Recommendation: Short

Target Price: $12-15 (40-55% downside)

May 6, 2015
Justin Hess

We recommend a short position in GoDaddy

with a target price $12-15
Overview

Summary Data
Stock Price
Shares Outstanding (m)
Market Cap

GoDaddy Inc IPOed on April 1st, 2015 for $20 per

share
Shares rose 30% the first day of trading and we think
this represents undeserved optimism
Positives of firm:
Market leader in terms of domains (+20% MS)
Strong cash flow from operations (~$185MM
2014 pro forma up from ~$150MM in 2013)
Revenue growth (~23% 2014 pro forma and
~24% 2013)
Even with these positives, we anticipate a sharp
correction in the 12 month time horizon
Our value range of $12 - $15 (a 40-55% correction)
was derived using an APV methodology and has
been sense-checked with a multiples approach
The firms history and ownership structure are key
elements of this short thesis
There is a lack of coverage on the stock given it
recently IPOed and it is confusing

Source: IPO prospectus S1 filing and FactSet figures as of 5/5

$
$

NCI
TRA Liability
Cash
Total Debt

Enterprise Value
52 Week Range
Dividend Yield
Average 3M dly Vol (m)
Shares Sold Short
Float
2014 EV/EBITDA

Total Customers (m)

Revenue (m)
EBITDA
EPS

25.40
61.8
1,570
213
1,500
(224)
1,126
4,634

$24.50 - 27.27
0%
0.79
0.9
32%
~55x
2014 PF
2013
12,709
11,584
$ 1,387.26 $ 1,130.85
$
85.78 $
8.64
$
(0.86) $
(1.58)

Our short case rests on 4 key pillars

1

Revenue and customer growth is stalling

a. Volume growth is slowing and could stall in the next 3-4 years due to
increase customer turnover
b. Customers unwilling to pay for premium services (ARPU decline)

GoDaddy has an uncompetitive offering of products in areas that are quickly

becoming commoditized

GoDaddy carries downside balance sheet risk

Entrenched owners have a history of destroying shareholder value and will not
act in the best interest of the common equity holder moving forward

Revenue growth could stall over next 3-4 years

if customer churn increases
Retention has historically not been less than 85% according to IPO prospectus and the
most profitable cohort of customers (2010) has a retention of 88%
Assuming a constant customer growth of ~6%, which is approximately the market
growth rate, we can see that the exact turnover matters significantly
There is a risk of customer slowdown if churn increases which we believe is likely
due to GoDaddys uncompetitive product offering, poor customer service, and
increasing competitive threats
Total Customers Varying Churn Rates

Total Customers (thousands)

24,000
22,000
20,000
18,000

16,000
14,000
12,000
10,000
8,000
6,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
75% Retention

Source: IPO prospectus S1 filing

70% Retention
4

85% Retention

Customers are increasingly unwilling to pay

for premium services as shown by ARPU
2010 Cohort
ARPU
Revenue

2010
2,300

2011
2,228
$75
$167,100

2012
2,158
$88
$189,365

2013
2,090
$103
$214,575

2014
2,024 88% retention rate
$121 17% CAGR
$244,904

All other Cohorts

ARPU
Revenue

5,925

7,167
8,078
9,494
10,685
$97
$89
$97
$107 Calculated
$ 695,878 $ 721,539 $ 916,270 $ 1,142,358

Total Revenue
Total Customers

$ 862,978 $ 910,903 $ 1,130,845 $ 1,387,262

8,225
9,395
10,236
11,584
12,709

The only Cohort the company has reported is from 2010

o Isolating the profitability of 2010, shows that the rest of the cohorts are not as
profitable as GoDaddy wants us to believe
ARPU growth from other customers actually declined in 2012
o CAGR for all other customers between 2011 and 2014 is only 3.3%

Source: IPO prospectus S1 filing

Customers recognize that GoDaddy products

and customer service are uncompetitive
using jargon making it sound like
its floating around somewhere in
cyberspace
Read the fine print or just go to
brand X.

Godaddy repeatedly
acknowledged it was their fault
but refused to refund
So many other option, please
think twice before choosing
GoDaddy

Source: Consumer Affairs website

And if they do a quick search, they will see

there are better products out there

Source: BBB Website; Google Domanins; Who is hosting this?

