Starboard Value Urges GoDaddy to Set Realistic Growth Targets and Improve Margins
3 min read
In a recent letter to GoDaddy’s management, activist investor Starboard Value urged the web-services company to continue moving in the right direction by setting specific and realistic growth targets and providing investors with more detail on how management plans to improve margins. Starboard, which has a more than 6% stake in the company, has been pushing GoDaddy to expand free cash flow and improve margins since taking a position in the company in 2021.
Starboard managing member Peter Feld wrote in the letter that while GoDaddy had made a good first step on its most recent earnings call in setting new profitability targets, “a few months of share price outperformance do not solve a multi-year problem.” GoDaddy CEO Aman Bhutani signaled on that call that the company wanted to be responsive to the feedback from investors on growth and expansion, a tacit acknowledgment of Starboard’s initial letter.
GoDaddy shares have risen around 47% since the November earnings call. However, Starboard still believes there is more work to be done. GoDaddy should aim for at least 40% growth and profitability for the 2025 fiscal year, Feld wrote. He also highlighted GoDaddy’s “robust and increasing” free cash flow and urged the company to continue repurchasing its undervalued shares.
On revenue growth, Starboard urged GoDaddy to be prudent with its growth guidance and not provide guidance that is based on an aspirational view of the business. The activist investor noted that GoDaddy’s multiple is still heavily discounted relative to its peer group. Of the 20 companies in peer group in Starboard’s letter, GoDaddy has a higher multiple than only TeraData and Box.
Starboard believes that GoDaddy can achieve free cash flow of $9 per share by this fiscal year and $14 per share by fiscal year 2026. Those targets are higher than GoDaddy’s $6.1 free cash flow per share for the fiscal year ending September 2023, according to FactSet data. The growth can be fueled in part by “discrete cost savings,” including trimming costs in technology and development. Starboard expects that GoDaddy could generate more than $4 billion in free cash flow over the next three years.
The letter was sent to Bhutani and CFO Mark McCaffrey, as well as GoDaddy’s board. Starboard sent its first public letter to GoDaddy in September and says it has had a position in the company since 2021. GoDaddy did not immediately respond to a request for comment.
Starboard Value is widely regarded as a leading activist investor, with a focus on operations improvement and active engagement with management. It has led campaigns at or engaged with numerous companies in recent years, including Box, Bloomin’ Brands and Salesforce, according to data from 13D Monitor.
Starboard’s CEO, Jeff Smith, recently spoke about the state of the market and the company’s approach to investing. “It’s a healthy market and we’re looking at attractive companies,” Smith said in a CNBC interview. “We’re focused on operations improvement and active engagement with management. We believe that by working with management teams to improve their businesses, we can create value for all stakeholders.”
Starboard’s engagement with GoDaddy is just the latest example of its activist investing strategy. The firm has a long history of working with companies to improve their operations and create value for shareholders. By urging GoDaddy to set realistic growth targets and improve margins, Starboard is once again demonstrating its commitment to active engagement and value creation.
In conclusion, Starboard Value’s letter to GoDaddy’s management is a clear indication of the activist investor’s commitment to improving the operations and financial performance of the web-services company. By urging GoDaddy to set specific and realistic growth targets and provide more detail on how management plans to improve margins, Starboard is demonstrating its belief in the potential of the company and its confidence in the ability of management to deliver value for shareholders. With a focus on operations improvement and active engagement with management, Starboard is once again demonstrating its value as a leading activist investor.
