History Offers Go Daddy IPO Lessons

• By theWHIR.com , April 19, 2006

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History Offers Go Daddy IPO Lessons

By Liam Eagle, theWHIR.com

April 19, 2006 -- (WEB HOST INDUSTRY REVIEW) -- Last week's reports that domain registrar and Web host Go Daddy (godaddy.com) may have hired Lehman Brothers to lead the company through an initial public offering drew plenty of questions. Observers speculated about the company's value and its plans, and many expressed anticipation for a look at the firm's finances.

While rumors alone are far from enough to determine what Go Daddy might be doing, says Andrew Schroepfer, president of technology research firm Tier 1 Research (tier1research.com), history may provide some context, and expectations, for the company's next moves.

Given how unusual it is for companies to go public in the summer months, for example, it's a fairly safe assumption that if Go Daddy is indeed in the beginning stages of an IPO, that particular event would likely be as far away as September. That is, if an IPO is the ultimate intent after all.

"There are a lot of companies that don't necessarily know if they can be independent companies," says Schroepfer. "So a lot of them end up going through the process to find out from their bankers what other companies would consider buying them for."

If Go Daddy is setting out toward an IPO, he says, the company is more likely to begin with that "fishing expedition," looking for feedback and seeing whether any acquisition offers come in through its bankers.

The valuations of other domain registrars would seem to place Go Daddy's value as something short of what might make investors outright thrilled about the company going public, says Schroepfer, so the impetus for a public offering at the company would almost certainly be gaining the financial means to make acquisitions.

There is also some precedent for how and where those acquisitions might take place. Go Daddy, were it to take an aggressive acquisition strategy, would be making a major move toward scale in the domain name business - something it could accomplish by going after smaller players with, for instance, fewer than a million domains under management.

"Look at Verio back in the day," says Schroepfer. "That's a good analogy here, if [Go Daddy] does have an acquisition strategy in mind. Verio essentially acquired every ISP on the planet, it seems like, that had a minimal Internet access customer base."

Possibly one of the most interesting considerations at a publicly held Go Daddy would be the fate of the company's founder and CEO Bob Parsons, who has become something of a technology celebrity in the last two years. The passionate and outspoken Parsons is not exactly the kind of leader that has been known to represent public companies.

But that, too, may be changing, says Schroepfer.

"Look at Google's completely non-traditional culture of being a public company," he says. "There's no reason why other companies couldn't mimic parts of that and be unique and different. So there are pros and cons with the way [Parsons] leads that business. Absolutely, I could list off a thousand positives and a thousand negatives. It's all about finding the audience. Do you want your investor base to be critiquing that every day? Right now, as a private company, you don't have to worry about that. Google has to worry about that every day."

With a core of owners holding 20 to 30 percent of the company, but 60 percent of the voting rights, Google operates in a situation that could enable those few owners to make decisions independent of the wishes of investors at large. Parsons, too, could follow, helping to blaze that path of non-traditional leadership at public companies.

Probably the most notable widespread reaction to the possibility of a Go Daddy IPO was the anticipation of a look at the company's books. Many observers speculate that Go Daddy, currently tackling matters of scale as reportedly the world's largest domain registrar, is losing money at the moment and not concerned with profitability in the immediate term. But the interesting aspects of its business include how and where it is making money.

"It's tough to know," says Schroepfer. "I'm a customer - almost everyone is for at least one if not multiple of the domains that they have. And you get [promotional] email offers from them three times a week. So it's nearly impossible to find out what their average price is for a domain. And are those three-month specials, or are they five-year commitments? That's going to be the interesting part of finding out their financials. What has been the average take rate, term-wise and price-wise, for the domain part of the business? And then secondly, what would be the rate of people who buy a domain and buy an additional service from Go Daddy?"

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