GoDaddy Inc. (NYSE: GDDY) stock debuted on the New York Stock Exchange today (Wednesday) at $26.15 a share and quickly climbed to $26.84 before 11:00 a.m. That's 34% higher than the $20 offer price.
It has been the most talked about IPO of 2015 so far, and now our readers are asking us "Should I buy GoDaddy stock?"
Investor demand for GoDaddy stock has been high in its first day of trading. More than 151 million shares exchanged hands before noon.
Here's a closer look at the GoDaddy IPO...
A GoDaddy IPO Overview
On Tuesday evening, GoDaddy priced its shares at $20 each. That was above the projected range of $17 to $19 per share and indicated strong demand from institutional investors.
The company sold 23 million shares, which was 1 million more than initially planned. That brought the GoDaddy IPO total to $460 million. GoDaddy is now valued at roughly $4.5 billion.
GoDaddy is a web domain service with more than 12.7 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.
The company is best known for its marketing campaigns, however. High-profile spots during the Super Bowl and other major sporting events typically feature scantily clad models. The company has also sponsored NASCAR driver Danica Patrick.
But according to The Wall Street Journal, GoDaddy is working hard to create a new image. The company now wants to be known first for making small businesses more productive, rather than its commercials featuring models.
GoDaddy is now pushing new services on its clients including company-specific email address, e-commerce services, and new bookkeeping software.
The company's transition has its financials trending in the right direction. In 2014, GoDaddy's revenue climbed 22.7% to $1.4 billion.
But that figure alone is not a buy signal.
In fact, there are three huge red flags that have us avoiding GDDY stock after the IPO...
Should I Buy GoDaddy Stock After the IPO?
The first major red flag is GoDaddy's profitability.
GDDY lost $143.3 million in 2014. Yes, that's an improvement from the $199.9 million it lost in 2013 and the $279.3 million in 2012. But this isn't a new company either. It has been on the market for 18 years and is still not making a profit.
In fact, the company hasn't turned a profit since 2009. And it carries $1.4 billion in debt, most of which comes from its leveraged buyout by several private-equity firms including KKR & Co. (NYSE: KKR) in 2011.
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The second reason to avoid GDDY stock is its increasing competition...
Just weeks after the GoDaddy IPO was filed, Google Inc. (Nasdaq: GOOG, GOOGL) announced it would enter the web domain business with "Google Domains." The service allows 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.
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.
The third red flag is the stock's quick rise in early trading.
At Money Morning, we recommend investors avoid stocks immediately following IPOs. Only wealthy, institutional investors were able to scoop up GDDY shares at $20 each.
Anyone buying in now is paying a huge premium for the stock. And because IPO stocks are so volatile, they often come crashing down after the IPO hysteria settles.
Take the Box Inc. (NYSE: BOX) IPO from January. The company set an offer price of $14. It opened its first day of trading at $20.20, before reaching a high of $24.73. That's the highest value the stock has seen.
Box stock dipped as low as $16.41 in mid-March. Investors who bought in at its high price were looking at a loss of 33.6%.
They operate under different guidelines, but generally, each ETF buys a stock in the days following its initial public offering and holds it for a specified amount of time. This allows the investor to avoid any initial volatility and capture the profits from the stocks first few months or years.
Granted, one-day triple-digit gains are rare with these ETFs, but so too are major losses.
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- Wall Street Journal: GoDaddy Out to Lose Bad-Boy Image