GoDaddy lags peers (like Web.com) group when

it comes to customer reviews
Google domains launched 2014 with a more
competitive product, and in response, GoDaddy
immediately cut prices
Google offered free security, webmail
(100), and simplified registration

The firms balance sheet is risky and could

prevent continued M&A

1,600,000

Debt, Goodwill, and SH Equity

1,400,000

1,700,000
1,650,000

1,200,000

1,600,000

1,000,000
800,000

1,550,000

600,000

1,500,000

400,000
1,450,000

200,000
0

1,400,000
2012

2013

Total Debt

($ 000)
Total Debt
EBITDA
Total Debt/EBITDA

$
$

Peer Average Debt/EBITDA

Source: IPO prospectus S1 filing; Debt to EBITDA taken of LTM

from peer group in appendix via CAPIQ

2014

Total Member Equity

2012
989,334 $
(63,884) $
-15.5x

2013
1,085,454 $
8,642 $
125.6x

Pro Forma 2014

Goodwill

2014
Pro Forma 2014
1,418,922 $
1,126,364
85,783 $
85,783
16.5x
13.1x
4.7x

Goodwill ($ 000)

Goodwill continues to rise due to

prolific acquisitions 9
acquisitions since 2012
Goodwill write-downs have not
been taken and company is sitting
on +$1.6BN
Debt / EBITDA ratio is at a high
level although lowest in recent
history
Peer group has a debt / EBTIDA
average of 4.7x
Significant deferred revenue is
sitting on the books as well a
total of $1.2BN
o Wrote-off $217M in
deferred revenue in 2011
with new owners

Debt and Member Equity ($ 000)

The ownership structure is confusing

Source: IPO prospectus S1 filing

Continuing owners and reorganization

parties contain significant overlap
It is difficult for equity investors to
understand where economic and voting
control reside
Up-C structures are not understood by
the masses and by Wall Street they are
a tax vehicle, but most analysts do not
value the TRA liabilities created

 retains control for the vested parties

Investors in the offering retain ~40% of economic control, but consolidate the company and
show ~60% of non-controlling interest

KKR, Silver Lake, TCV and Mr. Parsons effectively control the company

o As a controlled company the firm doesnt need to vote on its board and doesnt need to
follow same disclosure processes
o Control 83.4% of the combined voting power of our outstanding common stock

This is a risk that is noted in the IPO prospectus:

GoDaddy Inc. will be controlled by our existing owners, whose

interests may differ from those of our public stockholders

Source: IPO prospectus S1 filing

10

 destroys value for shareholders

1. Payments made to Mr. Parsons and PE owners in various forms

Management fee of $2MM to KKR, Silver Lake, and TCV and $1MM to Mr. Parsons in 2011,
2012, 2013 and 2014
Mr. Parsons had a $500K expense budget starting 2011
$300MM loan from Mr. Parsons entity to company 5 months after PE deal announced

2. Levering up last Spring (pre-IPO announcement)

Company took on additional floating rate debt in May 2014, to pay out a $349MM distribution
to PE owners and Mr. Parsons

3. Use of IPO proceeds

~$315MM pay down on note written by the entity solely controlled by Mr. Parsons
$26MM management termination fee for KKR, Silver Lake, and TCV
$3MM management termination to Mr. Parsons
~$34MM to the bankers involved with the IPO
Remaining ~$82MM for general business purposes according to the prospectus

Source: IPO prospectus S1 filing

11

 and will continue to destroy value.

Tax savings of 15% granted to the organization in the Up-C structure. The other 85% of
theoretical taxes paid to continuing investors. 2 clauses in the IPO report should worry
investors:
(1) If we materially breach a material obligation under the agreements or if we
elect to terminate the agreements early, we would be required to make an
immediate lump sum payment equal to the present value of the anticipated
future tax savings, which payment may be made significantly in advance of the
actual realization of such future tax savings

(2) If we were permitted to elect to terminate the TRAs immediately after this
offering, based on the initial public offering price of $20.00 per share of our Class
A common stock and a discount rate equal to one year LIBOR plus 100 basis
points, we estimate that we would be required to pay $1.5 billion in the
aggregate under the TRAs

Who needs a golden parachute when you have a golden ejectorseat button?

