GoDaddy
We initiated a new position in GoDaddy (GDDY). This is not a cigar butt. This is a cash toll bridge that Mr. Market has decided to treat like a dying mall retailer for about 12 months.
GoDaddy has turned into a disciplined cannibal that converts recurring “digital rent” into free cash flow and retires its own shares aggressively. The stock was cut roughly in half while free cash flow held up and guidance moved higher. That is the type of pattern I like.
What we bought:
Over 84 million domains. The market used to love this company at roughly $28B. Now it hates it at $14B.
GoDaddy is the digital front door for millions of micro businesses. Customers buy a domain, then they usually attach hosting, email, and other services. Switching is annoying. The bill is small. The churn is usually low because most people would rather pay than risk breaking their domain, email, or website. That is the “toll bridge” dynamic. If the cash flow is durable, the stock is mispriced.
The business in plain English:
GoDaddy does three things that matter for owners.
It collects recurring rent on domain renewals and related services.
It uses that customer base as a funnel into higher margin software in Applications and Commerce.
It turns that cash into buybacks, shrinking the share count aggressively.
This is not a business with infinite reinvestment runway like a true Tier 1 compounder. It is closer to Teledyne or AutoZone in spirit. If the internal reinvestment return is not amazing, you manufacture compounding by repurchasing stock below intrinsic value.
share count is down more than 25% since 2022, with buybacks running well ahead of stock based compensation. That is the cannibal math you want to see.
Why the market is wrong:
The market is pricing GoDaddy like:
A commoditized registrar with no pricing power
A structurally slowing mid-single digit grower with terminal multiple risk
A levered balance sheet that will choke on higher rates
A business that AI could leapfrog
I agree with parts of that. Competition is real. The balance sheet is not pretty. AI is a real risk, it is a real platform shift possibility.
But the market is underweighting two facts.
First, cash is cash. A business throwing off $1.2B to $1.6B of free cash flow on a $14B market cap is not a distressed retailer.
Second, the repurchase engine changes the game. Retiring 4% to 10% of the float annually at these valuation levels is a compounding machine even with modest organic growth. At the old valuation, buybacks were fine. At this valuation, they are a gift.
We do not need hero growth to earn a decent return. We need the cash to remain real and the buybacks to remain rational.
Valuation anchor:
We are valuing this primarily on owner earnings.
Low case: $16B (10x FCF, no growth)
Base case: $24B (15x FCF, modest growth)
At $14B, the stock is pricing in something closer to the low case plus a haircut for fear.
If the business can grow free cash flow per share at:
4% organic plus 4% buyback lift, you get about 8% FCF per share growth before any multiple change
If the multiple normalizes from roughly 9 to 10x FCF toward 15x, you get meaningful upside without assuming anything irrational
Downside case: about $85 if it re-rates as a utility at 8x FCF
Upside case: about $170 if it re-rates at 15x with $1.6B FCF That is a favorable skew if the cash durability holds.
What could go wrong?
This is the section that keeps me honest.
Risk 1: Debt becomes a leash
Debt is roughly $3.9B and equity is thin, with negative tangible book value. If refinancing hits at materially worse rates or covenants restrict buybacks, our main compounding engine slows.
Kill switch from this framework:
Net debt to EBITDA pushing above 4.0x, or covenants forcing a buyback pause
Risk 2: AI changes the internet’s address system
The real existential question is simple: Are domains a permanent royalty on the internet, or do AI agents and closed platforms make URLs less relevant?
If the domain funnel breaks, the terminal value gets hit.
Early warning signals:
Core platform revenue turning negative
Domain registration volumes falling broadly
A&C growth decelerating below 8% to 10% for multiple quarters
Risk 3: Pricing fatigue and competition
Customers tolerate price hikes until they do not. Competitors like Wix and others offer better design tools. GoDaddy wins on “good enough” plus bundling plus inertia. If product inferiority becomes intolerable, retention cracks.
We will watch:
Bookings growth
A&C revenue growth
Any spike in sales and marketing as a percent of revenue
Any retention metric trends, especially customers older than 2 years
Risk 4: The usual temptation, dumb M&A
A leveraged company with improving sentiment is one press release away from a “transformational” acquisition that transforms shareholder returns into a crater.
Kill switch:
Any acquisition over $1B that dilutes margins or requires equity issuance
Risk 5: Cannibal math gets faked by SBC
If buybacks are simply masking dilution, the whole idea is a mirage. Right now, buybacks far exceed SBC. We will keep verifying share count drops every quarter.
I’m not underwriting a growth story here:
Sticky, recurring infrastructure revenue
A funnel into higher margin software
A management team focused on free cash flow per share
A valuation that already assumes disappointment
This is a “blue collar compounding” situation. It does not need applause to work. It needs math and discipline.
I wouldn’t bet the Partnership on it because leverage is real and terminal value risk exists. But I will manage it as a position that can be added on dips if the thesis is intact and valuation improves, and trimmed if it runs ahead of intrinsic or if buyback discipline changes.
The next checks on any investors diligence list are:
Debt maturity schedule and covenant language in the 10-K risk factors
“Airo” adoption and whether real customers mention it positively in reviews
Churn and retention trend lines
Insider behavior, especially Form 4 activity
Competitor pricing and renewal economics versus Wix and other alternatives
Share count movement each quarter, net of SBC
Closing
GoDaddy is not cheap by Graham’s balance sheet rules. In fact, Graham would probably slam the door on it. This is a franchise purchase at a depressed price, and we are being paid to wait through a high owner earnings yield plus buyback-driven compounding.
If we are right, we get a high-teens return profile driven by free cash flow per share growth and some multiple normalization. If we are wrong, it will not be because the stock “went down.” It will be because the toll bridge lost traffic, or the debt turned the steering wheel.