The next high-profile stock IPO is just around the corner.
With controversial ads, high-paid celebrity spokespeople and less than 20 years in business, this company doesn’t exactly seem like the face of stability. Still, with revenue jumping more than 20% between 2013 and 2014, the company’s growth is hard to ignore.
I’m talking about Internet domain registration company GoDaddy, which will trade under New York Stock Exchange ticker GDDY after its initial public offering. Under the terms of the GoDaddy IPO, the company plans to offer 22 million shares to the public at an expected price of between $17 and $19 a share.
It’s worth noting that the strong revenue growth mentioned above is only part of the story – the company is still far from profitable. At 18 years old, GoDaddy is quite unlike other Internet companies.
Facebook (NASDAQ: FB) and Twitter (NASDAQ: TWTR) fit the mold of Internet company IPOs with explosive growth of either revenues or active users. These companies often go public after only a few years and use the cash raised from the IPO to “grow up.”
The idea here is to take an explosive concept that is in its infancy, bring in “adult supervision,” take it public through an IPO, and then get a grip on expenses and refine the business model to turn a profit.
With that in mind, it isn’t every day that you see an IPO of an 18-year-old Internet company that isn’t experiencing rapid growth somewhere in its business.
The chart below shows the recent trajectory of GoDaddy’s margins. As you can see from the gray line – the one representing “Net profit margin” – the company hasn’t turned a profit and the path of the net profit margin doesn’t suggest that the company will be wildly profitable anytime soon.
Indeed, GoDaddy lost $143.3 million in 2014. Though this was down from a $199.9 million loss in 2013 and $279.3 million loss in 2012, these numbers don’t exactly paint a pretty picture.
Should you buy the GoDaddy IPO?
In a word: no.
The reality is that, after 18 years in existence with no profitability and with no major explanation for what the company will do differently after the IPO, I don’t know why someone would want to buy the GoDaddy IPO.
GoDaddy operates in a low margin and highly competitive domain registration marketplace. Despite its high-profile ad presence, it doesn’t appear to be a leader in its market and the financial picture isn’t promising.
Sadly, it gets worse.
The structure of the GoDaddy IPO is questionable at best.
The company is currently owned by a couple of private equity firms and the company’s founder, the often controversial Bob Parsons. Interestingly, the structure of the GoDaddy IPO seems to be geared toward paying off Parsons and these private equity firms.
According to GoDaddy’s S-1 IPO filing, investors in the GoDaddy IPO would essentially be buying shares of a new company that will buy out the shares of the old company. Most interestingly, the funds raised in the IPO would first pay the expenses of this more complicated and more expensive IPO structure, then pay off liabilities owed to the private equity firms.
The remaining proceeds from the GoDaddy IPO – estimated to be only around $25 million – would then go to the new company for corporate purposes.
Let me repeat that. Only around $25 million raised during the IPO will actually go to the company for use in its operations. The IPO is intended to raise between $400 million and $450 million. That means that only 5.5% to 6.25% of the GoDaddy IPO proceeds will actually support GoDaddy’s business needs.
The remaining millions will pay IPO expenses and pay the current shareholders – i.e., founder Bob Parsons and his private equity partners.
The GoDaddy IPO looks to me like one of the highest-profile IPOs I’ve ever seen that is so stacked against the average investor. Buyer beware, the GoDaddy IPO is one to avoid.
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