GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Hello, and welcome, everyone. I'm Elizabeth Elliott, Research Analyst on the Morgan Stanley software team. Thanks to everyone on the line for joining us today on the fourth and final day of our TMT Conference. I'm really excited to be joined today by the CEO of GoDaddy, Aman Bhutani; and CFO, Ray Winborne. Before we begin the discussion, let me just point to Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please don't hesitate to reach out to your Morgan Stanley sales representative. So with that, Aman and Ray, thank you so much for being here with us today.

Thanks very much.

Happy to be here. Thank you.

Great. So just to kick it off, 2020 was certainly a challenging year for many businesses. But it also presented some great opportunities. And GoDaddy did a great job of navigating the year and really brows up to help customers survive the disruption with initiatives like OpenWeStand. So Aman, could you just give us a high-level overview of what were some of the top lessons you learned as you navigated through the pandemic?

Yes, for sure. 2020 was, my gosh, a rollercoaster ride for so many of us going into the pandemic. I think nobody really knew what to expect. And as days turned to weeks and weeks into months, I think there was a lot of uncertainty for folks, for our customers and our employees and for our business as well. But ultimately, I think if we were to point it, 2 learnings; the first was, even though our customers faced significant amount of challenges, that they really proved that they were resilient, they really proved that they were creative, that even if their physical doors were shut, which is what sort of the OpenWeStand idea was all about, they would pivot online, they would look for opportunities. Because it didn't matter what challenges came along, they had to wake up tomorrow morning and do something for their families, for their businesses and for the field employees, because we work with companies that have 10 or 20 employees or less. And in that moment, I think -- of course, it showed up in our renewal rates and churn rates and so on, which is what gave us confidence that these folks were continuing to sort of work hard and come back even in the face of the pandemic. But I think what it proved is that it goes back to this idea that our mission is about bringing opportunity to all, like making an opportunity inclusive for all. And today's biggest opportunity is bringing your idea on the Internet and whether that's with a website or moving forward with commerce and other capabilities, people want to be able to express their point of view. And they're not going to be held back irrespective of what gets thrown to them. So in many ways, it sort of reinforced our mission for the company. It put some strain on our business as well. And I think, internally, the lesson we learned most is that, in many ways, during any sort of emergency, there's no moderate leadership. There's no sort of middle of the road, either leaders do really, really well or they fail spectacularly in those tense moments. And GoDaddy leaders did really, really well in those moments. And we found ourselves doing things. As an example, we were very quick to send folks home and we worked very quickly to keep -- make our employees safe. And we put in lots of technology days that would have normally taken months to happen. And what we learned about ourselves and the investment we learned is when we put our mind to it, we can do things that otherwise we may have thought were hard or difficult. And that's really good learning for us as a company. We serve 20 million customers. We have a decent-sized organization. And sometimes when we look at ourselves, we wonder, could we go do this? And in some ways, 2020 just proved that, oh, my gosh, not only can we do this, we can do so many other things. And our customers are there. They need our support during the pandemic. Our customers again sort of reiterated that it's not just the tools that they want, it's the human contact that they need, right? They called us, they wanted the guide, support, and we did everything we could to be on the other end of the phone for them.

That's great. And what we've seen and also highlighted by companies at the conference as far as those companies that really have been that customer-centric kind of giving them not just the tools, but the human contact, as you mentioned, that they need to help navigate through in 2020, with the ones that did particularly well and are heading into 2021 with momentum. You guys recently provided your initial 2021 outlook, where you similarly expect that momentum to sustain. Your preliminary revenue guidance for 2021 suggests there isn't a slowdown with organic growth sustaining roughly 11% year-over-year. So Ray, to kind of turn it over to you, what are some of the drivers that are underpinning your confidence in the 2021 revenue guidance and that double-digit growth sustaining?

Yes, Elizabeth. We put in $3.3 billion in revenue last year. So the business is really growing well. We're excited about this momentum that we're seeing, right, including 3 quarters in a row of accelerating bookings growth. Our confidence in the '21 guide is really underpinned by the strong market demand for the services that we provide, as Aman mentioned earlier. That's driving new customers to the franchise. And then we're also experiencing adoption of higher ARPU products like Websites + Marketing or branded e-mail and productivity solutions. In the last, we've seen really strong customer retention and renewal rates all the way through the pandemic. And Aman highlighted several of the reasons that we believe are there is because of our customer base. It's that small entrepreneurial spirit, and these folks get knocked down, they get back up again.

