GoDaddy Decides Not to Pull a Vonage

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From USA Today:

Why did Go Daddy withdraw? "I can sum it up in two words: market uncertainties," CEO Bob Parsons says.

The tech-packed Nasdaq (NASDAQ) is down 6.6% this year. "We think things will be dismal for a while," Parsons says, adding he is prepared to delay the IPO for years. Go Daddy hoped to go public so it could expand more rapidly and let existing shareholders cash in.

From WMW:

Not only is the IPO market in an unreceptive move, GoDaddy CEO thinks analysis are ignoring their large positive cash flow and instead focusing on earnings (or lack thereof). He thinks domain registration accounting methods create a pessimistic view of the company, as revenues are amortized while expenses are incurred immediately.

What about the cash flow from ransom schemes? Didn't the investment bankers know about that revenue stream?


Accounting profit

After the dotcom bubble, it's hard for a dotcom company that is not robustly profitable to have a good IPO. GoDaddy has never shown an accounting profit, which creates a big problem for them in this environment.

The irony, as Parsons explains at length, is that they are throwing off tons of cash, and only are not showing an accounting profit because the accounting rules require them to book expenses up front but revenue pro rated over the life of the domain registration, even though the cash comes in on day one and is non-refundable. If they operated on a straight cash accounting basis, as the IRS requires them to, they would be showing a profit; in fact, right how they are sitting on nearly $100 million that they have taken in that they will only be able to gradually recognize as income over the next several years. While Parson's story makes sense, it's still not good enough on a Wall Street still scarred by the excesses of the late 90s. A lot of companies made the pitch back in the day that while they were not showing a GAAP accounting profit, their EBITDA and cashflow numbers were fabulous; a lot of those companies are long gone by now (others, like Amazon, are still around and doing great, but reality sometimes cannot override perceptions). The post dotbomb mantra is real GAAP earnings, and GoDaddy can't show that given the accounting rules.

Aside from cashing out their employees who are working for options, I'm not sure what going public would do for them anyway. It has never been a great thing to be a small cap public company, and that's doubly so since Sarbanes-Oxley dramatically raised the costs of regulatory compliance. If they don't need the cash, they will avoid a lot of costs and a lot of hassles by staying private for a while longer.

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