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GoDaddy (NYSE:GDDY) shares surged on Friday, hitting their best level in more than a year, as the domain and web hosting company posted third-quarter results and guidance that handily topped expectations, leading to effusive praise from Wall Street.
William Blair analyst Matthew Pfau, who has an outperform rating on GoDaddy (GDDY), added that the focus on margin expansion “should be well received.”
“The combination of improved top-line growth and margin expansion should also result in [free cash flow] acceleration,” Pfau wrote in a note to clients. “As investors become comfortable with the company’s ability to achieve this, we see the potential for the stock’s valuation of 10.8 times our calendar 2024 [free cash flow] estimate to rerate materially higher.”
Evercore ISI analyst Mark Mahaney, who has an outperform rating on GoDaddy (GDDY), said the margin boost “primarily comes from cost reductions in Tech & Dev, which we believe is largely structural.”
For the period ending September 30, GoDaddy earned 89 cents per share as revenue rose 3.9% year-over-year to $1.07B. Analysts had expected earnings of 72 cents per share on $1.06B in revenue.
Normalized EBITDA rose 13% year-over-year to $296M, above estimates.
Looking ahead, it expects fourth-quarter revenue to be within a range between $1.095B and $1.115B, up 6% year-over-year at the mid-point. Included in that is a 13% rise in applications and commerce revenue, while platform revenue is expected to grow between 2% and 3%.
The company also boosted its normalized EBITDA margin to approximately 29% for the coming period and 26% for the full-year.
GoDaddy narrowed its full-year revenue forecast, as it now expects sales to be between $4.25B and $4.27B, compared to a prior view of $4.25B to $4.33B. Unlevered free cash flow is expected to be “at least” $1.2B, up 9% year-over-year.
Investment firm Citi also praised the company’s EBITDA margins and its ability to leverage its investments to boost its free cash flow. Citi increased its price target to $95 from $86 after the results.
Competitors Squarespace (SQSP) and Wix.com (WIX) both rose on back of the results, up 3.2% and 6.4%, respectively.
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