GoDaddy Shares Decline Amid .CO Registry Exit and Revised Outlook

GoDaddy Shares Decline Amid .CO Registry Exit and Revised Outlook

GoDaddy Inc. (GDDY) shares have experienced a notable decline following the company's announcement to exit its role as the .CO top-level domain (TLD) registry service provider. This strategic shift is projected to exert a negative influence on fourth-quarter bookings and revenue, contributing to investor caution despite underlying bullish sentiment from analysts regarding long-term valuation.

The Event in Detail

On August 7, GoDaddy reported its second-quarter results for fiscal year 2025, with revenue reaching $1.22 billion, an 8.3% year-over-year increase, surpassing Wall Street's estimate of $1.20 billion. Earnings per share (EPS) also rose 39.6% year-over-year to $1.41, exceeding analysts' expectations of $1.34. However, shares fell approximately 3% immediately after the company disclosed its decision to cease operating as the registry service provider for the .CO top-level domain. This move is expected to create a headwind of approximately 50 basis points to bookings and revenue, primarily affecting the fourth quarter of 2025.

As a prominent internet services company with a market capitalization of $18.1 billion, GoDaddy provides domain registration, web hosting, website building, online marketing, and digital commerce tools to over 20 million customers, managing more than 80 million domain names worldwide. The company is scheduled to release its third-quarter 2025 earnings on October 30, with analysts projecting EPS of $1.50, representing a 13.6% growth from the prior year.

Analysis of Market Reaction

Despite strong quarterly earnings, GDDY stock has seen a significant downturn, declining 18.8% over the past 52 weeks and 33.5% year-to-date. This performance contrasts sharply with the broader market, as the Technology Select Sector SPDR Fund (XLK) surged 23.6% and the S&P 500 Index ($SPX) advanced 14.4% during the same period. Investor caution stems from the anticipated negative impact of the .CO domain exit on near-term financials and ongoing operational challenges. This short-term pressure on share price exists even though the company delivered robust double-digit total returns over three and five years.

Broader Context and Implications

Analysts largely maintain a "Moderate Buy" rating on GoDaddy, with a mean price target of $191.60 and a fair value estimate at $189, suggesting a substantial 30.1% undervaluation compared to its recent closing price of $132.27. This valuation gap is predicated on the company's strategic pivot towards subscription-based SaaS and bundling initiatives, enabled by accelerated AI-driven product development. These initiatives are expected to shift the revenue mix towards recurring and higher-margin streams, aiming for an EBITDA margin expansion to 33% by 2026.

Key to this strategy is the Airo™ platform, which has been instrumental in driving 50% of paid subscriptions and boosting Average Revenue Per User (ARPU) to $225. Airo™'s automation and agentic AI capabilities have improved conversion rates and customer retention. Furthermore, the Applications & Commerce (A&C) segment has emerged as a strategic growth engine, growing 16.9% year-over-year in Q4 2024 and contributing 37% of total revenue. Strategic acquisitions, such as Poynt, have also enhanced GoDaddy's omnicommerce capabilities.

Expert Commentary

The strategic shift towards higher-margin services is a critical component of GoDaddy's long-term outlook. As one narrative suggests:

"Large-scale adoption of subscription-based SaaS and bundling initiatives, enabled by accelerated AI-driven product development, is shifting revenue mix toward recurring and higher-margin streams, improving revenue predictability and EBITDA margin expansion (targeting 33% by 2026)."

This sentiment underpins the bullish analyst targets, despite the immediate headwinds.

Looking Ahead

While GoDaddy is actively rolling out new AI-driven products and expanding its digital advertising offerings, the company faces intensifying competition from rivals such as Wix and Squarespace. The risk of customer churn also remains a significant threat that could undermine growth assumptions and pressure future profit margins. Investors will closely monitor the upcoming Q3 2025 earnings release for confirmation that GoDaddy can translate its strategic initiatives into sustained financial outperformance and navigate the operational challenges presented by the .CO registry exit. The company's ability to achieve its ambitious EBITDA margin targets by 2026 will be a key indicator of its long-term value creation potential.