Source: IPO prospectus S1 filing

12

An APV approach is appropriate to understand

the value of the firm
FCFU (000's)
2013
Cash from Operations
153,313
Less: Capex
(52,100)
Less: Cash for acquisitions(156,800)
Adjusted Cash from Operations
(55,587)
Plus interest paid in cash 70,978
Less: value of tax shield (@34%
(24,133)
rate)
FCFU
(8,742)

Enterprise Value
Less: NCI
Less: TRA Liability
Plus: Cash
Less: Debt
Equity Value
Shares Outstanding
Price per Share

2014
180,568
(67,900)
(40,700)
71,968
56,315
(19,147)
109,136

3,418,505
(213,066)
(1,500,000)
224,303
(1,126,364)
803,378
61,826
$12.99

2015e
347,579
(80,606)
(35,000)
231,973
52,540
(17,863)
266,649

2016e
302,188
(89,693)
(35,000)
177,495
41,893
(14,244)
205,145

2017e
271,847
(97,441)
(30,000)
144,406
33,524
(11,398)
166,532

2018e
396,310
(109,959)
(30,000)
256,351
23,104
(7,855)
271,600

2019e
402,872
(121,456)
(25,000)
256,416
9,772
(3,323)
262,866

2020e
439,626
(139,904)
(25,000)
274,722
1,553
(528)
275,747

I modeled entirety of the TRA as a claim on the

future cash flows of the business because it can be
exercised upon change of control or a vote by the
controlling shareholders
APV cost of equity was calculated based on most
relevant peers (9.2%) and debt was on cost of
issuing new debt (5.2%)

13

This approach is confirmed with a relative

multiple valuation
EBITDA (000's)
EV/EBITDA
Bear
Base
Bull
EV/EBITDA Implied Px

2013
$
8,642

2014
$ 85,783

2015e
$ 98,339

2016e
$ 109,425

25.0x
29.0x
34.0x
$3.83

Dil. Shares Outstanding

24.5x
28.5x
33.5x
$8.14

61,826

61,826

Valuation Estimates
Bear
Base
Bull
EBITDA 2018 estimate ($mm)129.7
$
$
129.7 $
129.7
TEV/EBITDA
23.5x
27.5x
32.5x
Value per share
$0.0
$15.4
$25.9
APV estimate (9.2% wacc & 2% tg)
Value per share
$4

$13

$32

Average valuation

$2

$14

$29

(92%)

(45%)

Downside / Upside

11%

2017e
$ 118,878

2018e
$ 129,751

24.0x
28.0x
33.0x
$11.54

23.5x
27.5x
32.5x
$15.41

61,826

61,826

2019e
$ 143,318

61,826

22.5x
26.5x
31.5x

61,826

Multiples approach assumes base-case

EBITDA scenario (~$130M)
Reasonable price range for price target
purposes is based on APV approach,
multiples is merely a sense check
A full list of sensitivities and assumptions is
available in the appendix

My share price estimates suggest that shares are 40-55%

overvalued at the current price of $25.4

14

23.0x
27.0x
32.0x

2020e
$ 159,043

There are several key risks to the short-thesis

1. Firm reports earnings on May 12th, 2015 and new information could surface that proves or
disproves this analysis
Specifically, if GoDaddys net sales and EBITDA projections are materially different from
ours
2. GoDaddy is backed by some powerful private equity owners that can make dramatic changes
in the business without consulting shareholders
3. Changes to retention rates would significantly impact our analysis
4. Relaxing covenants to support additional access to debt capital markets and continued
acquisitions
5. If investors only look at TEV/Total Revenue, the stock could have upside. We recognize this is a
common metric for most nascent internet companies, but believe GoDaddy is more mature
operationally deserves deeper analysis

15

APPENDIX

GoDaddy is best known for its ads, but the

firm has a rich history
Strengths

Overview of GoDaddy

Founded 1997 by Bob Parsons under the name

Jomax Technologies
Became ICANN accredited 2000
Started off domain registrar became largest in
world by 2005
Other services include hosting and web
services and business applications
Private equity owners bought majority stake business
in 2011 for $2.25BN
Firm consists of 4,900 employees and is HQed in
Scottsdale, Arizona (3,400 customer care employees)
Firm has international presence with call centers in
the UK, India, and Canada (28% customers
international)
Firm tried to go public in 2006, but backed out due to
concerns about financials CEO called the quiet
period before IPO suffocating and accounting
policies unrepresentative of actual business
Bob Parsons started transition as CEO in 2011 when
PE owners came to play