Great. And then just also more high level, I would love to dig into -- what are you hearing from your customer base in terms of the health of their own business? And how they're thinking about allocating budget dollars going into 2021?

Yes. So, yes, obviously, 2020 presented sort of unique challenges for our customers where a lot of our customers have stores as well. It's not just websites or commerce solutions online with us. And those stores suffered traffic with people weren't walking in. And what we heard from our customers sort of loud and clear was they were ready to pivot online. They wanted the training. They wanted the support. Attendance for our webcast just went through the roof because people were eager to learn more. And that sort of spirit of learning is going to lead to great things. And what we found is customers calling us, demanding more marketing products because this was a moment where they needed to reach out to their customer base in a better way. So we worked to accelerate some of that functionality. They were demanding more commerce solutions for us. We have a great sort of entry-level commerce solution for everyday entrepreneurs, but they wanted more. They wanted local delivery. They wanted simpler templates, and we were able to provide those things very, very quickly for them. And we saw our customers just awesome. I mean, one story I've been telling recently is of a customer in the U.K. They make vegan pies, and they serve their local community because people don't come from other cities to buy vegan pies on that street, right? Although, when the pandemic hit, they pivoted online. It happened to be that GoDaddy got in touch with those folks, and we liked them so much, we ended up putting them in advertising. Their business has completely transformed. They are now shipping pies all over the U.K. They're not just waiting for customers to walk in the door. And those businesses are never going to come back, right? Just -- of course, we're all very hopeful with the vaccine, and we would love some sense of normal get back into our lives, we all want that. But at the same time, for those businesses, they are transformed. Similarly, we have a customer who sells -- they sell a lot of cheese and sort of farm products from their farm. And when the pandemic came along, sort of their sales -- walk-in into their store really, really went down. And now they have an online version. And just because the pandemic goes away, the online channel is not going to go away from them. So that's what we hear from our customers. I think they're hopeful about the future. They want to deal with the issues and they see going online, doing commerce online and doing marketing online as a great way for them to recover.

Definitely. And one of the things that you hit on was kind of getting those tools that they needed up for digital marketing and customer acquisition. And one of the things that Ray mentioned was underpinning -- one of that things underpinning his confidence in the guide was the step-up in pace of new customer adds that you saw last year. I guess, I'd love to kind of dig into -- you've allowed free access to some of these solutions like websites and marketing just to kind of get those businesses that were used to people walking in through the door, ready for a world that seemingly turned virtual overnight. So what was the impact that kind of giving that free access had on net customer adds in 2020? And how should investors think about the pace of new customer adds as we go into 2021?

Yes. If you take a step back and look at GoDaddy over the years and actually look globally at GoDaddy as a brand and a business, one of the things that I think is indisputable is that GoDaddy has fantastic awareness all over the world, especially with what used to be our core business in terms of domains. If we go into a new market anywhere in the world, we find a set of customers already knowing GoDaddy even though we haven't spent a dollar in terms of marketing there. But if you look at the newer products that are growing very quickly for us, that's like Websites + Marketing or Managed WordPress or some of the conversations are offering more the capabilities we've brought into the fold with what used to be Sellbrite and over -- Sellbrite offers the capability for everyday entrepreneurs to sell on every major platform where it matters from one place, over offers customers the ability to be able to create beautiful content that, with a couple of clicks, they can put out into the world. So bringing sort of commerce and content together, making it simple and seamless for them, these are relatively new capabilities that GoDaddy has put in the marketplace. So for us, one of the most important things is to be able to market that solution, to be able to evolve the perception of the company in the minds of consumers in terms of what capabilities we provide. And there's no better way of doing that than giving the customer access to the product and saying, just use it, right? Don't worry about the pricing. Just use it because if you use it, you'll see that it does stuff that's differentiated from others. You'll see that it does things in a manner that is so simple that's built from the first principles right for the needs of everyday entrepreneurs. So that's the thesis behind the premium offering that we put in place. We put in place premium for Websites + Marketing. We put in premiums for Sellbrite. Over has a premium offering, too. We're looking at other areas where we can do premium. We also integrated Sellbrite and Over into Websites + Marketing. So as part of the premium offering so Websites + Marketing customers can get sort of insight into the capabilities that they could have with the full suite of products. So that's the real thinking behind premium. We're excited. We have premium running for about half our traffic in the U.S. given that we have a 30-day free trial, we have to test into premium. We have to -- with different sources of traffic. So we're moving through that methodically. And so far, millions of folks have come in and tried the premium product, and we think that's great for the future.

