GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Thanks, everyone. My name is Sterling Auty, software technology here at JPMorgan. Very happy to have with us Aman Bhutani, who's CEO of GoDaddy, for our next session. Before we get started, just FYI, you've got a Q&A button there. Please make use of that to enter questions, I'll incorporate it into our session. Aman, thanks for joining us. Really appreciate it.

This might be the first time that a number of investors are getting a chance to see you speak. Can you just give a sense of your background? And why did you choose to come to GoDaddy?

Yes. Sterling, thanks for having me, and it's good to see you again. My background was mostly in technology, almost 20 years of writing software, building software, leading teams and starting to transition into business roles. I did a lot of work at Expedia, ultimately ending with the President role of leading the Brand Expedia Group. And then when GoDaddy tapped me, I -- one, was like GoDaddy, I thought they were based in Arizona, and I live in -- near Seattle. But we have a great Kirkland office, and I went out there. And I sort of did the same thing I'd ask lots of other people to do over many years. And there are 4 things that I was looking for if I were going to change, and I call it the soulmate tests. So S-O-U-L, which is something you're hungry to do; O, there should be opportunity for everyone, not just for you; U, that you should bring something new to the table; and L, that there should be learning involved for you, because you wake up in the morning and you're excited if you're learning new things. And GoDaddy offered all of those. I was hungry to lead a company that had a strong mission and purpose, was big but not too big, was global, could make a difference, and GoDaddy offered all of those. And I think we all know the opportunity is immense with digitization, even accelerating this year. And then I had a set of experiences that were uniquely sort of a match for GoDaddy. And I'm a new CEO, so there's a lot of learning involved for me. So that -- it was just a great match for me.

I love that you had a framework kind of going into your decision process. So as you kind of got on to the job and even before, when you looked at the strategy that GoDaddy was employing, what did you think of it? And as you're kind of getting your feet wet, what were the things that you were looking to change? Or what are the things that you either left alone or looked to enhance?

Yes. As I dug into GoDaddy early on -- and even before I joined, I quickly realized what I think everybody else already knew, which, yes, we all know GoDaddy for the Domains business from decades ago. But there was -- underneath, there was this sort of infrastructure player that was focused on doing DNS and domain name and turning into a software company. And I think that swing had started, but everything sort of that I looked at fit into that art. And my goal coming in was to accelerate all of those pieces that move us to be a customer-led software company. And that involved -- whether it involved making changes to the leadership and changes to our investments, changes in terms of priorities, I've prioritized all of those things that complete that transition. So if you look across sort of the core competitive advantages of the company, clearly, the company had already been doing good work to progress the brand, right, from what it was to what it is today, and fantastic work there. And the idea was to continue to press on that, right? If you look at SAGE guidance, which is a competitive advantage for the company. We do a phenomenal job of it in our care centers. It's core to our ethos. The idea was to continue to press and continue to bring it to the digital products as well. And then those 2 were already there, and we were doing well. And the 2 that I've sort of pressed on much more that were there in the company, but sort of not getting as much attention is the third, building truly intuitive experience and not -- which means not thinking from a product mindset, thinking from a customer mindset. Because when you think from the customer, all the products have to intuitively sort of work well with each other, not just stand-alone. And then the fourth was sort of activating the exponential power of the community because we have 19 million customers. We have a lot of people that are aware of GoDaddy brand. And I think we can do a lot more to sort of activate that community and have people really -- not just be champions of the brand, but be talking about all the great stuff we're doing for them publicly as well.

Now you mentioned that part of the process is the potential for people changes. What actions have you taken? And are you complete? Because that's always one area that investors are always nervous about is to see any type of changes and transitions and management.

Yes. I think I actually talked about it early on in my time at GoDaddy. So I'm only 9 months in, but I think of the first 3 years sort of early on. We moved pretty quickly to make those changes, and it was with the support of the leadership team. And there are 2 key things. There were some areas of overlap that we wanted to just eliminate and clarify. And then there was a -- the core set of changes were around, instead of being a product-led company or a marketing-led company, we really wanted to align our divisions with customer segments, and that's core to being a customer-led software company, right? And I talked about it on Investor Day, so the first thing about being a customer-led software company is that you make trade-offs based on creating customer value. The second thing is that you line up execution to those customer populations, and that's what we did. We created a structure with leadership so that there was somebody that was accountable directly to a customer population. And then within their remit, they had access to a majority of levers to be able to deliver for those customers. And that was the key chain and we finished that in December. And in Q1, it's sort of the way -- the new way that our company works, the new way that we look at the business, and it's gone down very well.

