GoDaddy pulls its IPO filing! Why I decided to pull it.
At 2 PM today (Tuesday, August 8, 2006) I announced at a meeting broadcast to Go Daddy's 1200+ employees that The Go Daddy Group was officially withdrawing its registration with the SEC to become a public company.
We just finished our best quarter - ever!
This decision comes after the best quarter in the company's history. During the 2nd quarter The Go Daddy Group Inc. had GAAP revenue of $56,985,000, a net accounting loss of $733,000 and positive cash flow from operations of $14,240,000.
This compares to the 2nd Qtr 2005 when our GAAP revenue was $31,082,000, and we had a net accounting loss of $3,389,000, and positive cash flow from operations was $6,871,000.
As I write this blog article, our revenue numbers for July and August continue on this positive trend.
The SEC just accepted our S-1 as ready-to-go!
This past Thursday we were notified by the SEC that our S-1 filing was now accepted and they had no further comments. This means we were cleared to go public at the time of our choosing.
Throughout the filing process, we have found the SEC to be good to work with. Their turn-around was quick and their comments to the point.
We just announced incredible growth numbers!
Last Tuesday, on July 29, we announced together with Jay Westerdal of Name Intelligence (a leading industry analyst group that tracks domain names), that The Go Daddy Group's domain name portfolio is not only number one in the domain industry with 14.6 million registrations, but is now more than double the size of its closest competitor.
To put Go Daddy's growth into perspective, consider that we passed the prior industry leader - The Network Solutions Group - on April 26, 2005, and in just 15 months we "lapped them" - we now have more than twice the registrations they do!
So thanks to all of our wonderful customers, about 1 in every 3 domain name registrations are now made with GoDaddy.com.
Nobody innovates like Go Daddy!Our degree of product innovation and release continues to be second to none. We continue to be the only registrar that owns substantially all of the technology that it provides to its customers. Some products we provide our customers that no other registrar offers are:
1. Business Registrations
2. Platinum Registrations
3. Podcasting through our Quick Podcast product
Why I decided to pull our IPO filing.
You might ask, why, if Go Daddy's situation has never been better, did I decide to pull our IPO filing? There are three reasons for doing so:
1. Market conditions
2. The Quiet Period
3. We don't have to go public
Market Conditions.
The state of the stock market for an IPO is as uncertain as it could be. In fact, the USA Today published an article that IPO stands for "Investor Pain Overload." This is due, in large part, to the overall "bearishness" in the market.
Consider the situation from a global perspective and follow it all the way to Wall Street.
We have war and escalating hostilities throughout the Middle East, with no end in sight. Oil prices are skyrocketing. Tech stocks, in particular, are once again taking a beating on Wall Street, due in part to some investment banks cutting their ratings on the U.S. technology sector. Rising interest rates have played a key factor. Their steady rise over recent months has put adverse pressure on stocks overall.
In a bit of irony, last week when the SEC informed us our filing was accepted as being ready-to-go, market conditions were a terrible mess. In fact, inflation worries, say analysts, are bleeding into the tech sector. For all these reasons, I liken the timing of us getting the 'green light' to a person being told his car is in perfect condition just before it's about to be driven into a wall.
I don't expect market conditions to correct themselves for sometime.
I feel we owe it to ourselves to withdraw our filing until better and more stable times arrive
What if you were a cash cow and nobody noticed?
This seems like an excellent time to address an issue that has bugged me since the moment we filed our S-1.
After we did our filing, I was surprised that not one journalist took the time to look at our cash flow statement to report our actual results. Instead, each and every one of them hastily reported that Go Daddy filed to do an IPO and that we had never turned a profit. Not one of them took the time to look at our cash flow statements to see that we generated significant operating cash flow during each reporting period.
The accounting method we are required to use.
Because GoDaddy.com sells domain name registrations, we are required to use an accounting method that is ultra conservative.
We are required to show income on domain names - as if our customers pay for them monthly over the life of the registration.
Because we sell domain name registrations, we must recognize the income we earn on each domain name over the term of its registration. For example: if a customer registers a domain name with us for three years, we must show the income earned over the three year period. However, all of the salaries, advertising, systems and overhead costs associated with getting that domain name registration are recorded and expensed on the day the registration is sold. As a result we defer most of the income we make on every domain name until way into the future.
The fact is our customers pay for registrations in advance, registrations are non-refundable and after recording the registration our job is pretty well done.
It's important to realize that when Go Daddy (or any registrar for that matter) sells a registration, we get paid in-full on day one, and we pay the registry in-full in advance for its share. The registration -- once made -- is not refundable. Also other than providing the after-sale service that any responsible merchant would provide, there is really nothing we need to do. We don't take the domain name out and shine it up every now and then.