And then -- so while definitely adding new customers is important, one of your strategies is to focus on increasing that revenue per customer. And that's certainly dependent on adoption of solutions above and beyond the domain registration, so hitting on the commerce and marketing you referenced. And historically, you guys have been most known for that domain registration but are shifting to more of this consumer-led software company as you're really meeting the needs that the customers on your platform have today. So just wanted to dig into the one. And what are you doing to accelerate the shift? And where do you think we are in terms of your longer-term vision your -- for the company?

Yes. We absolutely are a customer-led software company. And what that means is that we make trade-offs aligned with creating customer value. What that means is that we have organizations that are set up, lined up against customer populations, right? If you look at core teams in our company, what they're doing is not walking around and something that would happen in the product-led company and nothing wrong with that. Product-led models did very well over time. But what we don't have now is people running around and saying, I have a product. Find me a customer that I can attach this to or find me a customer that I can push this to because I got a good product, I want to sell it to a customer. Instead, what you have is people running down who are saying, I have this great customer or customer population, who has the best product for them? And that opens the build by partner capabilities to provide that best offering for our customers. And the approach we are taking to overtime improving ARPU is to get into a simpler and simpler subscription model for our customers, which involves technology and capabilities for seamless bundling because as customers buy more and more products, which is what we want because we think we can, one, offer them the best value, and two, create the best value for the company as well. As they buy more and more products, if the complexity level rises for them, then they're not going to do it. It has to be low friction for them to do that. And last year, at our Investor Day, we shared a couple of data points around how ARPU grows very, very quickly as customers move from domain-only to domain plus e-mail to if they add website or if they are sort of at the top end using commerce and other capabilities. And not only does the value for the customer increase because we see the churn rates drop and we see the success metrics for the customer in terms of engagement, in terms of their own sales, but what we also see is just that strong relationship with GoDaddy, where they're able to sort of use more and more of our capability and lead to lower churn rates for us. So I think that path is there and the approach there is very much about, over time, simplifying that subscription model more and more and more. So in the past, as an example, we may have had more products getting lined up, but what you find today is us having suites like Websites + Marketing or Managed WordPress. And we're adding more and more capabilities in them, giving those capabilities to customers, often within their prescription model where it's free for them to start with it. So -- and then measuring engagement on those new features. And then over time, as customers use those, we tend to get value in them being able to take price on the suite -- on the actual tiers and being able to move folks up the chain in terms of going to higher and higher levels. So that's the path that we're following. And we think it's a great way to think about things. We think it's simple. We think we will continue to evolve the product experience and the technology to make it seamless, to make bundling simpler. And those are some of the things that we've talked about in the Investor Day as well.

Great. That makes a lot of sense. And we're starting to get some questions in on the Q&A portal. So I'm going to sprinkle some of them in as we go. But one of those ones we have is just a question on -- if there's any sort of metrics you can provide on the adoption of customers buying suites relative to the overall customer base, our attach rate on some of the services like the website builder and have overall commentary on how the business apps are trending in the terms of adoption?

Yes, sure. I mean, attach rates are something that we continue to improve, and we have sort of shared that in the past. We don't directly manage to attach it anymore because we really are pressing into the bundling costs, that we really are pressing into the ability to be able to offer customers the solution set that they are looking for and not necessarily one product and then adding the other products. Overall, I think your question seems specifically about business apps, so around email. We've shared some data around that, and perhaps Ray or Mike can sort of provide the specifics of the most up-to-date information we've provided broadly already. But we've seen great growth in that business. We continue to offer to customers a service that they need, which is even on a service as old and simple as domain-based e-mail, our customers can often have challenges getting those to work appropriately for themselves and their micro businesses. And we provide that service on top, right? We provide that care where our guys -- we even build tools. You'd be surprised that GoDaddy -- Microsoft has obviously a big relationship, we have a big relationship with them. And through that work, we were able to reduce the time it takes on -- for someone on to e-mail. And that did change how we -- how effective we are in terms of selling it to folks. We innovated and brought forward sort of QR codes to help our customers find training and capabilities faster. So all of those things really matter. And then, of course, we also talked about, we've been doing sort of milestone disclosures. We talked about the $350 million in ARR for our -- what we called our growth suites, which includes the Websites + Marketing, Managed WordPress, Over and Sellbrite growing at a good clip year-over-year. So all of those, hopefully, give you guys enough insight into how these sort of new parts of our business continue to grow really well.

