GoDaddy is actually not profitable.
In 2013 the company lost $199.88 million and in 2012 they lost $279 million .
http://techcrunch.com/2014/06/09/godaddy-files-for-100m-ipo/
(just a minor correction as I am not the biggest fan of GoDaddy)
In 2013 the company lost $199.88 million and in 2012 they lost $279 million .
http://techcrunch.com/2014/06/09/godaddy-files-for-100m-ipo/
(just a minor correction as I am not the biggest fan of GoDaddy)
This means that if it costs them $200 to acquire a new customer and that customer immediately whips out their CC and buys $1k of domains spread over ten years then, at the end of the year, they "lost" $100 on that customer and have to console themselves by drying their tears on $800 in cash.
It also makes their balance sheet look over leveraged due to the $900 in unearned revenue booked as a liability.
On the other hand, most time when tech companies chafe under GAAP restrictions, it is because they're trying "creative accounting" in the abusive rather than the creative senses of the term. Salesforce, for example, is periodically annoyed that they have to account for stock-based compensation to employees. Well, yeah, you can't simultaneously say "Equity grants are why people work for startups" and also say "But on the other hand they're totally free." They also have some other things which are apparently allowed in their GAAP accounting but... are rather aggressive, like $3.5 billion in goodwill on the balance sheet.
Disclaimer: I have in the past held, and currently hold, options positions which express the opinion that CRM is far overvalued and which profit if the market decides to agree with me.
This makes a lot of sense for chickens. It feels to me like it makes a lot less sense when I'm selling you something with a COGS which is too cheap to meter and where there is essentially no meaningful risk to delivery.
To see this, imagine what happens if he has to break his promise to deliver, perhaps because all his chickens get swept out to sea and there are no substitute chickens available in time. He owes you a refund. How much does he owe you? Having spent our lives doing deals like this, we intuitively know the answer: $25. He has to give back all the money you paid. That's why the liability is $25.
Now, once an actual chicken gets handed over to you, and you agree that it satisfies the chicken contract, things are different. Now the $25 liability changes into a $5 cost-of-goods-sold (assuming that wholesale chickens cost $5) and a $20 increase in equity (aka "profit").
(More or less, I think. I'm not an accountant.)