So when you look at being a software company, a customer-led software company, I think one of the questions when you came in on investors' minds is: How much of that is actually going to come through organic development versus GoDaddy has traditionally been an acquisition-led company? What's your strategy? And especially now that you've done one of your first acquisitions, not a big one, but one that strategically could be pretty meaningful to you.

Yes. And I think the answer to sort of organic versus inorganic, the answer is an and. The fact is that we have a strong position and we are a leader in what we call dream phase with the Domains business and ecosystem. GoDaddy entered sort of strongly into the create phase with Presence, with Websites + Marketing and Managed WordPress over the last few years. And we've built a very strong position in that part of the customer life cycle as well. And now as we focus our attention on the growth piece with marketing tools and others, we will need a combination of both. We need better ways to move our customers up back or whether they -- as they move through the phases, they get more value from GoDaddy. And as a result, they're higher lifetime value customers for us as well. But equally, there are going to be pieces that we want to go after in terms of acquisition because it's just a faster way there or it's the better product. Because again, our core goal is to build an amazing offering for customers. Whether we build via a partner is secondary, right? We don't have to build it all ourselves, and we're not a company that has chosen to do that in the past. So you'll see the combination of that. And definitely, there's the acquisition on the registry side that you're probably mentioning and strategically it has some exciting opportunities. But we also acquired a part of the business from Uniregistry and the Over app, which filled in key things that our customers need as they sort of build their online presence, whether it's content or having the right tools for high-end customers. We're bringing those in and adding them to our experience for our customers.

Yes. That makes a lot of sense. Let's switch over to COVID. I think traditionally, investors would think about GoDaddy as primarily serving SMB customers. Based on that, what did you experience in the March quarter and through the month of April in terms of churn and new customer activity?

One, I think it's right. GoDaddy is primarily serving small and medium-sized businesses. In fact, a very large percentage of our customers will be customers that we can call micro businesses as well. And we're in a fortunate position that the products we offer, whether it's domain names or website or others, tend to be products that are low-priced, tend to deliver a lot of value to our customers and tend to be one of the things -- last things our customers give up, right. For somebody to let go of their website or their domain name, you literally have to not just have a business that's in difficulty, you have to end the business. And what we've seen over the, sort of, late part of the last quarter, let's say, especially the last 2, 3 weeks of March, is that everywhere in the world, there was an art for COVID. And that -- what that art did is that it led to people being concerned, confused and really worried about their safety. So everything kind of paused for a few weeks, while people just dealt with the basic concerns on safety. And in the U.S., we saw that more so in the later part of March, right? What we've seen sort of across all of those, and we shared examples of Italy, Germany, shared an example of the U.K., which went through a very similar phase, what we see is that when that period of uncertainty went away, people stepped back and said, digitization is the only path, and we saw greater demand come back. So to answer your question, we absolutely continue to be focused on the SMB and micro businesses. What we've seen is continued low customer churn because our customers, even if they stop with one venture, they start another one. But in fact, even on our products, renewal rates ticked up a tiny bit. So the core part of our business continues to do as we expect, and we do have some headwinds in a couple of parts of our business like we've outlined clearly, but the core business is continuing to do well.

Let's segue into that, actually. One of the questions from the audience is just on that point. How much of the business is coming from higher price point solutions? And I think you mentioned, Do-It-for-Me on the call. So how much of the revenue is coming from that? And how are you managing through this environment with the headwinds in that segment of the business?