Source: IPO prospectus S1 filing

17

Largest share of domain registration market

Market expected to grow 6.2% (domain) 5.5% (host)
Brand awareness & marketing

Weaknesses

Trying to provide both technology and support

but customers generally arent happy
History of acquisitions to grow products is not
differentiated and means integration is needed

Threats

Google (Amazon, etc.) are entering core businesses

and working to establish own ecosystems
Brand risk and cybersecurity slips

Opportunities

Targeting small business owners estimated 28M in

U.S. and 50% dont have websites (*GoDaddy
commissioned study)
Adding products to create ecosystem to deliver
value to business owners (security, SEO, etc)

Overall Market and Product Overview

Hosting & Other Services

Domain Registration

Largest share of domain registration market

Market expected to grow 6.2% until 2018
This is typically the gateway for clients
Recent expansion of name extensions and suffixes
in 2013 spurred growth
Becoming more highly fragmented In 2002 there
were 150 ICANN-accredited registrars, and today
there are over 1,500

Highly fragmented $15BN market

Annual growth 5.5% through 2020
Level of expertise is needed
As the technology required to process and host
websites becomes increasingly complex, the level of
expertise needed to effectively manage large data
centers will increase
Tablets, mobile, desktop integration require greater
design and management services
Traditionally, larger players have added services
through acquisition and in-house development

Issues & Opportunities

Interest rates

Technological Change

IP

Internet traffic
Customer service

Source: IBIS World

ICANN

18

Accessibility to internet

Additional information about business

Source: IPO prospectus S1 filing

19

Up-C structure details and benefits

Source: IPO prospectus S1 filing

20

Key Details
The Up-C structure derives its
name from the UPREIT
structure
A newly formed corporation
undertakes the IPO and sits
above the existing limited
liability company (the LLC)
The newly formed corporation
purchases the LLC interests
and receive a TRA payment

Detailed APV analysis

FCFU (000's)
2013
Cash from Operations
153,313
Less: Capex
(52,100)
Less: Cash for acquisitions(156,800)
Adjusted Cash from Operations
(55,587)
Plus interest paid in cash 70,978
Less: value of tax shield (@34%
(24,133)
rate)
FCFU
(8,742)
Terminal Value

2015e
347,579
(80,606)
(35,000)
231,973
52,540
(17,863)
266,649

2016e
302,188
(89,693)
(35,000)
177,495
41,893
(14,244)
205,145

2017e
271,847
(97,441)
(30,000)
144,406
33,524
(11,398)
166,532

2018e
396,310
(109,959)
(30,000)
256,351
23,104
(7,855)
271,600

2019e
402,872
(121,456)
(25,000)
256,416
9,772
(3,323)
262,866

2020e
439,626
(139,904)
(25,000)
274,722
1,553
(528)
275,747
3,890,860

Period Discount
Free Cash Flows
PV Free Cash Flows

1.00
266,649
244,120

2.00
205,145
171,944

3.00
166,532
127,787

4.00
271,600
190,801

5.00
262,866
169,063

6.00
4,166,607
2,453,352

Interest Tax Shield

Terminal Value
Growth Rate
Cost of Debt

17,863

14,244

11,398

7,855

3,323

528
16,828

1.00
17,863
16,980

2.00
14,244
12,870

3.00
11,398
9,790

4.00
7,855
6,414

5.00
3,323
2,579

6.00
17,356
12,804

Tax Rate
Growth Rate
Unlev. Cost of Capital

Period Discount
Interest Tax Shield
PV Interest Tax Shield

2014
180,568
(67,900)
(40,700)
71,968
56,315
(19,147)
109,136

34.0%
2.0%
9.2%

2.0%
5.2%

21

Detailed APV analysis

Peer Name
Endurance Intl Gp
United Internet
Web.com
Wix.com
Cimpress
Demandware
Rackspace Hosting
GoDaddy
Industry Average

