The Pandemic is Indirectly Giving This Company a Boost

July 14, 2020 David Sterman

Pop quiz: Who won the 2005 Super Bowl?

While you’re Googling the question, here’s another one: What company gained instant notoriety from a scandalous commercial during that very game? A commercial in which “a woman’s top kept coming undone while observers discussed her plastic surgery,” as described some years later by the New York Times?

I’m guessing more of you were able to correctly answer the second question than the first.

The scurrilous ad – and a slew of others from the company at the time – were deliberately designed to attract recognition by being controversial. And it worked. Even today, the company on its website acknowledges “the banned, the edgy” commercials of its past but hastens to add that both the company and the ads “have evolved” since then.

But, hey, this isn’t the Advertising Age. It’s Wealth Protection Research. Let’s see if this company fits our bill.

— Bob Bogda, Editor

P.S. Like what you see? Don’t like what you see? Let me know.

 

 

Even before the Covid pandemic struck, ecommerce had been taking up more and more space in the American economy. Once the lockdown hit American businesses, however, ecommerce exploded for obvious reasons. Companies without an online presence suddenly found themselves in desperate need of one.

Wedbush analyst Ygal Arounian, who specializes in ecommerce plays, believes the pandemic has made major, and possibly permanent, changes in consumer behavior. He believes consumers may not return to physical stores like they used to, but rather will continue to demand online ordering and curb-side pickup even after it’s safe to leave the house again. “Coronvirus didn’t spark the flame” of this trend, he writes, “but it certainly fanned it.”

Indeed, Adobe’s latest “Digital Economy Index” shows a 77.8% year-on-year increase in all categories of online spending for May 2020, which amounted to a whopping $52 billion increased spend over pre-pandemic expectations. Memorial Day sales alone were up 63% year on year. When we drill down into the “Buy Online, Pick Up in Store” (BOPIS) category, we see an even more incredible 208% increase year on year. Among the BOPIS segments, grocery sales surged 110% higher. Electronic sales, despite recent price increases, climbed 58%. Even online purchases of booze, normally a small fraction of the overall ecommerce spectrum, rose 74%.

So, we have a new American gold rush going on. And like the Wild West, there are the prospectors who dream of getting rich, and the picks-and-shovels salesmen who support those dreams. If the prospectors are the big-box retailers moving their wares online, then the picks-and-shovels salesmen are those providing the software and cloud capacity for all that online activity.Built a broad set of web-based mobile itinerary tools, and more.

 

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This is where GoDaddy (GDDY) comes into play. Public since 2015, and infamous for its controversial television commercials, the $11.8 billion GoDaddy is the world’s largest provider of domain-name registration (78 million names and counting), website building software, and website hosting, branding, and marketing products. GoDaddy serves over 20 million entrepreneurs, providing cloud-based solutions for businesses looking to create and host an online presence. Spin-off subscription products include search-engine optimization (SEO), social media management services and business application products.

Other “picks and shovels” players include Shopify (SHOP) (online storefronts), Wix.com (WIX) (website building), Square (SQ) (payment processing), and Etsy (ETSY) (online marketplace). But among these ecommerce infrastructure plays, only GoDaddy and Square are profitable, and only GoDaddy trades at a two-digit multiple (76 times current earnings per share, vs. 289 times EPS for Square). Investor’s Business Daily gives shares of GDDY a top rating of 99 for earnings, and a 96 composite rating, easily the highest marks among the ecommerce infrastructure giants.

GoDaddy is covered by 11 analysts, all of whom rate the stock at “buy” or better. Wedbush’s Arounian himself just reiterated his “buy” on the stock late last month with a price target of $85 per share, or about 21% above current prices. Ronald Josey, a 5-star analyst with an average gain of +28.7% per stock covered, assigns shares of GDDY a “strong buy,” with a target of $93 per share.

On June 24, GoDaddy updated its sales forecasts, increasing its view for the latter half of the year. A particularly fast-growing segment is the company’s new subscription-based line of offerings, including Go Central, a do-it-yourself online interface for website creation. The company also announced the purchase of Neustar’s Registry business, which will help GoDaddy gain market share in the data analytics space.

From a technical perspective, the chart of GDDY is perfectly poised for a nice run following a three-week pullback off 52-week highs set in mid-June. As long as GDDY shares hold above the 50-period moving average, we consider the stock to be a buy.

Action to Take: Consider buying shares of GDDY up to $75 with a sell target of $100, for a 33% gain or more.

 

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