Great. And then I would love to kind of dig into more of the commerce opportunity that you highlighted earlier. And your latest acquisition of Poynt really builds on that ability in the commerce offering. So could you walk us through what capabilities does Poynt specifically bring? And how is GoDaddy integrating that asset into the broader portfolio?

Yes. So our thinking around acquisitions, and then we've done quite a few of them before the last year or 18 months, has been quite simple. We're looking at the customer need coming to us, what our customer is calling us about, what are they demanding from us. And when we look at companies or products out there, what we're looking for is folks that are committed to providing a great service. As an example, one of the things I shared about Poynt is we look at their NPS and we check the methodology, not just the number, right. We look at their NPS and their NPS for customers that are like GoDaddy customers is fantastic. So that already attracts us to them. But if you look at the broad set of commerce offering, GoDaddy already has a great offering in terms of e-commerce and the Sellbrite capability linked into Websites + Marketing. In the WordPress ecosystem, we have WooCommerce. We did the acquisition of SkyVerge, which brings us a great amount of talent that's focused entirely on WooCommerce. So we've got these 2 strong commerce platforms. But when we talk to our customers and when we engage them, what we found is that a number of our customers have off-line capabilities as well. In fact, about 50% of our Websites + Marketing commerce customers had some level of off-line capability. And the solution they are looking for is not one that handles their website only or helps them sell on Instagram or Amazon or Etsy, but they're looking for a solution that handles all of their use cases. Their use cases include their store, their use cases include their website, their use cases include the major platforms. And there are actually a couple of other use cases that are kind of in the middle of that, that they want covered as well. So as we look at that, it became clear that what we needed to offer was an omnicommerce solution that brought a holistic offering for our customers. And it was simple. So the integration approach for Poynt is totally based on that. What you can expect from us is a seamless intuitive experience where a GoDaddy customer, as they log in, have the full capability of Poynt offering available to them using sort of a click here and a click there and not them having to jump through many hoops. And we're committed to bringing that sort of first version of that holistic commerce offering to customers in the U.S. this year. And you'll see it come in a couple of stages. I've been asked in the past, how quickly is it coming? And I've said quickly. Our pace of change continues to accelerate within the organization. So you'll see payments first from us and then an omnicom solution that brings together online, off-line, selling everywhere which is selling on -- which includes selling on platforms, invoicing capability and so on.

Great. And then Poynt certainly brings a lot to the table. Do you feel like you have that commerce capabilities that you need in place right now? You certainly highlighted a whole lot of solutions that you're going to be rolling out that are super exciting. But is this kind of you have in place what you need now? Or do you think there's still some holes to fill to better address the opportunity?

Yes. When I look at what we have between the pieces I mentioned from GoDaddy and with Poynt, we really feel we have a full scope of capability and solutions for customers. Now our entire focus is to integrate and to integrate at the core platform level. So when it comes in front of the customer, it's completely seamless, that they just do not have to think about, oh, I have to do these 10 more steps to do this second thing or accept a payment or set up the inventory here. And, oh, I have to do this if I want to sell in Amazon. Just all of those completely melt away. They manage all their pieces in one place, they can seamlessly add some of these capabilities with a couple of clicks and it just works.

And then...

And in fact, when...

Go ahead.

Sorry, I was going to say, in fact, when we look at that solution for our customers, for everyday entrepreneurs, people are also asking about competitors. There are other companies that are trying to offer these similar solutions. But our relationship with our customers tend to be quite unique. We are not going out into the world and trying to convince the world of using commerce capabilities from GoDaddy. We already have customers that knock on our doors and say, look, I want the combination of simplified tools and technology along with human guidance from GoDaddy, give it to us. Which is why we're bringing this solution to market, and we expect it to be the best in the market for our customers.

Great. Great. And then we have some audience questions. I'm kind of digging more into the revenue model for Poynt, kind of what are the typical merchant acquiring fees? And where do you fit in and kind of the payment value chain, the banks and card networks? And kind of how does that fit more broadly?

