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Why GoDaddy Shares Rose 19% in August

What happened

Shares of GoDaddy (NYSE: GDDY) gained 19.1% in August 2020, according to data from S&P Global Market Intelligence. The gains started with a strong earnings report and continued when Facebook (NASDAQ: FB) said that GoDaddy's e-commerce tools soon will be integrated into Instagram's online shopping platform.

So what

The domain-name manager and provider of various online business tools saw shares rising as much as 15% on August 6, boosted by a solid earnings report. Sales increased 9% year over year, and earnings would have been positive if not for a one-time tax charge of $850 million. This settlement of tax receivables is expected to lower the company's tax payments by more than $1 billion over the next 8 years.

A smaller jump followed on August 25 when Instagram presented a list of platform partners for its fledgling e-commerce operations. There are two active partners so far, and the smaller one of these saw share prices surge 25% higher on the news. GoDaddy was listed among the upcoming integration partners, and that set off a 4% gain over the next three days.

Image source: Getty Images.

Now what

Before you get too excited about the Instagram partnership, you should note that GoDaddy is just one of 13 listed partners. It's good to be an early participant in new business launches with potentially huge long-term results, and Instagram's 1 billion active users certainly place that platform in this category, but GoDaddy won't have a monopoly on checkout tools for Instagram shoppers. It's good news but not a game-changer.

GoDaddy shares have now gained a market-beating 17% in 2020, but the stock is not cheap at 50 times forward-earnings estimates. Valuation ratios like these are normally reserved for explosive growth stocks, not for companies with annual sales growth expressed in single-digit percentages.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends GoDaddy. The Motley Fool has a disclosure policy.


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