Yes. So Ray put up a pie on Investor Day, which sort of lays it out really well. Try to think of it as somewhere between 70% and 75% of the business as the core business continuing to be very healthy. Add another, let's say, 15%, 16% for Care. Care was about 16% of our business last year. It's a bit depressed right now, given that some of our motions don't work as well as home as they do in the office. But something like that is Care. And then high single digits, you can think of as our GoDaddy social or higher-priced products, right? To give you an idea, average ARPU for us for the year is $150, $160. But these products can be $3,500 up to $4,000, $4,500, and they're recognized into revenue immediate because they're sort of sold on a monthly basis. And those -- that's the area that is seeing the pressure because a lot of our customers just don't have the traffic. They don't -- with COVID, they don't have the ability to continue to pay for that. And what we're doing is putting offers out there that support the customers, that pause the service. We're putting offers out there where if they have to cancel but they still really like the service, we're trying to find different ways to support them. One of the things we did is that we reached out to a lot of those customers and said -- we didn't try to sell them anything, we just offered them help, to help them find the resources because we have this big initiative with OpenWeStand with so many offers. And that's gone down really well because customers are saying to us, well, I'm so glad that somebody is calling me to help me when I'm having this difficult time. And we're being understanding of the fact that at this time, it's hard for them to afford some of those high-priced services. But it's not -- micro businesses go through challenges. This is a massive challenge and unprecedented. But micro businesses do go through challenges, and I feel that GoDaddy has a good set of tools to sort of approach the customer and help them in bad time.

But on that segment, do you find that it's just about modifying the -- what you're offering? Or do you actually have to spend more to generate that revenue? Or do you take a step back and say, "You know what? Spending more is not going to help. It's going to be pushing on a string, we just need to change the way that we go to market, accept what we get and then see the uptick once we get beyond COVID-19?"

Yes. So what we did in that segment is that we literally pulled the team together. And I said something to the tune of human creativity can drive lots of options here, let's go test a bunch of stuff. So we did actually all of what you said. We took one of the teams. We have a number of sales people in that. It's mostly a calling-out motion to customers. We took a segment of the sales people and said, "We want you to go and offer this different thing, this lower-price thing, this different type of offering, let's see how that does." We took a different segment and said, "We want you to sell differently." So the idea is to try a whole different set of experiments and see if -- 2 things: one, as the COVID art changes, does the customer demand or behavior change, which obviously we still have quite a ways to go for that in many markets. But on the other hand, are there new products that we could just learn? Should we change the product in a certain way, which works better irrespective of what the situation is? So it's too early to talk about which one of those will work, but we're testing out both.

Yes. That makes a lot of sense. In terms of -- do you have a -- maybe a quantification of how much of the business comes from some of the more hard hit industries that are out there, whether it be travel, lodging, et cetera?

Yes. So one of the benefits with GoDaddy and 19 million customers is that we are in every vertical, and customers of all kinds work with us. We do see a drop in the segments that are heavily impacted, like travel and hospitality. But equally, we see upticks in health, we see upticks in -- even in fashion, which was nonessential and we were not expecting that in parts of April. But we're seeing uptick -- people are just putting more and more products online and also sort of trading a basic website for a commerce website instead of having whatever service or product they're offering, creating the digital download of it and trying to sell it that way. So we are seeing sort of everyday entrepreneurs, human creativity that's driving that type of behavior. And one of the things that I've mentioned on the earnings call is that we've seen an uptick even in personal websites. And a pretty significant one because, I guess, as people sort of have more time or as there's higher unemployment, people are just creating more sites about whatever idea they want to take online. So it's pretty broad-based sort of the demand growth.

You mentioned a couple of times in terms of doing more with the 19 million customers. You guys have chosen not to disclose customer count, I think, moving forward, based on the idea it creates a little bit more noise. But I think 2 questions. One, in light of the environment, will we see -- even though you're not disclosing, is there going to be more volatility in that net customer growth metric? That's number one. And then number two, what do you think the opportunity? Is there, kind of, a target ARPU that you want to drive that 19 million customers to over time?

Yes. So I just want to clarify, Sterling. It's not that we're not going to provide customer -- we actually are going to continue to provide it on an annual basis. What we're talking about is to not sort of provide it on a quarterly basis because as we move our initiatives or pricing or marketing spend, it tends to move the customer adds. And we -- because we don't drive the business on hitting a certain target every quarter on it, right, we don't want to sort of be talking to investors about something that isn't actively part of our operation. So I think -- all our investors will have access to that data. It will just be on an annual basis. And in terms of the opportunity, the opportunity continues to be large, both in terms of number of customers and driving ARPU. And we've seen steady ARPU growth, sort of mid-single digits. And the idea is to continue to maintain that and look for ways to accelerate. And if we have to make some trade-offs there, where we look at the different businesses and see, okay, how do we get more ventures because we want higher ARPU, and that's how customers get more value. If we have to make some trade-offs there, then we'll be smart about how we make those trade-offs. But that's the type of thing we are going for.

