GoDaddy IPO Is One to Avoid in 2015

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A report this week indicates the GoDaddy IPO in 2015 will value the web domain company at $4.5 billion.

That valuation and the company's strong brand ensure the GoDaddy IPO will be one of the most talked about upcoming IPOs of 2015.

But those aren't buy signals for GoDaddy stock. In fact, this looks more and more like an IPO to avoid in 2015.

Godaddy IPOGoDaddy Inc. filed for its IPO in June. The New York Post has been the only news outlet to report the $4.5 billion valuation so far.

In June's filing, the company set a placeholder value of $100 million on the deal. Placeholder prices are common among IPO filings. Companies will typically announce a higher price closer to the IPO date. For instance, Alibaba Group Holding Ltd. (NYSE: BABA) set a placeholder of $1 billion on its IPO. It eventually raised $25 billion.

Currently, GoDaddy has 12.2 million customers. It also manages more than 57 million domain names. That domain business has been the company's hallmark since it was founded in 1997.

Despite its huge user base, GoDaddy is best known for its marketing. Ads featuring scantily clad models and celebrities like NASCAR driver Danica Patrick are frequently run during high-profile events. The company runs a Super Bowl commercial almost every year.

But now the company is trying to expand its image.

In an updated IPO filing this August, officials noted that GoDaddy's other businesses were growing. Products like "web hosting" and "business applications" now account for 44% of GoDaddy's revenue. According to The New York Times, that was up from 40% at the end of 2013.

GoDaddy's revenue is also growing. In the first half of 2014, sales hit $658.7 million. That was a 22% jump from the previous year. Adjusted earnings were up 26% to $143.5 million.

Despite those seemingly encouraging numbers, GoDaddy stock is not looking like a good investment.

In fact, the company faces two huge challenges as it prepares for its IPO...

GoDaddy IPO: Two Troubling Factors Loom Large

The first thing that can't be overlooked is GoDaddy's profitability. Revenue may be growing, but the company still isn't turning a profit.

In the first half of 2014 GoDaddy posted a loss of $89 million. Continuing at that pace, the company will lose a total of $178 million for the full-year 2014. In 2013, the company lost a total of $199.9 million. In 2012, that figure was $279.3 million.

Technically, GoDaddy's losses are trending in the right direction. It has lost less money over the past three years. And according to Sundial Capital Research, 75% of companies that held U.S. IPOs through June, July, and August were not profitable.

But that doesn't mean they're all solid investments. Some investors will buy into unprofitable companies if they offer new products, or operate in a burgeoning market.

GoDaddy is 17 years old and is operating in a market that is becoming increasingly more competitive.

That brings us to the second major challenge for GoDaddy: its competition.

Just weeks after the GoDaddy IPO was filed, Google Inc. (Nasdaq: GOOG, GOOGL) announced it would entering the web domain business with "Google Domains." The service will allow businesses to search, find, purchase, and transfer domain names.

GoDaddy also competes with smaller companies like Endurance, United Internet, and Network Solutions. But Google is the biggest fear for GoDaddy moving forward.

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GoDaddy even admitted how worrisome the competition is in its IPO prospectus.

"Some of our current and potential competitors have greater resources, more brand recognition and consumer awareness, more diversified product offerings, greater international scope and larger customer bases than we do," the company wrote.

Not exactly the most confident statement to lead off the IPO process.

There's no doubt the GoDaddy IPO will be one of the most talked about IPOs next year. The company's marketing team has always been able to create a buzz.

The Bottom Line: Investors, skip this one. The big name isn't worth the other headaches.

But You Can Still Profit from IPOs Now: Unless you have millions of dollars to invest, you'll often be left out of the big IPO money. But Money Morning experts have found a way for investors to play the IPO market and see the types of gains normally reserved for the "Insiders Club"...