Is GoDaddy a Hidden Value Stock?

As advancements in artificial intelligence (AI) accelerate, investor sentiment toward certain types of companies is hitting a breaking point. A number of technology stocks have been selling off hard recently, and website company GoDaddy (NYSE: GDDY) is, surprisingly, among them. Yet GoDaddy's business is benefiting from AI, making its current sell-off a hidden buying opportunity.

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Why isn't anyone talking about GoDaddy stock?

GoDaddy registers domain names, hosts websites, and provides its customers with tools for e-commerce and more. There is a software component to the business. But it owns and operates its own data centers for web hosting, which gives the business a physical component as well.

AI is making GoDaddy more profitable. The company has deployed agentic AI in its own workflows, and that's making a difference on the bottom line. For example, its third-quarter revenue was up 10% year over year to $1.3 billion. But its operating income took a much stronger 17% jump, thanks in part to AI making its operations more efficient.

GoDaddy doesn't keep its AI tools to itself. In early 2024, it launched its AI platform, Airo, which helps customers build websites, create logos, and more. As the revenue-growth chart below shows, there's been a top-line acceleration thanks to AI.

GDDY Revenue (Quarterly YoY Growth) data by YCharts.

The question is whether GoDaddy can continue to innovate. Here, too, I find reason for encouragement. Management sees a new wave of web domains coming as companies build sites around AI agents. Accordingly, it's launching agent name services (as opposed to its more familiar domain name services), a newer solution aimed at handling agentic AI's potential to change the internet.

Therefore, GoDaddy is growing, its margins are improving, and management is focused on staying relevant in a potentially changing landscape. All this is encouraging from a business perspective.

From an investment perspective, I'm encouraged as well. GoDaddy trades at just over 8 times its trailing free cash flow (even though its free cash flow is growing by over 20%). That's its cheapest valuation in nearly a decade.

GDDY Price to Free Cash Flow data by YCharts.

Management has been reducing its outstanding share count through stock buybacks, which go further when the stock is as cheap as it is now. Through the first three quarters of the year, the company repurchased almost $1.4 billion of its shares, and it still has almost $2.4 billion left on its buyback authorization.

With a market cap of about $12 billion, GoDaddy's management can continue to return meaningful cash to shareholders through this buyback plan.

I believe GoDaddy is a hidden value stock. The business is strong, its profits are up, the stock is as cheap on a price-to-free-cash-flow basis as it has been in a decade, and management is opportunistically reducing the outstanding share count. For investors looking for a timely buy, GoDaddy stock checks a lot of boxes.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends GoDaddy. The Motley Fool has a disclosure policy.