Makes sense. And I'm glad to hear in terms of the transparency, I think that will help investors. Now you talked about 15%, 16% of the business actually coming for customer care. For investors that are new to the story, how does customer care actually generate revenue for GoDaddy?

Yes. GoDaddy has an absolute competitive advantage in customer care. Most companies in the world would call it a call center. It is absolutely not a call center for us. It is named Care for a reason. Most people think about people that pick up the phone as call center agents. We don't have agents, we have guides. These people actually guide their customers that call, find out a lot about them and help them. And as I said earlier, or I guess maybe it was in a different call, our guides don't run off a script. It's not a template where it's -- that tells them, do this, do this, do this. Our guides have the ability to make decisions on the spur of the moment. And actually, they will be working closely with a supervisor who can join on the call in an instant and help the guide, and help the customer, find the right thing for the customer. This ethos has been with the company from the beginning. I would say we're a leader in how to do this well, right? And the way it happens is we actually sell on about 20% of our calls. And it is not a hard-selling motion. It is very much an upsell, a very much -- motion that is within the context of what the customer needs. It's very much about solving the customer's problem. But then stepping back, taking the broader context, looking at the customer's account and guiding them to whatever is the best solution for them. And that's led to just some amazing set of sales for our guides. One of the data points I've said publicly that I'm really proud of is, this is the only company I've worked for where I get letters directly from customers that are handwritten sometimes, of how a guide changed their life. Like every communication I do internally, I talk about a guide story because there are so many of them every day, just phenomenal experiences that people have.

Now wait a minute. If you're getting a handwritten letter, then I think that guide needs to do a better job selling your e-mail solution.

That's true. Well, the one I'm thinking about is from an artist. It's a true story, an artist for 9 months, a guide had been talking to her and she -- and said, look, I think you need to make your website better because your art's great, but your website's not so great. And she said, "No, no, it's not a priority. I'm focused on the art." And ultimately, she said, "okay, let's do it." And she wrote the whole letter saying that she used to look for ways on how to politely -- like she had such a good relationship with the guide, she used to look for ways to politely push him off, right, 2 months at a time. And then when she did it, it showcased her art so well that you she was moved to write that sort of handwritten note to just say that this person kind of changed my life and my business. I just wanted to tell you that.

I've had first-hand experience with the guides, and I tell investors that all the time. Until you actually get a chance to interact, it is a different customer care experience. Now you talked about, obviously, you have thousands of these customer care guides. What's been the kind of process to get them working from home and where are they in terms of their productivity? And where do you think it can get to in this environment?

Yes. So when COVID hit, we undertook a herculean task to get all the guides home. And I'll be super clear, our one and only goal over the first few weeks was safety for the guides, right? They just -- we have about 7,500 guides, majority of them are employees in the company. We have a few that are with partners, but we treat everyone equally, and we had the same sort of human-first approach for them. Look, we want you safe, we want you at home. And we were not set up as a company that could work remotely, but people did a phenomenal job. We went from having about 300 guides working remotely to 7,000-plus guides working remotely within a matter of a week or 2. So just a phenomenal thing across the company. Now what it did entail is that as we took the guides home, our sales motions, our service motions are so optimized for sort of a high-energy environment at a constant touch point between the supervisor and the guide, that we did see a productivity drop right away as soon as we took people home. But human creativity continues to improve. So every week, we've seen improvement since that initial drop. But we do feel that we cannot get back to peak performance because there are certain parts of our motion that just work better in the office space that -- where it's very hard for a supervisor to be actively supporting a call with guide and the customers on the phone, and they're both at home, right? So we don't think we can get to peak performance, but we have clawed back a decent portion of the impact.

Are there tools that you need to deploy to help? And how are you thinking about -- I know a number of companies are either bracing or at least planning. What happens if there's a second need for shelter in place or, God forbid, we have a COVID-20 that's a similar experience? How do you manage or set the company up for success to come back into this architecture?