Beta Eq.
Beta Debt
1.91
0.20
0.00
0.20
1.95
0.20
0.75
0.20
0.21
0.20
1.73
0.20
1.16
0.20
0.20
1.0
0.2

Risk-Free Rate
Market Risk Premium
Industry Beta Unlevered
Unlevered Cost of Capital
Cost of Debt

Debt
1,086.9
1,662.6
507.3
0.0
346.9
0.0
25.1
1,126.4
594.4

Equity
2,538.9
9,228.7
1,093.7
789.6
2,751.1
2,238.9
7,657.3
3,952
3,781.3

2.00%
7.00%
1.03
9.2%
5.2%

Source: Betas from factset and Fama French estimates

22

Tax Rate
Beta Unlev
35.0%
1.54
35.0%
0.02
35.0%
1.54
35.0%
NM
35.0%
0.21
35.0%
1.73
35.0%
1.16
34.0%
NM
35%
1.03

Comments
Estimated tax rate
Estimated tax rate
Estimated tax rate
Estimated tax rate
Estimated tax rate
Estimated tax rate
Estimated tax rate
Tax rate from IPO prospectus
Other data from FactSet

Competitor key statistics

Name
GoDaddy A

Price (May
1)
S/O
25.96

Endurance Intl Gp
United Internet
Web.com
Wix.com
Cimpress
Demandware
Rackspace Hosting

Average
Avg. Exclud. Demandware
Mkt Value Weighted

Source: FactSet and CapIQ

Market
EV/Sales
EV/EBITDA EV/EBITDA
Value
EBITDA
Total Debt 1 yr Beta
FY1
Actual
FY1
61.8
3,952.4
90.9
1,126.4
-0.58
2.85x
57.54x
14.38x

19.18
45.02
21.06
20.43
84.38
61.23
53.75

132.4
205.0
51.9
38.7
32.6
36.6
142.5

2,538.9
9,228.7
1,093.7
789.6
2,751.1
2,238.9
7,657.3

149.3
711.3
114.6
-52.8 -196.4
-19.8 -535.4

41.38
38.54

87.7
95.0

3,781.3
4,001.7

215.7
249.3

23

1,086.9
1,662.6 -507.3
346.9
25.1

792.5
792.5

1.91
1.95
0.75
0.21 -1.73
1.16

1.02
0.90

4.38x
2.45x
2.71x
3.23x --

24.32x
15.41x
13.77x

11.73x
11.65x
9.87x
92.07x

15.91x -8.94x 3.69x

14.20x

231.24x
10.76x

4.04x
3.22x
3.27x

23.52x
23.52x
19.80x

54.53x
25.07x
29.01x

Terminal Growth

0.75%
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%

$13.1
$13.1
$13.1
$13.2
$13.2
$13.3
$13.4
$13.5
$13.8
$14.3

$13.0
$13.0
$13.1
$13.1
$13.1
$13.2
$13.2
$13.3
$13.4
$13.5

0%
0.25%
0.50%
0%
0.75%
0.25%
1.00%
0.50%
1.25%
0.75%
1.50%
1.00%
1.25%
1.75%
1.50%
2.00%
1.75%
2.25%
2.00%
2.50%
2.25%
2.75%
2.50%
3.00%

7.5%
$15.4
$16.8
25.0%
$18.4
$4.3
$20.0
$5.2
$21.8
$6.1
$23.7
$7.1
$25.8
$8.1
$9.2
$28.0
$10.4
$30.5
$11.6
$33.2
$12.9
$36.1
$14.4
$39.4
$15.9
$43.0

8.0%
$11.7
$13.0
28.0%
$14.3
$4.4
$15.7
$5.2
$17.2
$6.1
$18.8
$7.1
$20.5
$8.1
$9.2
$22.4
$10.4
$24.4
$11.6
$26.6
$13.0
$29.0
$14.4
$31.6
$15.9
$34.5

Sensitivities

Terminal Growth
Terminal Growth

2.75%
3.00%

Non Controlling
Interest
Terminal Growth

($110,000)
0%
($125,000)
0.25%
($140,000)
0.50%
($155,000)
0.75%
($170,000)
1.00%
($185,000)
1.25%
($200,000)
1.50%
($215,000)
1.75%
($230,000)
2.00%
($245,000)
2.25%
($260,000)
2.50%
($275,000)
($290,000)
2.75%

