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Pulling back the sheets on GoDaddy

GoDaddy’s IPO filing shows us what’s going on at the world’s largest domain registrar.

I speculated about GoDaddy’s imminent IPO back in December of last year. Now we all know the company is going public. I just spent a good amount of my afternoon reading GoDaddy’s S-1, which it is required to file before going public. GoDaddy (The Go Daddy Group, Inc.) plans to go public on the NASDAQ stock exchange using the ticker symbol “DADY”.

I’ve long been fascinated by GoDaddy’s stratospheric rise and the S-1 was my first chance to read the details behind the company. The S-1 doesn’t disclose some numbers I’d like to see, such as revenue from domain parking on customers’ and the company’s domains, but it tells us just about everything else.

GoDaddy is growing — fast. GoDaddy was a small company in 2001 with just $4.3M in revenue. In 2004 it grew to a whopping $73M. Double that a year later. Its 2005 revenue was almost $140M. That’s a fantastic growth rate. As of the end of March 2006 the company employeed over 1100 people, 752 of which are in customer service.

GoDaddy loses money. GoDaddy isn’t profitable and its annual losses are increasing. The company lost under $1M in 2003, lost $3.7M in 2004, and lost $11.6M in 2005. GoDaddy’s spending on marketing has exploded from $1.2M in 2003 to over $15M in 2005. This is partly due to expensive Super Bowl commercials. GoDaddy’s S-1 mentions the term “Super Bowl” 13 times. These commercials have been a big expense for the company, but one that Bob Parsons strongly defends.

Domain names generate the most revenue. Although it might not account for the greatest margin, domain registrations account for 60% of GoDaddy’s revenue. GoDaddy is North America’s largest shared webhosting company and generates a bit over 20% of its revenue from hosting. The rest of its revenue comes from extra services like e-mail, SSL certificates, faxing services, and revenue from parked domain names.

GoDaddy has good reason to be worried about ICANN’s settlement with VeriSign. 73% of the domains registered at GoDaddy are .com domains. GoDaddy currently nets about $2.95 from each .com sale. If VeriSign increases its prices GoDaddy will be forced to eat more margin or increase prices.

Bob Parsons owns the company. Literally. GoDaddy founder Bob Parsons owns 100% of outstanding shares in the company. The company has doled out significant stock options, but no one owns shares other than Parsons. The company remained an S-Corp for a long time, which is rare but not surprising given the company’s lack of outside funding.

GoDaddy relies on repeat business. This is a no brainer. All registrars rely on repeat business. But we now have a view into GoDaddy’s sales operations. First, the average order is $26.81. The average order from customers that talk to a customer service rep is $65.00. The company’s domain renewal rate was 62% in 2005.

That’s a lot of information to digest. But I have a couple other thoughts about GoDaddy going public:

I may have been right about GoDaddy’s transfer-out policies. Last month I wrote about how I believe GoDaddy is violating ICANN’s domain transfer policy by making it difficult to transfer domains away from GoDaddy to its competitors. I even mentioned this to Vint Cerf (ICANN board chairman) at an event last month. So I found it interesting when I read the following paragraph in the company’s S-1:

“We are currently implementing a revised process to meet new ICANN policies on how we transfer, and acknowledge the transfer of, domain names. Pursuant to these new policies, we will no longer be able to use certain safeguards that we had in place to acknowledge transfer requests, which could increase the risk of unauthorized or fraudulent transfers.”

These “safeguards” have been overzealous in the past, including locking domains from transfer for 60 days if you fix a typo on your registrant information. The effect of this lock has done more to prevent customers from leaving GoDaddy than to stop fraudulent transfers.

Going public will cramp Bob Parson’s style. Sure, he’ll be able to drive whatever car he wants. But Parsons is a bit outspoken for a public company’s CEO. He once blogged about torture. His popular blog sticks mostly to domain name issues these days. But I feel sorry for whomever is in charge of handling Parsons during the so-called “quiet period” before the company goes public.

A year from now we’ll hopefully know if GoDaddy will be a Google or the next big IPO flop.

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  1. mike from San Clemente says