Yes. One, absolutely, I agree with you on being careful with the second wave and being prepared to take people home again, like all of those are of primary importance to us. In terms of maintaining the productivity increase, right now, we do see markets opening up all over the world. So guides internally ask me in town halls, Aman, what -- are we going to continue to stay at home or what's going to happen? I say, look, what I'm doing is I'm looking out for China, I'm looking to Italy, I'm looking to Germany, I'm looking to Austria. And I'm seeing a lot of markets that -- some of them were heavily impacted, some of them had the pandemic contained, but they're coming back in certain ways. And there is practices that allow people to come back to work. So I want them to stay focused on that positive, while at the same time be fully prepared to be at home for an extended period of time, if needed, right, which then does become about greater tools and then innovation into the motion, right? Just like we innovated in the office, I have no doubt that we can continue to innovate. But I don't want to overinvest in that model when we have a model that works and very likely, we'll be able to use it in the near future.

Yes. I can understand that. We're getting questions from the audience around kind of the competitive landscape. And let's jump in on kind of the Hosting and Presence. So the website builder tools, you're talking about moving upmarket into the developer area. Just kind of -- give us a sense of what's the strategy in terms of your competition. And how do you think your competitive position stands versus obviously, most notably Wix being there in the market?

Yes. So I think as we shared in Investor Day, we are now the #2 website player in the U.S., and Websites + Marketing has done really well. Managed WordPress has done really well for us as well. We've shared some numbers in terms of 1 million subscriptions in Websites + Marketing, which was about 2 quarters ago now, and we've continued to see good growth in that product. So I think we've tried to give you some data to guide you in terms of the fast growth of our website products. Specifically for, sort of, going to designers and developers, what we've done is -- I talked about a few changes to set us up in terms of lining teams up with customer population. So there is now a President role in the company, somebody that reports to me whose job it is and they have a set of teams that work on WordPress that own the partnerships, for example, with WooCommerce, where that team's entire goal is to serve the needs of designers and developers. And we are seeing good growth in that business. In fact, even right now, we have an offer out there, which, together with automatic, where it's $1 for Managed WordPress and WooCommerce for 3 months. And we're seeing some acceleration. And for me, this is the opportunity to put marketing dollars behind it and get more and more. At the end of the day, designers, developers, they want simplicity for themselves as well. They want to be able to manage their customers in an easy way. They want a tool set where they can create things quickly. So our investments in the Managed WordPress space make WordPress easier for them, but at the same time, maintain its power. I think that's a pretty good product for us to continue to press. And generally, I like the strategy of a super easy product, like Websites + Marketing, a whole suite of products, I should say, actually lined up against independents who want to do it themselves. And a product with a lot more power under the engine with the Managed WordPress product lined up against the designers and developers.

I imagine it's actually difficult to gauge exactly the competitive environment in terms of win rates, et cetera. It's not like you have enterprise RFPs for a lot of these situations. So how do you measure your success versus competitors?

Yes. What we're doing is we're looking at data sort of from providers across the Internet to see how many of the customers we have, are they going outside to build websites that they bought the domain with us. And other similar data points to see, are we taking more share of the customer base we already know and whatever we can get from the universe or not. Because it's not hard to know who the actual, sort of, base provider is for any sort of products because the signatures are pretty clear. So it's both looking at our customer base and looking at the universe to see that our share is growing in the Presence space.

And is it -- how has that data trended over the last couple of quarters?

Yes. So we actually -- I think over the last couple of quarters, we've continued to take share in the marketplace in terms of websites. In fact, that's not only true for the last 2 quarters, it's true even before that. We invested in -- and I'll take one example, we invested in Websites + Marketing about 3 years ago to really turn around that product, build it from the ground up, with the core requirement that it has to be super, super simple based on the target customer population. And after sort of the first year, you start to see it take really good share in the marketplace.

One of the areas that we don't talk as much about everybody because Wix is publicly traded, you focus on the competitive dynamics there. But in the Domain business, there's over 500 registrars on a global basis. And we're seeing some of the fastest growth in terms of registrars coming out of China. How do you see your position globally? And then geographically, what are you doing to drive your Domain business?

Yes. China continues to be a good business for us. I think you guys are aware, we have a sales team in China, and the focus for us has truly been the Domain investors in China. That secondary market has been a big business for us. I think in 2018, we've shared that, that amounts to about single-digit percentage for us as a business. And it continues to be in that same ballpark. So it hasn't sort of accelerated or decelerated from what we've shared over the last year or 1.5 years. Now in terms of focused area, we absolutely see the growth in China with the registrar business, but the opportunity for GoDaddy continues to be huge in the secondary market, and that's where we've put a lot of energy and seen great success as well.