$17.5
$19.3

$17.6
$19.3

$13.0
$13.0
$13.0
$13.0
$13.0
$13.1
$13.1
$13.1
$13.2
$13.3

$12.9
$13.0
$13.0
$13.0
$13.0
$13.0
$13.0
$13.1
$13.1
$13.1

$12.9
$12.9
$12.9
$12.9
$13.0
$13.0
$13.0
$13.0
$13.0
$13.0

Discount Rate - Free Cash Flows

8.5%
9.0%
9.5%
$8.5
$5.6
$3.0
Tax Rate
$9.5
$6.5
$3.8
31.0%
34.0%
37.0%
$10.7
$7.5
$4.7
$4.4
$4.4
$4.4
$11.9
$8.5
$5.6
$5.2
$5.3
$5.3
$13.1
$9.6
$6.5
$6.2
$6.2
$6.2
$14.5
$10.8
$7.6
$7.1
$7.1
$7.2
$16.0
$12.1
$8.6
$8.2
$8.2
$8.2
$9.2
$9.3
$9.3
$17.5
$13.4
$9.8
$10.4
$10.4
$10.4
$19.2
$14.8
$11.0
$11.7
$11.7
$11.7
$21.1
$16.3
$12.3
$13.0
$13.0
$13.0
$23.0
$18.0
$13.7
$14.4
$14.4
$14.4
$25.2
$19.8
$15.2
$15.9
$15.9
$16.0
$27.5
$21.7
$16.8
$17.6
$19.3

$17.6
$19.4

$17.6
$19.4

$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$13.0
$13.0
$13.0

$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$12.9
$12.9

10.0%
$0.7
$1.4
40.0%
$2.2
$4.4
$3.0
$5.3
$3.8
$6.2
$4.7
$7.2
$5.6
$8.2
$9.3
$6.6
$10.5
$7.6
$11.7
$8.8
$13.0
$9.9
$14.4
$11.2
$16.0
$12.6

10.5%
($1.4)
($0.7)
43.0%
($0.1)
$4.5
$0.6
$5.3
$1.3
$6.2
$2.1
$7.2
$2.9
$8.2
$9.3
$3.8
$10.5
$4.7
$11.7
$5.7
$13.0
$6.7
$14.5
$7.8
$16.0
$8.9

$17.6
$19.4

$17.6
$19.4

Discount
Rate
- Cost
of Debt
Terminal
TRA
Liability
3.5% ($1,300,000)
4.0% ($1,400,000)
4.5% ($1,500,000)
5.0% ($1,600,000)
5.5% ($1,700,000)
6.0% ($1,800,000)
6.5% ($1,900,000)
($1,200,000)
$19.5
$17.9
$16.3
$14.7
$13.0
$11.4
$9.8
$8.2
$13.0
$13.0
$13.0
$12.9
$12.9
$12.9
$12.9
$19.3
$17.7
$16.0
$14.4
$12.8
$11.2
$9.6
$7.9
$13.0
$13.0
$13.0
$12.9
$12.9
$12.9
$12.9
$19.0
$17.4
$15.8
$14.2
$12.6
$10.9
$9.3
$7.7
$13.1
$13.0
$13.0
$12.9
$12.9
$12.9
$12.9
$18.8
$17.2
$15.6
$13.9
$12.3
$10.7
$9.1
$7.5
$13.1
$13.0
$13.0
$12.9
$12.9
$12.9
$12.9
$18.5
$16.9
$15.3
$13.7
$12.1
$10.5
$8.8
$7.2
$13.1
$13.0
$13.0
$13.0
$12.9
$12.9
$12.9
$18.3
$16.7
$15.1
$13.4
$11.8
$10.2
$8.6
$7.0
$13.1
$13.1
$13.0
$13.0
$12.9
$12.9
$12.9
$18.1
$16.4
$14.8
$13.2
$11.6
$10.0
$8.4
$6.7
$13.2
$13.1
$13.0
$13.0
$12.9
$12.9
$12.9
$17.8
$16.2
$14.6
$13.0
$11.3
$9.7
$8.1
$6.5
$13.2
$13.1
$13.0
$13.0
$13.0
$12.9
$12.9
$17.6
$16.0
$14.3
$12.7
$11.1
$9.5
$7.9
$6.3
$13.3
$13.2
$13.1
$13.0
$13.0
$12.9
$12.9
$17.3
$15.7
$14.1
$12.5
$10.9
$9.2
$7.6
$6.0
$13.4
$13.2
$13.1
$13.0
$13.0
$12.9
$12.9
$17.1
$15.5
$13.9
$12.2
$10.6
$9.0
$7.4
$5.8
$13.5
$13.3
$13.1
$13.1
$13.0
$13.0
$12.9
$16.8
$15.2
$13.6
$12.0
$10.4
$8.8
$7.1
$5.5
$16.6
$15.0
$13.4
$11.7
$10.1
$8.5
$6.9
$5.3
$13.8
$13.4
$13.2
$13.1
$13.0
$13.0
$12.9