We do have to provide our customers with systems they can use to manage their domain names - such as systems for forwarding the domain, managing the associated domain name servers and updating contact information, as well as systems that ensure the domain name resolves with related products like email, search engines, after-market options, etc.
On an annual basis we are required to send an ICANN mailing - addressed to ICANN governed names which asks the registrant to verify their contact information. We field the occasional dispute and beyond that, all we are required to do is send a renewal notice before it's ready to expire.
All of the above are handled by computer systems that are in place on day one and are paid for by the original registration. So while there is some argument for spreading the income associated with the non-refundable registration fee over the life of the registration, the end result is that because of the way we are required to defer revenue and recognize expense on day one, the accounting method we use is very conservative indeed. To give you some idea of the magnitude of the profits we are required to defer, consider that as of June 30, 2006 the amount of net deferred revenue (which is the net profit we make on each registration -- i.e. what we sell them for less what we pay to the registries) on our balance sheet exceeds $95,404,000 million dollars. A very significant number indeed.
It's pretty much impossible to show an accounting profit during growth periods.
Because of our ultra conservative method of accounting, during periods of sharp growth it is very difficult, in fact almost impossible, for us to show a profit. This is why Go Daddy to date has yet to show an accounting profit.
In time the situation will correct itself.
Slowly -- because of the maturing of our domain name portfolio, and the eventual slowing of our growth rate, due to the law of large numbers, and the increasing revenue generated by sales of additional products that generate immediate GAAP earnings, we will report accounting earnings -- under the accounting method that the AICPA insists we use.
Incidentally, the IRS thinks all this is nonsense. They make us use the cash method.
The Quiet Period.
If GoDaddy.com is anything, it is an outspoken company and I am an outspoken CEO.
For us, the Quiet Period that came along with the IPO filing has been suffocating. Basically from the time a filing is made until one month after the stock hits the market, the company going public cannot say or do anything that can be construed as something being done to "hype its stock."
There's no TV or radio in the Quiet Period.
The SEC has a number of rules that are very clear about what cannot be done during this time. One of these has to do with radio and TV communications. This forced me to discontinue hosting my weekly radio show, www.LifeOnline.com, during our Quiet Period.
Let's talk about forward-looking statements.
Another important thing that must be avoided is making "forward-looking" statements.
During my last broadcast on my weekly radio show, my co-host Nima Jones and I somehow started talking about the old song "I ain't gonna bump no more with no big fat woman!" When I closed the show Nima asked me what I was going to do after we went off-air, and I replied jokingly, "I just might go bump with a big fat woman tonight."
After leaving the studio our General Counsel Attorney Jones told me that if I had said that after filing the S-1, because I was talking about something I was going to do, it would be considered a "FORWARD-LOOKING STATEMENT!" I think that pretty much sums up the Quiet Period.
We don't have to go public.
The Go Daddy Group, Inc. has one investor: Me. The tech companies we have witnessed complete the IPO process and actually go public during this difficult time have all depended on venture capitalists, both on their board and as their investors. The principals in these companies have made it no secret that given the choice, they would have much preferred not to go public. They proceeded with their offerings only because these venture capitalist investors made them to do it.
Why would venture capitalist investors do such a thing? It's quite simple. They need to flip their investment to show a gain for whatever fund it is they are managing. If the underlying company takes it on the chin as a result, then so be it.
That's not going to happen to Go Daddy.
To date, Go Daddy has been completely self-funded -we have been cash flow positive since October 2001, and - whether anyone has noticed or not -- continue to generate healthy cash flow from operations. We'll manage just fine without the IPO money -- thank you.
Who knows what the future holds.
So there you have it. I've decided to pull the IPO. Things have never been better for Go Daddy. It's the financial market and other conditions that concern us. One day we'll be back.
I'll talk about pulling the IPO on tomorrow's radio show.
I will be talking about all this on my weekly radio show - that's right, the Quiet Period is over baby - I'm back on the air! We will broadcast live tomorrow - Wednesday August 9, 2006. There are lots of ways to listen -- including after-the-fact via download if you miss the live show. To find out how to listen go to www.lifeonline.com.
I'll Stay "Master of My Own Domain"... for now.
So The Go Daddy Group, Inc. goes back to being a private company. I don't need to drive this company into a wall to make a quick buck. Controlling our own destiny is what has made this company GREAT from the start.
And who knows, I just may go bump with that "fat woman tonight."