    I have to disagree with the writer of this piece in this Domain Name Wire article. Not Parsons, I think Parsons is the ultimate Underdog here. Look what he’s built. He’s built a great one stop shop to get the services needed to make it simple. I’m a Realtor in Southern Ca. & I have found his company’s services a perfect solution for my needs. I’ve had my .com’s registered there, ever since I wanted to create my own Website. I didn’t know how to do it, but I was savvy enough to think up .com names that I’d like to operate under & found it mindlessly simple accomplish this from his site. Well before I knew it, I was able to host my email with a @personalizedDomainName.com website at Godaddy as well, & it too was simple. All of a sudden this, .com thing isn’t so difficult after all. Sure, I still need to take the steps now to build some great content, but I’ve got a template I’ve leased elsewhere that made it easy to transfer the domain to. Viola! Rather than be married to the company that leases me their templates to use, eventually somebody else is going to sell me a Realtor website template that I like better, & I’m going to want to transfer my Domain name to it. That’s what keeps all you programmers out there forever busy. We’re never happy with what we’ve got, we’ll always want something new. Whether we need it or not, it’s human nature. I don’t know if any other company is doing that too, if they do, they may as well just cut it out. They’ll lose too, just like everybody failed to quell PayPal popularity, & market dominance, until everybody agreed it was what the people wanted. Remember BillPoint? Not me! Now here comes the kicker, I think Parsons really cares that the web, & domain names be used for they’re intrinsic values & primal purposes. Like Parsons points out in a letter he sent to ICAAN & VeriSign for 2 years now! He’s a pioneer, & a watchdog. Look at that I’ve called him so far a watchdog & an underdog. Does he stand to benefit from a windfall when the public wakes up to what Parsons has been ranting about, & force these registrars to overhaul their policies on domain name kiting? You bet he does. That’s what Parsons/GoDaddy’s investors have got to be banking on. Did it put them in the red for a couple of years to get the noteriety & their position in the market place that they currently are enjoying on the eve of an IPO? You better bet your A$% it was worth it, & you’ll see that once ICAAN, & others do realize that they can’t let the kiting scam fester. Seriously guy’s, I know your hands have to be dirty, but the longer it takes to end it, the worse it’ll look on your permanent record. Let’s go, as Gordon Ramsey would shout, “Shut It Down!”. As soon as that happens, ton’s of domain names would become available to the public that have been horded for years. It’ll change the landscape of the internet. You’ll be able to search for something you’re looking for, & find it more easily. Just like my example, once people are able to register these domain names they’re hoping to grab, & that are valuable for their rightful purposes, GoDaddy’s volume is going to skyrocket. What you need to pay attention to in your own data is that 60% of GoDaddy’s business is from registrations, and once that business has been landed on all the new domains that will actually pay the $2.95 revenue, & find more permanent accommodations. Who are people going to use? Parsons is spearheading the kiting reform. Who are consumers going to trust & want to do business with? Remember PayPal. Ebay had to buy PayPal only after all the resources they threw at their “answer” to PayPal failed to take wings. Finally Ebay Conceded, bought PayPal for an amazingly huge amount of money, & Ebay say’s of the purchase (paraphrasing from my semi-reliable memory) “PayPal was the best thing Ebay has ever bought.” So my point is, GoDaddy know’s well what they’re doing. They’re plan is good, & I think they’ll succeed. We all love it when the underdog wins. Otherwise, why even watch the movie? Good luck, Bob. If you’re ever in Orange County I’ll buy you a beer. I’d love to have some of that wisdom rub off on me.

    Oh, before clicking the submit button, I remembered I wanted to comment on the writers opinion that somebody needs to baby sit Bob while GoDaddy is waiting to go public. (as if this whole rebuttal weren’t directly about this anyways) I think Bob should step it up a notch. I for one appreciate his Blogs, & have found them a great resource to tap into one’s experience & knowledge. As a regular reader of Bob’s Blog, I find it a bit like being Trumps apprentice. You can glean valuable business insights by reading from Bob’s Blog. Best of all, he’s easy to listen to. I took the CHSPE (equivalent to what’s more commonly referred to as a GED, but given in the year 1988 while I was still 16 in Ca, & having only limited community college several years down the line. I don’t believe Bob would make time for rhetoric. He’s comfortable shooting from the hip. In a world where you can’t even look to your Country’s President to be a role model, I find Bob Parsons to be a breath of fresh air. We all appreciate a business owner with whom we choose to do business with who you know would rather go bankrupt than deceive/abuse/exploit you. That’s the way I try to run my business/life. I can only hope that our World will once again become a place where personal/business ethics take precedent over the lure of an easy dollar. One where a company, or shall we say, a man will take up a cause & help right a wrong. It’s his Blog that is getting the message out, & didn’t we agree that getting this message out would be good for GoDaddy’s business? Now instead of this hard (well not really hard, more like flaccid) hitting expose’ on the finances & forecast you ominously elude to, coupled with your off target accusations of GoDaddy employing needlessly long periods of time to transfer a domain from it to another warehouse. You failed to note, that GoDaddy responded as they should have, they gave the people what they wanted. Their account/identity protocol was out of line with public acceptance, & they acknowledged, by giving the people what they wanted. Which ironically is what they/he are now asking that ICAAN & others do. Once again, good luck with all that Bob.

    Cheers.

    Mike, From San Clemente
    Apologies, that seemed to have run amuck a bit. I meant to write a sentence or two about how this article made me feel. Apparently it was a catalyst to make me react. Which if nothing else gave me a voice, I thank the writer of this “pulling back the sheets on go daddy” for that.

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