3.00%

$14.3

$13.5

$13.3

0%
0.25%

25.0%
$4.3
$5.2

28.0%
$4.4
$5.2

31.0%
$4.4
24
$5.2

$13.1

Tax Rate
34.0%
$4.4
$5.3

$13.0

$13.0

$12.9

37.0%
$4.4
$5.3

40.0%
$4.4
$5.3

43.0%
$4.5
$5.3

25

Year Ended December 31,

2012
2013
2014
(in thousands, except per share or per unit
data)

Consolidated Statements of Operations Data:

Total revenue
Costs and operating expenses:
Cost of revenue
Technology and development
Marketing and advertising
Customer care
General and administrative
Depreciation and amortization

Total costs and operating expenses

910,903

1,130,845

1,387,262

430,299
175,406
130,123
132,582
106,377
138,620

473,868
207,941
145,482
150,932
143,980
140,567

518,382
254,440
164,671
190,503
168,383
152,759

1,113,407

1,262,770

1,449,138

Operating loss
(202,504 )
(79,092 )

Interest expense
Other income (expense), net

(131,925 )
(70,978 )

2,326

(61,876 )
(84,997 )

1,877

744

Loss before taxes

(279,270 )

(201,026 )

(146,129 )

Benefit (provision) for taxes

218

1,142

2,824

Net loss
$

(279,052 )

(199,884 )

(143,305 )

(2.21 )

(1.58 )

(1.11 )

Basic and diluted net loss per share or per unit

Weighted-average common shares or units outstandingbasic and diluted

126,098

126,663

128,567

Pro forma basic and diluted net loss per share (unaudited) (1)
$

26(2)
Pro forma weighted-average common shares outstanding (unaudited)

(0.85 )
54,557

2012
Operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Equity-based compensation
Accretion of original issue discount
Amortization of deferred financing costs
Other
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable
Registry deposits
Prepaid domain name registry fees
Prepaid expenses and other current assets
Other assets
Deferred taxes
Accounts payable
Accrued expenses
Deferred revenue
Other long-term liabilities

Year Ended December 31,

2013

(279,052 )

(199,884 )

2014
$

(143,305 )

138,620
11,680
6,977
1,298
(574 )

140,567
16,448
7,934
1,362
(112 )

152,759
30,185
7,789
1,269
1,271

478
2,396
(36,746 )
796
3,522
(597 )
2,401
1,586
252,448
877

(2,388 )
230
(29,228 )
(11,684 )
1,470
(3,501 )
1,932
60,582
169,145
440

1,756
(2,656 )
(21,565 )
6,950
(6,616 )
(6,818 )
8,545
(22,334 )
166,357
6,981

Net cash provided by operating activities

106,110

153,313

180,568

Investing activities
Purchases of short-term investments
Maturities of short-term investments
Business acquisitions, net of cash acquired
Purchases of property and equipment, excluding improvements
Purchases of leasehold and building improvements
Other

(17,657 )
20,140
(17,679 )
(41,959 )
(2,271 )
61

(12,762 )
12,744
(156,759 )
(42,699 )
(9,390 )
400

(9,003 )
9,192
(40,739 )
(51,859 )
(16,042 )
1,132

Net cash used in investing activities

(59,365 )

(208,466 )

(107,319 )

