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The GoDaddy banner hangs outside of the New York Stock Exchange as the website hosting service makes its initial public offering (IPO) on April 1, 2015 in New York City.

Spencer Platt | Getty Images

Activist investor Starboard Value on Wednesday sent a letter to web-services company GoDaddy, urging management to continue moving “in the right direction” by setting specific and realistic growth targets and providing investors with more detail on how management will improve margins.

Starboard has a more than 6% stake in the company, and has been pushing the company to expand free cash flow and improve margins.

Starboard managing member Peter Feld wrote in Wednesday’s letter that while GoDaddy had made a good first step on its most recent earnings call in setting new profitability targets, “a few months of share price outperformance do not solve a multi-year problem.”

GoDaddy CEO Aman Bhutani signaled on that call that the company wanted to “be responsive to the feedback from investors” on growth and expansion, a tacit acknowledgment of Starboard’s initial letter.

GoDaddy shares are up around 47% since the November earnings call.

Starboard still believes there is more work to be done. GoDaddy should aim for at least 40% growth and profitability for the 2025 fiscal year, Feld wrote. Feld also highlighted GoDaddy’s “robust and increasing” free cash flow, and said that the company should continue to repurchase its undervalued shares.

“On revenue growth, we would again urge GoDaddy to be prudent with its growth guidance and not provide guidance that is based on an aspirational view of the business,” Feld wrote.

The activist investor noted that GoDaddy’s multiple is still heavily discounted relative to its peer group. Of the 20 companies in peer group in Starboard’s letter, GoDaddy has a higher multiple than only TeraData and Box.

Starboard believes that GoDaddy can achieve free cash flow of $9 per share by this fiscal year, and $14 per share by fiscal year 2026. Those targets are higher than GoDaddy’s $6.1 free cash flow per share for the fiscal year ending September 2023, according to FactSet data.

That growth can be fueled in part by “discrete cost savings”, Feld wrote, including trimming costs in technology and development. Starboard expects that GoDaddy could generate more than $4 billion in free cash flow over the next three years.

The letter was sent to Bhutani and CFO Mark McCaffrey, as well as GoDaddy’s board. Starboard sent its first public letter to GoDaddy in September and says it has had a position in the company since 2021.

GoDaddy did not immediately respond to a request for comment.

Starboard Value is widely regarded as a leading activist investor, with a focus on operations improvement and active engagement with management. It has led campaigns at or engaged with numerous companies in recent years, including Box, Bloomin’ Brands and Salesforce, according to data from 13D Monitor.

WATCH: Starboard’s Jeffrey Smith on the state of the market

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