Yes. When you think about Poynt, it is a PayFac. So we have the capability to provide payments. That's a relationship through Elavon. When we announced the acquisition back in December, we committed to $150 million in bookings by 2023. But obviously believe the opportunity is a lot larger than that. When you hear the points that Aman is articulating about the benefits we can drive in the base as well as new customers, big, big opportunity for us. And there's obviously, a few different ways we can pursue the opportunity. But I think the important takeaway is that this is a new profit pool for GoDaddy. And when you think about the myriad of ways we could monetize, whether that's payments or unit growth, $150 million by 2023 is a conservative outcome.

Great. Yes. And then -- so yes, definitely, it's like 2023 kind of seeing a lot of opportunity as Poynt and our commerce portfolio kind of comes together and is adopted by customers. Kind of more near term for '21, your revenue guidance calls for 12% revenue growth as reported, or 11% excluding Poynt. As you progress through the year, if we were to see upside from revenue, where do you think it could come from? Is it more the customer acquisition side, revenue per customer, revenue retention increasing or some of these new opportunities?

Based off on what we've seen, since we saw the lift in COVID last year, it's going to be a mix, right? We've seen good strong customer growth. We've seen good ARPU growth, and that's what we're projecting to see again in 2021.

Got it. Got it. And then, Ray, earlier this month, you did announce your decision to retire. So congratulations on the next step. It sounds like you're staying on to help find your predecessor. So I just wonder if you could explain a little bit on kind of what you're looking for, you and Aman, kind of for the next CFO to be GoDaddy?

Yes. We're obviously looking for a leader who is strategic and who's going to help this company continue to move forward on the path that's been laid out. That's also a good cultural fit for GoDaddy. GoDaddy is a fast-paced entrepreneurial supporting company with a great everyday mission. So we're looking for somebody who's going to live that set of values and help deliver for our customers. I don't know if Aman would -- if you want to provide any further insights on some specifics you're looking at, but that's where my head was.

Yes. I think, Ray, you covered it well in 1 statement. I could just sort of say the same thing, which is we're looking for a competent, strategic leader who's a match for our culture. And we plan to have a diversity to choose from. So you guys are out there. You know lots of people. If you have suggestions, send them along.

Great. And then we're almost hitting on time. But just to squeeze kind of one last one in. You guys have a lot of just really exciting drivers for growth over the next few years, whether it's kind of the large TAM, adding new customers, both in the U.S. and abroad, kind of expanding your spend with existing customers as you do expand the portfolio. So if you look into 2021 specifically, is there any one area that you are really most excited about?

So the priorities for 2021, and I laid this out in the earnings call, commerce is our #1 priority. This is a solution customers are asking us for. It's a huge need for customers. We have a great starting point. Poynt as a company gives us more capabilities or a full set of capabilities that we can bring to customers. So keeping commerce front and center, getting that integration done, getting products in front of customers quickly. That's our first priority. The second priority is that we continue to under index a bit in terms of how designers, developers work with us. We have 1.5 million designers and developers on our platform, but we know there are way more out there. And we've launched already a set of capabilities for them. And we're seeing good engagement on what we call the hub, which is a sort of web experience where designers, developers can come in, and again, in a seamless intuitive way work across multiple projects from one place. So we're seeing good engagement on that, and that's an area we'd like to make a lot of progress on. And the third area is continuing to innovate in our core business, which is in domains where we want to make sure that we're continuing to accelerate. We're continuing to do well. And when I talk about these three, I think sometimes people miss the point that when we think about things like Websites + Marketing or Managed WordPress or the create part of our solutions for websites, that's an area we're continuing to do well. And it goes along with the commerce offering. You're not going to have a commerce experience online or an omnicommerce experience if we don't have a great web experience. So we're continuing to invest in premium. We're continuing to improve Managed WordPress. We just launched a whole bunch of plug-in as part of Managed WordPress. We're continuing to make experience on Managed WordPress easier. So what you'll hear from us all year is updates on those 3 things. And just to repeat, you'll hear from us on commerce, which includes sort of a web experience and what's happening in terms of success for our customers on our commerce offering, you'll hear about how we're continuing to have higher engagement with partners and what tools and capabilities we're launching quickly for them, including a new marketing program, which is called GoDaddy Pro, and you'll hear about our core business in domains and sort of the improvements we're doing there.

So lots of exciting stuff going on. Unfortunately, we had a long list of questions come into the webcast portal that we weren't able to address with our or 30 minutes that went by pretty fast. So Aman and Ray, thank you again for joining us, and we're really looking forward to seeing what 2021 brings to GoDaddy. So thank you.

Thank you, Elizabeth. Thank you, everyone.

Thanks, Elizabeth.