Financing activities
Capital contributions from members
Distributions paid to unit and option holders
Unit repurchases
Proceeds from exercises of options and warrants
Proceeds from term loan
Proceeds from revolving credit loan
Repayment of term loan
Payment of financing-related costs
Repayment of other financing obligations
Payment of deferred offering costs

(18,391 )
14

(7,500 )
(9,000 )
(210 )

2,750

(356 )
880
100,000

(7,750 )
(4,065 )
(339 )

(348,965 )
(1,635 )
3,989
263,750
75,000
(7,625 )
(8,396 )
(4,118 )
(1,711 )

Net cash provided by (used in) financing activities

(35,087 )

91,120

(29,711 )

11,658
47,805

35,967
59,463

43,538
95,430

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

27

59,463

95,430

138,968

Balance Sheet
As of December 31, 2014
Pro Forma
Actual
As Adjusted (1)
(unaudited, in thousands,
except per share data)

Consolidated Balance Sheet Data:

Cash and cash equivalents
Prepaid domain name registry fees
Property and equipment, net
Total assets
Deferred revenue
Long-term debt, including current portion
Total liabilities
Total members/stockholders equity

28

138,968
425,651
220,905
3,264,805
1,252,512
1,418,922
2,854,414
410,391

221,300
425,651
220,905
3,340,096
1,252,512
1,126,364
2,723,717
616,379

Maturities of short-term investments

Business acquisitions, net of cash acquired
Purchases of property and equipment, excluding improvements
Purchases of leasehold and building improvements
Other

20,140
(17,679 )
(41,959 )
(2,271 )
61

12,744
(156,759 )
(42,699 )
(9,390 )
400

9,192
(40,739 )
(51,859 )
(16,042 )
1,132

Net cash used in investing activities

(59,365 )

(208,466 )

(107,319 )

Supplemental Cash Flow and Key Metrics

Financing activities
Capital contributions from members
Distributions paid to unit and option holders
Unit repurchases
Proceeds from exercises of options and warrants
Proceeds from term loan
Proceeds from revolving credit loan
Repayment of term loan
Payment of financing-related costs
Repayment of other financing obligations
Payment of deferred offering costs

Total bookings

Net
cash provided
by (used
in) financing
Total
customers
at period
endactivities
Net
increase inrevenue
cash and cash
Average
per equivalents
user (ARPU)
Cash and cash equivalents, beginning of period

for the trailing 12 months ended

$
$

Adjusted EBITDA

2,750

(348,965 )
(18,391 )
(356 )
(1,635 )
14
880
3,989

100,000
263,750

75,000
(7,500Ended
)
(7,75031,
)
(7,625 )
Year
December
(9,000
)
(4,065
)
(8,396
2012
2013
2014)
(210 )
(339 )
(4,118 )
(unaudited; in thousands, except ARPU)

(1,711 )

1,249,565
10,236
93
173,875

(35,087 )
11,658$
47,805

1,397,936
91,120
11,584
35,967
104
59,463
196,323

1,675,198

(29,71112,709
)

$
$

114
271,497

43,538
95,430

Cash and cash equivalents, end of period

59,463

95,430

138,968

Supplemental cash flow information:

Cash paid during the period for:
Interest
Income taxes, net of refunds received

$
$

71,185
63

$
$

61,775
2,546

$
$

75,353
2,290

Supplemental information for non-cash investing and financing activities:

Fair value of contingent consideration in connection with acquisitions
Accrued capital expenditures, excluding improvements, at period end
Accrued capital expenditures, leasehold and building improvements, at period end
Building acquired under lease financing obligation

$
$
$
$

3,090
29

$
$
$
$

8,337
1,256
5,267

$
$
$
$

2,300
5,802
373
18,085

29

Share Price

30

Share Price Relative valuation

31

Management background

Blake Irving

Bob Parsons

Current CEO
Former MBA professors
Exec at Yahoo, Microsoft

Founder, former CEO

Owns ~28% shares

In his continuing quest to

revamp the companys image,
CEO Blake Irving is executive
producing a documentary
about women in technology

Scott W. Wagner
Current CFO
Previously served as our
Interim CEO and from KKR
capstone
B.A. degree in Economics,
magna cum laude from Yale
University and an M.B.A.
degree from HBS

32