGR) of 16%.
  • In 2014, it had $1.4 billion of revenue up from $741 million in 2010, representing a CAGR of 17%.
  • In the five years ended December 31, 2014, GoDaddy invested to support its growth with $976 million and $656 million in technology and development expenses and marketing and advertising expenses, respectively.

GoDaddy shares were indicated marginally lower on Thursday morning, and we will just have to see how this one trades in the days and weeks ahead before issuing a final verdict on whether GoDaddy’s IPO was a boom or a bust.

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