Investor Starboard Value Calls for GoDaddy to Explore Sale Amid Financial Concerns

In a move that sent ripples through the tech industry, activist investor Starboard Value publicly expressed its concerns about GoDaddy’s financial performance and called for the web services company to consider a potential sale if it fails to improve its outlook.
GoDaddy India businessStarboard Value, which acquired a stake in GoDaddy in 2021 and is now its third-largest shareholder with a 7.8 percent interest, made the announcement on Tuesday. The investment firm asserted that GoDaddy is currently “deeply” undervalued and highlighted its worries about the company’s inability to meet key targets set at its 2022 investor day, including those related to revenue and adjusted core profit growth.

Despite a 3.2 percent rise in revenue to $1,048 million and net income of $83.1 million reported during the second quarter of 2023, GoDaddy’s financial performance has raised concerns. Starboard Value urged the company to take an objective look at its prospects for significant revenue growth while recommending that it should bolster margins by reducing expenses.

Starboard specifically pointed to technology and development costs, which have outpaced revenue growth over the past five years, reaching nearly $800 million last year. The activist investor emphasized that GoDaddy should explore cost-cutting measures in these areas.

As of now, GoDaddy has not provided an official response to Starboard Value’s statement. Nevertheless, the news of Starboard’s concerns resulted in GoDaddy’s shares rising by nearly 3 percent in premarket trading, Reuters news report said.

In addition to its call for GoDaddy to consider a potential sale, Starboard Value revealed that the company had denied its requests for a board seat over the past 18 months. In a letter to GoDaddy’s board, Starboard expressed its continued belief in the value creation opportunity at GoDaddy and urged the company to seriously consider its suggestions and other growth opportunities.

GoDaddy has set ambitious targets for the third quarter ending September 30, 2023, aiming for total revenue in the range of $1.055 billion to $1.075 billion, representing year-over-year growth of 3 percent at the midpoint, compared to the same period in 2022. Additionally, GoDaddy targets a Normalized EBITDA margin of approximately 26 percent for the third quarter and full year ending December 31, 2023.

Earlier this year, in February 2023, GoDaddy had announced a restructuring plan aimed at reducing future operating expenses and improving cash flows through workforce reductions and asset sales. The company closed on the sale of non-core hosting brands during the second quarter, albeit with a net pre-tax loss on disposal of $16.8 million.

GoDaddy has also been actively integrating generative AI tools into its services, offering features like auto-generated online store product descriptions, customer service messages, and AI-powered tools for GoDaddy Pros. The company recently launched GoDaddy.AI, an online resource for customers interested in generative AI for small businesses.

GoDaddy’s situation will undoubtedly continue to attract attention as it navigates these challenges and explores potential strategies for enhancing its financial performance.