Do you anticipate any changes -- for investors, I don't know, China has a very unique architecture in terms of what's allowed in telecommunications and Internet. You typically have to have local ownership to participate. Is that still the hurdle that you've got with the Internet agency in China to get in and be a full-blown registrar? And is there a sense of maybe -- would you enter that market beyond just the domain aftermarket through either partnership or some other method?

One, I think you're right. There are a set of challenges. It's one of them of operating in China and being able to be a sort of Tier 1 player in the primary market. We're always looking at opportunities to be able to expand in any of the large countries, whether it's India or China or others because the markets are just, one, big and growing fast. So we're constantly looking at opportunities where we continue to see the best opportunities in the secondary market right now. So that's where our resources are going.

I want to bring you back to the registry acquisition, the Neustar assets. What was the motivation to now look to more vertically integrate? And is it going to change your distribution model at all?

Yes. So let me take those 2 things a little bit separately. GoDaddy has been interested in a registry business for a while. It's not new, but we haven't acted. This is our first foray into the registry business. And what's driving that core idea is that there's -- we feel that there's a tremendous amount of opportunity to innovate in the registry business. And GoDaddy has done that in the registrar business, and we did it in the aftermarket business as well, right, over the last 10 or 20 years. But in the registry business, they -- we don't see as many new things happening. And when we try to do them or others try to do them, what happens is it's pretty complex to build sort of this coalition of companies, to put a new offer to customers, to experiment with something, because the more people you want to align to do that, the harder it is to even just get the first experiment out the door. By vertically integrating, the value we get is that as we put offers out there for customers that give them more choice or more competitive price points or whatever it might be, it allows us to sort of increase that rate of experimentation very, very quickly because one person in the company can just sign off on the experiment and say, no problem, let's line up everything. We don't have to measure every little bid or sign contracts around it. Let's just do it, and let's keep it open for the industry as well, which goes to a little bit to the second part. Being a registry means that we have to have an appropriate governance model internally so that we keep the 2 parts of our business or allow them to have some separation, but also that whatever we do as a registry is available to all registrars. Well, that is actually great for GoDaddy because we've done that in the aftermarket. You see people may not be aware, but 9 out of the top 10 registrars outside of GoDaddy use our aftermarket products. So for us to innovate on the registry and do it together with the industry, makes a ton of sense, because we think not only can we create great value for customers, we can create value for partners as well.

Does this open up in terms of some of the M&A? The registries are very fragmented under the new TLD program. Is this something that you further would look to consolidate?

I can't comment on any specific sort of M&A activity. But clearly, M&A has been part of the DNA at the company. It's part of what I grew up learning. So we're always sort of looking opportunistically, and we have a strong pipeline of M&A, sort of speaking, broadly. So any of our assets, I think, are a good starting or jumping off point for us to look at opportunities like that.

All right. And we've got about a minute or so left. With that time, can you give us a sense in terms of what you're doing with your own internal IT budgets in terms of your spending? And maybe then brought it out to just your expense methodology during this environment.

Yes. So broadly on expenses and IT budgets as well, I would say we're doing a lot of the natural stuff, for example, of course, travel and a lot of other types of expenses that are discretionary, are way down and we're keeping them down. Just -- it's the prudent thing to do, and I think we're doing the same as other companies. In terms of the specifics of the IT budgets, overall, we've continued to get leverage on our internal infrastructure, and we'll continue to do that as we look forward. There are a couple of areas where we do continue to invest. One of the things we've talked about in the past is that there's a small investment in our core platform that we've made. It's all part of our run rate. And I don't think it's something that anyone needs to be concerned about. But that's one of the investments that I'm protecting because all of our products need to sit on a stronger platform as we grow as a company. But broadly speaking, we're in a fortunate position as a company. Our customers are -- continue to do well right now. Of course, they face unprecedented challenges, but they are creative and they're trying to make things happen. So we're going to maintain a sort of reasonable amount of spend in our internal IT.

Makes sense. Aman, with that, thank you so much for joining us. We really appreciate it.

Thank you very much, Sterling. Thanks for having me.